If you’re a US Expat, doing your taxes can be difficult. Therefore, we compiled a list of 5 things that US Expats should know when filing their taxes.
Expat Tip 1: Remember June 15th
Did you know that if you are a United States citizen or green card holder living abroad, that the deadline for filing your taxes is not April 15th but actually June 15th? That’s right, you get two more extra months to prepare your US expat tax return.
Note: If you owe money to the IRS, your payment is due by April 15th or you are subject to penalties and interest to the IRS.
Expat Tip 2: Know Your Exclusions
If you are a US citizen or green card holder and you live abroad, you have to pay taxes to Uncle Sam and you probably have to pay taxes in the country you reside in. However, you may qualify for the Foreign Earned Income Exclusion. The Foreign Earned Income Exclusion allows you to exclude your foreign income earnings in the amount of $95,100 for 2012. You may also qualify for foreign housing deduction, and even may be able to exclude some meals.
Expat Tax Tip 3: Use the Foreign Tax Credit
If you’ve already used the Foreign Earned Income Exclusion, you may be able to claim a Foreign Tax Credit. If you paid foreign taxes, this credit allows you the opportunity to get a credit or an itemized deduction on some of these taxes. The Foreign Tax Credit is applied to your American tax return.
Expat Tip 4: Married to a Foreigner? File Separately
If your spouse is not an American citizen, but you are living abroad, file your taxes under the “married filing separately” category so that your spouse is not required to pay taxes to the IRS.
Expat Tip 5: Don’t Forget About Your Taxes
With the stress of every day life, lots of expats simply forget about US income taxes. Life abroad gets hectic. Some expats wrongly assume that since they don’t make any money in the US, they don’t have to pay taxes. Some people are just overwhelmed and sweep their taxes under the rug, so to speak.
As a US expat, you should file your taxes every year. The penalties for back taxes can be tremendous. Even if you do not earn an income abroad, you should file a tax return in the United States. There is a statute of limitations with taxes, and not filing your taxes can affect that statute. For example, if you live abroad for 10 years and do not file taxes with the US, the IRS can always go back on all those years and try to estimate what your income was during that period, and you can face lots of unwanted headaches. However, filing your taxes reduces the statute of limitations to only three years. This means that after three years (except in the case of fraud) the IRS cannot go back and try to audit or change your returns if you file your taxes. Therefore it’s clearly in your best interest to file taxes every year.
If you have back taxes you’d like to settle, we can help. Just sign up for our free tax consultation to talk with our CPA.