Expats: What You Need to Know for Tax Season

May 10, 2021 12:05:31 PM

All citizens of the United States are required to file a tax return every year. This includes Americans who are currently living abroad. Tax laws may be different depending which foreign country you are residing in; some offer credits & offer exemptions while others do not. It can get very confusing and costly. Here are some tips for filing a tax return as an expatriate.

Do you qualify as an expatriate?

Before you do anything, you need to make sure that you qualify as an expatriate. To do this, onlinetaxman.com suggests using two types of residency tests:

Physical Presence Test – Spending a minimum number of days in foreign countries
1. You must spend at least 330 days in the timeframe a year in a foreign country.
2. Days traveling to and from countries are not considered days in a foreign country.
3. No less than 35 days in the US.
Bona Fide Residency Test – Having your home and strong ties in a foreign country
1. Long-term lease or own home
2. Family members there
3. Health insurance
4. Local bank accounts (keep in mind that you may have to report on the FBAR)
5. Gym membership
6. Church membership or other community involvement

Claim the Foreign Earned Income Exclusion

If you are working in another country, you may be able to claim the Foreign Earned Income Exclusion (FEIE). As of 2020, this exclusion allows you to make up to $107,000 in foreign income without being taxed on it. This amount changes depending on inflation and may be different from year to year. You can check with one of our tax specialists to see if you qualify for this exclusion. It’s important to note that this only applies to earned income, not passive income like rental income.

You can still claim other tax credits

Even if you are living in another country, you are still able to claim tax credits like the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), the Other Dependent Credit (ODC), and the Earned Income Tax Credit (EITC). (expatfile.tax)

Report all bank accounts on the Foreign Bank Account Report

You are allowed to have bank accounts in multiple countries. However, if the combined amount of money you have in foreign accounts totals above $10,000 in a calendar year, you must report it on the Foreign Bank Account Report (FBAR). Failure to do so may result in significant fines and penalties. Contact one of our FBAR specialists today for assistance with your FBAR.

You may still have to file a state tax return

Typically, if you lived in a state that requires state tax returns, you will most likely still need to file one even after you’ve relocated. However, this depends on the state and how strict they are regarding expatriate tax returns. Look into your state tax laws to find out if you’ll need to file one or not or contact us and we’d be happy to help.

These are just a few basic tips to know as an expatriate, but there are many more tax laws you must abide by. If you are an expatriate living abroad, you should have already filed a tax return. However, if you haven’t yet, you can request to have an extension until October 15th. Contact R&G Brenner today so we can ensure that your return is filed correctly and on time!