All about Double Taxation and Tax Relief – Every US Expat must know
US expats have to face unique tax challenges. One of the most significant issues faced by them is double taxation.
Double Taxation for US Expats is where they owe taxes both in the US and in the country where they live. US expats need to understand everything about double taxation including the available tax relief options for managing their finances effectively.
In double taxations, the US expats are taxed by two different jurisdictions on same income. For the American expats it means being taxed in country where they live and earn income and subject to US taxes because of the United States’ citizenship based taxation system.
What the American Expats have to know about Double Taxation?
- Foreign Earned Income Exclusion: Foreign Earned Income Exclusion or the FEIE allows the expats to exclude certain amount of their foreign earned income from US taxation. This limit is approximately $ 120,000 per qualifying individual. To qualify for FEIE the expats must either meet the physical presence test which requires presence of 330 days in a foreign country within a twelve month period or bona fide residence test, which requires being a resident of a foreign country for an uninterrupted tax year.
- Foreign Tax Credit: Foreign Tax Credit or FTC enables the US expats to claim dollar-to-dollar credit for the taxes paid to a foreign government. This is beneficial for those living in countries with high tax rate as it offsets their US tax liability.
- Tax Treaties: The USA has entered into the bilateral tax treaties with many countries. The main aim of these treaties is to prevent double taxation. Expats have to understand the tax treaty of America with their host country to know what types of income are covered.
- Filing requirements: Even if the US expats qualify for credits or exclusions, they are required to file US tax return annually with the IRS if the income exceeds the filing threshold. Also, they need to report foreign bank accounts and financial assets through Foreign Bank Account Report or Foreign Account Tax Compliance Act.
What key points the US Expats need to consider when it comes to double taxation?
- Seek Professional Advice: Double Taxation for Expats is complicated, thus hiring a professional expat tax service provider can help them maximize the benefits and avoid penalties.
- Stay Informed: Tax laws and Treaties change often. It is important for the US expats to stay abreast with the updated tax laws to take the full benefit of available relief.
- Plan Ahead: US Expats must work with a professional expat tax service provider and understand their tax obligations helping them structure their finances with optimal tax efficiency.
Double Taxation is a significant concern for US Expats but a professional expat tax expert will help them navigate their unique tax situations confidently.
