Because we’re bizarrely in a deja vu of 2020 right now with the upcoming elections (sans pandemic, thankfully), this is the perfect time to discuss what you may not have done for that year: file your taxes.
Right now the IRS is sitting on 1 billion in refunds for people who didn’t file in 2020. If you’re owed a refund, there’s no penalty for not filing on time, but to claim it, you need to file your return within three years of the due date. Because of the delayed deadline that year, that means May 17 of this year (less than 2 weeks away).
Once the 3-year window lapses, you’re almost guaranteed to lose out on getting a refund check or the ability to apply any credits (aka overpayments of estimated taxes, withholding amounts) to any outstanding balances.
Also, if you think you may have filed things incorrectly or missed out on the many credits that were being issued during that year, we can talk about amending your return before that time. But make sure to get in touch ASAP:
app.acuityscheduling.com/schedule.php?owner=16680567
I like to make sure my Surprise, AZ contacts are not missing out on anything you should be getting from Uncle Sam. And, on that note, I also like to make sure you’re not missing any obligations you have to him either.
That goes for if you’re living in the heart of America or in a foreign land. Thinking about relocating out of the country for a good reason or because you just can’t handle who will be our next president, then, we need to have a conversation about U.S. taxes for expats. Let’s start here…
Tax Beacon, LLC’s Starting Guide on US Taxes for Expats
“The man who has not traveled does not know what it means to exist.” – Ibn Battuta
Moving abroad is an adventure only about 1.5 percent of the U.S. population ever experiences. Some are chasing a dream job with a global company. Others are serving in the military. And a few brave Surprise, AZ souls are doing it simply for the experience.
But, let’s face it, when you make the decision to live somewhere other than your home country, you aren’t really thinking about how it affects your tax situation. And navigating our country’s tax system can be a real headache both in country and out of it.
So, I want to make sure you know how to stay compliant with U.S. taxes for expats and avoid any surprises come next year. Whether you’re sipping lattes in Paris or teaching English in Tokyo, let’s break down the essentials (and some lesser-known details) of U.S. taxes for Maricopa County expats.
The basics
A question I hear the most when people are choosing to live abroad is: Do I still have to file a tax return?The simple answer is yes. Yes, you do.
No matter where you live — if you make over the general income threshold, you are required by U.S. law to file a federal tax return.
On top of that, depending on what state you resided in before departing the U.S., you may also have to file state taxes. Generally, if you’ve been living abroad for more than six months, most states won’t tax your income any further.
However, there are four states that can prove troublesome on that front if you have a bank account, are registered to vote, or hold a driver’s license or state ID there: California, New Mexico, South Carolina, and Virginia. Make sure you check the state government websites to confirm what you’ll need to pay.
Preventing double taxation
Now, you might be concerned that you’ll pay twice on taxes — to the country you’re living in and the one you’re from. Let me assure you, the IRS has some mechanisms in place to essentially prevent doubling of U.S. taxes for expats. These include:
Foreign Earned Income Exclusion (FEIE) allows you to exclude a significant portion of your foreign income from U.S. taxes. The limit for 2024 increased to 126.5K, up from 120K in 2023, to account for inflation. This adjustment can help you exclude a larger portion of your foreign earnings, which can significantly impact your U.S. tax liabilities.
A couple of notes:
1) To qualify for the FEIE, you need to meet either the physical presence test (spending at least 330 days outside the U.S. in a 12-month period) or the bona fide residence test (proving you’re a resident of your host country).
2) The FEIE has limitations for married couples filing jointly where both spouses have earned income abroad, but typically they can exclude as much as 253K (as of the 2024 tax year).
The Housing Exclusion allows you to exclude a portion of your foreign housing expenses from your taxable income. This essentially reduces your U.S. tax bill further. The maximum housing exclusion amount is calculated based on the FEIE limit and varies depending on your location. Generally, it’s 30 percent of the FEIE amount, with higher limits in some major cities.
Foreign Tax Credits allow you to offset your U.S. tax liability with any foreign taxes paid, if you’ve already paid income taxes to your host country on your earned income abroad. In simpler terms, it prevents double taxation on the same chunk of income.
Let’s say you’re an expat living in France and you earn 100K annually. France taxes your income at a rate of 30 percent, so you end up paying 30K in French income tax. The U.S. might also tax your income, but the foreign tax credit allows you to claim a credit for the 30K you already paid in France. This is when U.S. taxes for expats can be significantly reduced… or eliminated altogether (depending on your tax bracket).
Other important requirements
1) If this out-of-country experience is going to become a permanent one, you’ll need to consider expatriation tax. The U.S. is one of few countries that taxes its citizens based on worldwide income, even after they renounce citizenship.
Under expatriation tax rules, you may be subject to a capital gains tax on the unrealized appreciation of your worldwide assets as if you had sold them on the day before your expatriation. There are exceptions and qualifications, so fleshing this out with someone you trust (like me) is something I highly recommend.
2) If your foreign bank accounts exceed 10K combined, then you’ll need to file the Report of Foreign Bank and Financial Accounts (FBAR). If you fail to file, it can lead to hefty penalties. This goes for both individuals and business entities.
Remember, every expat situation is unique. If you need some help with maximizing your benefits and/or staying compliant, that’s what I’m here for. Let’s chat and make sure you’re on the right track to tax filing success – from wherever your adventures take you.
app.acuityscheduling.com/schedule.php?owner=16680567
Helping you at home and abroad,
Jeff Baugus