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Tom Griffiths on The 4 Most Common US Expat Tax Questions Answered


Tom Griffiths - tax advisor

Tom Griffiths – tax advisor – Image source:

Tom Griffiths is a UK based US expat advisor and consultant specialising in US expatriate tax matters. Tom Griffiths gets a lot of questions from US expats in the UK and vice-versa. So, in this article, Tom offers some specialist advice on the more common questions frequently asked.

Every year American citizens living and working abroad must file their tax returns on their taxable income and tax duty. This is where taxes for expats can become challenging. 

US citizens must stay up to date regarding their tax responsibilities because tax laws can change from year to year, especially when a new president is inaugurated, changes or tax alterations are more likely.

Do US Citizens Living Abroad Have to File Expat Taxes?

As things currently stand, yes. 

Residence Based Tax is not currently in operation in the US. Therefore, all US citizens must file their income taxes, whether living on American home soil or another country. Reporting annual worldwide income to the IRS is a legal requirement even for US expats. The US federal tax returns can be done by an expat tax firm or directly by the individual concerned.

Should Americans Who Live Abroad Be Paying Taxes?

American expats are often concerned about whether they will face double taxation on their worldwide foreign income taxes, which is understandable because the US system for citizens living and working abroad is very different from most other countries. Thankfully, there are benefits that, in many cases, can exempt expats from this, like the Foreign Earned Income Exclusion and the Foreign Tax Credit.

Foreign Earned Income Exclusion

The good news is that American citizens living abroad in a foreign country can be excluded up to $107.600 of foreign earned income earned solely from outside the US in 2021. 

The requirements to qualify for this taxation exclusion benefit are to be a registered resident of a foreign country and subject to their local income tax for at least one whole year. Alternatively, to have lived outside the US for 330 full days in a consecutive 12 months of the tax year.

Another way to avoid paying double foreign income tax is through tax treaties. They allow US citizens living abroad in a foreign country to be taxed at a reduced rate on income from US sources and even afford exemptions on certain income items. 

Each country has its own tax treaty and allows for different exemptions, so it is crucial to understand the country of residence foreign income tax requirements or, better yet, contact an expert US expat tax advisor who can make the whole tax return process smooth and straightforward.

Do Parents Get Special Tax Benefits Living Abroad?

Indeed they do because the US continues to provide financial support to families who live abroad. US citizens are entitled to tax credits and refunds regardless of where they reside globally. Every parent who has a child under 17 with a valid Social Security Number can claim up to $2,000 in non-refundable credit for each child on their tax return if they owe taxes. For those who do not owe a tax bill, that amount is $1,400 of refundable credit.

Can Something Be Done About Missing Tax Years When Living Abroad?

The IRS is, of course, all seeing and all knowing when it comes to tax affairs! Even when living abroad, the IRS will be aware of unfiled foreign taxes and send out correspondence to check why the tax filing obligations were not met. This can result in delays, and delays can result in penalties. The good news is, something can almost always be done about your tax return and expat taxes. 

Thankfully, the IRS doesn’t just assume someone is trying to work the tax system. In many cases, missing a tax return is a result of uncertainty or simply forgetfulness. 

The US taxation system appears so complicated that 1 in 4 Americans living abroad want to renounce citizenship. Still, with the right advice and support, many expats can make up lost years of tax filing, pay taxes owed, and avoid penalties with little fuss.

Tax rules for expats and Americans abroad can be challenging. That is why it is always advisable to contact a tax advisor if uncertain about any aspect of the taxation system in the US or the country in which one resides because tax specialists always know the best ways to save and the easiest ways to obtain those financial benefits.

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