Americans Abroad
Expat Tax.......When moving overseas, this is one of the biggest concerns. Unfortunately, America is one of a handful of countries that vigorously pursues taxes worldwide – so please don’t expect to avoid a U.S. tax debt by moving overseas. As a matter of fact, you’re not even allowed to give up your U.S. citizenship just to eliminate a tax obligation.
Be aware that America has tax treaties with over 42 countries where the IRS and the foreign tax agencies exchange tax data on their residents. Many Americans think because they’re earning money in another country – and paying that country’s taxes – they have no liability when it comes to their home country and that they are not required to pay expat tax USA. That’s totally not the case. You still should file a return with the U.S. every year, whether you have income or not. You are not legally required to do so if you don’t owe U.S. taxes, but it’s an important preventative measure as there is a Statute of Limitations on tax disputes. If there is a dispute over back taxes, you start running out the clock on the Statute of Limitations if you file. If you don’t, remember the IRS can audit you at any time in the future and you’ll be liable if they decide against you.
A few things you should know:
Earning thresholds - this does not includes dividends, interest, capital gains etc... Housing limits - Some expats may be eligible for tax breaks on housing costs.
Remember these exclusions are not automatic, you must claim on your Form 1040 that year.
Another important aspect to be aware of when it comes to Federal taxes is the U.S Self-Employment Tax. If you’re an employee of a foreign company (which could, in fact, be your own foreign corporation) and have payroll taxes from that country taken out of your pay, you don’t have to also pay social security taxes to the U.S. If you are self-employed, however, acting as an independent contractor, then you must file a Schedule C with your U.S. Tax return and pay the appropriate U.S. payroll taxes on your net earnings. The self-employment tax rate is 15.3% and the foreign income exclusion mentioned before does not reduce this liability.