Income tax returns are of the utmost importance in the US even for non-residents and expats that have been away from the country for some years. The IRS requires paperwork to be filed regarding the full extent of an expat’s financial assets in another country as well as in their home country and that includes their involvement in business ventures and enterprises such as partnerships or LLCs.
Here are some tips to avoid problems with filing your taxes from abroad as a range of issues can arise such as fees, penalties, passport renewal problems, and liens on assets owned in a foreign country if you fail to sufficiently meet all the expat requirements.
Have A Grasp On The Rules & Regulations
The first step is doing your research. Taxes can depend on individual status (residence and domicile), how long they’ve been in the country or away from the country (in the case of capital gains tax calculations) as well as your sources of income and their origin. Certain deductions and exemptions are also made depending on tax credits, provisions, and the content of applicable tax treaties.
Furthermore, each country has different regulations regarding taxable income, and income itself may be defined differently from the US for expats. Make a list of the obligations that apply to you both within your home country and where you are currently living as an expat.
An Expert Consultant
For individuals that struggle greatly with tax filings, finding an expert tax consultant to guide you through the process can be a game-changer. Many expats will find they make avoidable mistakes simply because they did not book a consult with a professional tax consultant or US tax CPA in the United Kingdom if they are living there. In many cases the consultant will help you secure the relevant forms you need to declare your assets etc.
State Taxes Apply
State taxes are the easiest to miss as an expat and it is common for people to realize quite a few years later they have a lot of state tax due on their holdings and assets. If an expat has a rental income or owns a small business they will need to find out how much state tax they owe, furthermore each state in the US has slightly different regulations.
Deductions & Savings
Deductions can help you save a lot of money as an expat but you need to be aware of all the provisions you can utilize. Income that is earned in a foreign country especially can earn you tax reduction provisions such as Foreign Earned Income Exclusion among others so ask your tax consultant regarding them. Expats can also use home office deductions if their income is foreign such as from writing a blog but earned from home.
Latest statistics show that thousands of citizens are letting their US citizenship lapse and the percentage of people not seeking to renew it is increasing every year. If this is something you are considering, make a list of all your assets including your home and all sources of income, and assess their total value before you make the decision from a tax point of view.