Understanding how to calculate and pay your taxes as an expat is confusing, considering that laws and regulations are typically complex. It is preferable to engage the services of an experienced expat tax consultant who can guide you on how to remain compliant with the rules. Most Americans living and working overseas are well aware that they are expected to file returns and pay taxes to the US government regardless of where they live. But there’s much more to the process that can impact the final taxes you pay and exclusions available to you. Here’s some in-depth information most taxpayers tend to overlook.
FATCA Makes Tax Evasion Almost Impossible
Tax evasion is a serious offense that can earn you penalties like fines and jail terms. If you are found guilty of tax evasion and convicted, you can contact an Orlando criminal defense attorney to resolve the situation. Of course, it is advisable to negotiate with the IRS and arrive at a solution where you cover past arrears by paying up. Keep in mind that the Foreign Account Tax Compliance Act (FATCA) has made it mandatory for foreign financial Institutions and non-financial agencies to report details of assets held by US account holders. These entities must also withhold tax and remit it to the IRS. As a result, it has become impossible for expats to conceal their income and attempt to avoid taxation.
Filing the FBAR is Mandatory
US expats are subject to the Foreign Bank Account Report (FBAR). This rule applies to any expats who have held a total of more than $10,000 in all their bank accounts at any time during the financial year. You must file the FBAR even if the total was exceeded by as low as $1 and only for a day. Even if you’re a signatory to an account without owning the assets held in it, you must complete and submit the appropriate Form 114. For instance, if you and your spouse have a joint account, you’ll file the FBAR even if the funds belong to your partner. Also, remember to convert the assets into US dollar denominations when declaring them.
Being Clear About Your Expat Status is Advisable
The IRS has several exclusions to enable expats to avoid paying double taxation on the same income to two different countries. The Foreign Earned Income Exclusion (FEIE), Foreign Tax Credit (FTC), and Foreign Housing Exclusion (FHE) are some of them. But, before availing of these provisions, make sure to confirm your expat status. You cannot be physically present in the country for more than 35 days in a year without counting travel times. Miscalculating your bona fide presence status makes you liable to pay taxes without exclusions.
Both State and Federal Taxes are Payable
When filing your US tax returns, the CPA will also check if you’re also liable to pay state taxes. If you own a permanent home or have spent a part of the fiscal year in a particular state, you’re subject to state taxes and federal taxes. Further, if you earned any income while working in the state, you must file returns and declare that income even if it is not taxable. Make sure to comply with the taxation laws of your state since most have distinct regulations.
Child Tax Credits are Available for Your Kids
The Child Tax Credit rule entitles American expats to claim financial assistance for their kids regardless of where they reside. Each child under 18 years meeting the required criteria and having a valid Social Security Number can claim $1,400 in tax credit. You can claim this credit in the expat taxes you owe for the family. Even if your income is below the taxable bracket, you can get monetary value equivalent to the credit. Families who have lived in the US for more than six months in 2021 are eligible for a higher refundable Child Tax Credit.
Taxation regulations, per se, are confusing and more so for expats living overseas. Contact a tax consultant who specializes in expat taxes and can assist you in staying on top of the rules. They’ll also guide you on taking advantage of the exclusions and credits made available by the IRS.