Navigating the waters of tax obligations can be complex for anyone, and it becomes even more complicated when you are a US citizen living abroad. We specialize in handling US tax matters for both domestic and international clients. This guide explains your tax responsibilities, including filing requirements, deadlines, and potential deductions.
Filing Requirements for a US Citizen Living Abroad
Whether you live in Tokyo, London, or Sydney, US tax laws follow you. US citizens are required to report their worldwide income, regardless of where they live or work. This means that:
- You must still file a US tax return (Form 1040) every year: Even if you didn’t set foot on US soil, you are obligated to file Form 1040 annually.
- You may need to file other forms: These include the Foreign Bank Account Report (FBAR) and FATCA-related Form 8938 if specific thresholds are met.
- Double-check your state requirements: Some states, like California and New York, require state tax returns even when you are residing outside the US
Important Deadlines
Living abroad doesn’t exempt you from meeting critical tax deadlines. However, the IRS does provide some leeway:
- April 15: This is the standard filing deadline.
- Automatic Extension to June 15: If you reside outside the US and Puerto Rico on April 15, you are granted an automatic two-month extension to file your return and pay any tax due.
- Extend Further to October 15: You can request a further extension to October 15 by filing Form 4868 by June 15.
- FBAR Deadline: The FBAR filing deadline is the same as your tax return deadline but can also be extended automatically to October 15.
Common Deductions and Credits
Several tax deductions and credits can ease the financial burden for a US citizen living abroad:
Foreign Earned Income Exclusion (FEIE)
FEIE allows you to exclude a certain amount of foreign-earned income from your taxable income. For 2023, the exclusion amount was $120,000. To qualify, you must meet either of these tests:
- Bona Fide Residence Test: This test determines whether a US citizen or resident alien is a legitimate resident of a foreign country for an uninterrupted period that includes an entire tax year. The Bona Fide Residence Test requires you to prove that you were not merely visiting or staying temporarily in a foreign country but genuinely settled there.
- Physical Presence Test: This test is more straightforward, focusing on the number of days spent in foreign countries within 12 months. To qualify, you must be physically present in a foreign country for at least 330 full days during 12 consecutive months. The 330 qualifying days do not have to be consecutive.
Foreign Tax Credit
If you paid taxes to a foreign government, you might be eligible for the Foreign Tax Credit. This credit can reduce your US tax liability by allowing you to claim a credit for taxes paid abroad, preventing double taxation.
Housing Exclusion/Deduction
In addition to FEIE, you might be able to exclude or deduct certain housing costs that exceed a base amount. The limit for this exclusion varies depending on your location, so it’s essential to consult a tax expert.
Other Considerations
Navigating the tax obligations of living abroad extends beyond income taxes, requiring careful attention to various other factors that can affect your overall financial and compliance landscape.
Renouncing Citizenship
Some US citizens find the tax obligations so burdensome that they consider renouncing their citizenship. However, this is a complex process with substantial tax implications, including an exit tax for some. Before taking this step, consult with a tax professional at HBI Tax to understand the repercussions fully.
Social Security Benefits
If you’re self-employed, you may still owe US Social Security taxes, even though you are living abroad. However, Totalization Agreements between the US and several countries can help prevent double taxation on social security.
Estate and Gift Taxes
Being abroad doesn’t exclude you from US estate and gift taxes. Ensure that your estate planning is in line with both US and foreign laws.
Being a US citizen living abroad presents unique tax challenges, but understanding your obligations and utilizing available deductions and credits can simplify the process. At HBI Tax, we provide personalized and comprehensive tax solutions to meet your needs. With our expertise, you can confidently navigate your US tax obligations while enjoying your international lifestyle.
Reach out to any of our five offices in Central Florida to speak to one of our experienced CPAs today and turn tax season from a daunting task into a seamless experience.
