QUICK US EXPATRIATE TAX FACTS:
ONE: If you are a permanent resident in a foreign country on December
31, you receive an automatic extension to file your tax return until June
15 of the following year. However, you must still pay any U.S. tax you may
owe by April 15 or be subject to interest and penalties.
Also you must file form114 to report your foreign financial and
bank account interests (if you had at any time during the year over
$10,000 in all such accounts combined) by 10/15/17 for 2016 or you will incur a
$10,000 penalty. No Extensions are granted for filing this special
You can claim an exemption from U.S. Income tax of $101,100 for 2016 (and lesser amounts for earlier years) in earnings from employment or self employment
while residing outside of the U.S. for a full calendar year, or for
any fiscal 12 month period providing you are not in the U.S. for more than
35 days during that fiscal year. Both you and your working spouse can each
separately claim this exemption.
THREE: You can claim a dollar for dollar credit against your U.S. income
taxes on the same income that you paid
foreign income taxes on in another country.
FOUR: The U.S. has tax treaties with more than 35 nations throughout the
world. Many of these treaties contain special provisions which only apply
between the U.S. and the other treaty country. These treaties all contain
provisions in which the U.S. can obtain tax information about U.S. Citizens
living in the other treaty country and the tax authorities in that treaty
country can secure information about their citizens from the IRS.
FIVE: If you reside outside of the US and are
married to a spouse that is not a U.S. Citizen or permanent resident (green card
holder), your spouse does not have to pay U.S. taxes on their investment and
employment income if you do not elect to file a joint return.
SIX: When you live in a foreign country you can obtain a social security number for your children by obtaining Form SS-5-FS through the Social Security Admin website at
www.ssa.gov . Also
for more on countries with U.S. Social Security treaties and if you are self
employed abroad click anywhere on this sentence.
SEVEN: While living abroad, if you take the proper steps to
terminate tax domicile or residency in your previous home state
(the rules vary from state to state), you
no longer have to file a state income tax return and as a result eliminate your
state taxes! California, Virginia and New Mexico are several of the states that
make it very difficult to terminate your tax residency when moving abroad.
Nevada, Washington, Texas and Florida have no state personal income taxes at
SOME OF THE COMMON EXPATRIATE TAX QUESTIONS WE RECEIVE
May I file a Joint Return with
A Nonresident Spouse?
you can but does subject your alien spouse’s worldwide income to U.S.
income tax. Often there are tax savings available due to a lower foreign
tax rate for not filing with an alien spouse and just filing “married
Must I File a U.S. Return even
if I make less than the $101,100 exclusion for 2016?
Yes. If you fail to file a return
and claim the exclusion there is a risk that the IRS may discover you are
not filing returns and disallow the exclusion when you do file. If you
come forward first before IRS notification and file all past unfiled
expatriate returns, the IRS currently always allows the exclusion.
If I am a Green Card holder
living outside of the U.S., do I still have to file a U.S. tax return?
As a Green Card holder you are a
U.S. permanent resident and must file a U.S. tax return each year on your
worldwide income. However, you can exclude up to $101,100 of foreign
earned income under IRC 911 earned income exclusion rules if you qualify
under the physical presence or bonafide residence rules. You must formally
surrender your green card to US Immigration in order to stop this filing
obligation. It is not automatic when you live outside of the US.
If I am living and working
abroad, do I have to file a U.S. state return each year?
There are 50
states with 50 different rules on this question. If prior to leaving the
U.S., you lived in a no tax state such as Nevada, Washington, Texas or
Florida no return is required. Some other states say if you are gone for
more than six months, no return is required. Other states such as Virginia,
South Carolina, New Mexico and California look at whether you still have a “tax domicile” in the
state and then still require you file a return tax returns (for all years
of your absence) even though you have been
gone for years. They look at your intent to return to the state after your
stay abroad, and various indices that may indicate you never planned on
giving up your “tax domicile” such as if you still maintain a state
drivers license; state voter registration; library card; bank accounts;
real property; license plates for your car; or if you children still go to
school in the state.
you want to avoid tax problems with your previous home state with “tax
domicile laws” many years down the line demanding you file state income
tax returns for the entire period you lived abroad, and demanding you pay
all of the taxes, interest and penalties due for that period, you should
not move back to that state when you return permanently to the U.S. You
must also upon moving abroad give up all state drivers licenses, bank
accounts, real property, voter registration, etc. Not all states are this
tough, but some like Virginia, New Mexico, South Carolina and California do impose very tough rules.
Investigate the tax law in your state of residency prior to your departure
to live abroad to avoid having to file state tax returns with some
certainty that those state taxes will not later be assessed while you are
still abroad or upon your return.
Taxes Using Special Tax Laws Which Only Benefit U.S. Expatriates Working
and Living Abroad. Don D. Nelson, Attorney at Law, of Kauffman Nelson LLP
Certified Public Accountants knows
expat and international tax return preparation and knows the complex tax
laws. We have done it for over 35 years fore expatriates everywhere
in the world (over 121 countries) and understand the rules that
can save you taxes and possible penalties.
Email us with questions:
Skype Address: dondnelson
US Phone: 949-480-1235