Your Complete Guide to American Expatriate Tax Obligations
You might have heard American expatriate concocting stories that once you leave U.S, you no longer owe any taxes and you do not have to file tax returns, these are simply the stories based in utopia. The reality stands totally different.
Some of the important points to be noted regarding the American expatriate tax obligations are as follows:
Statute Of Limitations
- It is the total income from any country that determines the tax rate and not just your U.S income.
- If you return to the United States without filling your tax return, the IRS may question your failure to file such returns.
- It can also make assessments based on your income.
- In such case the statute of limitation on tax collections will not cease, rather your tax return obligations will get skyrocketed.
- Therefore, you should file your return even if you have no income or don’t owe taxes.
Foreign Earned Income Exclusions
- If you have not returned to the US for more than 35 days in a consecutive 12 month period, you can exclude up to $91,500 of earned income from U.S. Income Taxation for 2010 and lesser amounts in earlier years.
- If you are married, and both of you earn income and reside and work abroad, you can then exclude up to another 95100 (for tax year 2011) and 97,600 (for tax year 2012) of your partner’s income from taxation.
- The above two will apply only on a filled tax return that to the one which is filled within 18months.
- You can also claim an additional exclusion ,if the rent, utilities, etc. you pay on your residence abroad and other living expenses exceed a standard amount, which is currently approximately $14,400 per year as established by the IRS.
U.S. Self Employment Taxes
- Even if you’re self-employed and working abroad, you’re subject to a foreign income tax.
- You still have to pay all Federal taxes and the self-employment taxes.
- But before that you have to file your Schedule SE (which is approximately at the rate of 15.3% of the income you claim for schedule C) and Schedule C, same as you would do at home.
Taxes on Worldwide Income
U.S. Permanent Residents (green card holders) as well as U.S. Citizens are required to report each year their income earned anywhere in the world. That means your U.S. income tax return must include:
- Foreign dividends
- Rental Income Earned Abroad
- Foreign pension income
- Foreign capital gains or losses on stocks, bonds, real estate
- Foreign royalties
- All other foreign income
Due Date of Tax Return
- If you have your personal permanent residence in abroad on April 15th of any year, you get an automatic extension to file your tax return for the previous calendar year until June 15th.
- If you need more time, you can file several further extension requests which can extend the due date of your tax return until October 15th using Form 4868.
- If you owe taxes, and fail to pay the estimated taxes in by April 15th, you will be subject to interest and penalties for that underpayment.
All your taxing troubles will soon diminish once you take care of the tips given above about expatriate tax obligations. You may even hire an expatriate tax service expert, if all of this seems too complicated to you and you feel the need to have a helping hand in the matter.