Here I share exclusive excerpts of my book, Expat Tax Overview, to show you how to handle US expat tax, the problems that can arise, and how to get good tax advice when you need it.
There is a lot of confusion for American expats when it comes to reporting US taxes while living abroad.
Most Americans living abroad aren’t aware that they must file US tax returns on their worldwide income and that they must report their foreign financial accounts and assets.
And it’s not their fault because even most domestic tax preparers are unaware of the requirements for US expat tax.
So, where should Americans living abroad turn when filing their tax returns? We at Donnelly Tax Law are here to help.
I wrote the book Expat Tax Overview to help Americans living abroad understand how they are taxed, to understand US expat tax preparation risks, and to explain how to benefit from credits and exclusions. It comes from the years of experience I have filing complex tax returns for Americans living abroad.
The following extractions came from the book “Expat Tax Overview”, by Clinton Donnelly of Donnelly Tax Law. It’s the handy overview that every American living abroad should have to understand how they are taxed.
Do I have to file my US tax return while living abroad?
Yes, The US is unique in this way from other countries.
All US citizens and permanent residents are subject to taxation on their worldwide income regardless of where they live in the world, and even though they may be filing another tax return in a foreign country.
It’s possible to have a foreign country tax your worldwide income if you are a resident or present for six months or more.
However, tax havens do exist with special incentives.
But each foreign country or US territory does it differently.
Puerto Rico is technically a territory of the US, but it has unique tax incentives that have been luring back American expats and crypto traders.
How can an American abroad survive paying US expat tax?
Congress implemented a couple of substantial tax breaks to offset the obligation of filing taxes when living abroad.
The first one is the Foreign Tax Credit (FTC).
The second one is the foreign earned income exclusion (FEIE).
What is the Foreign Tax Credit?
The foreign tax credit provides a dollar for dollar credit on your US taxes for income taxes paid in a foreign country.
What is the Foreign Earned Income Exclusion?
One of the most significant tax breaks in the tax code is the foreign earned income exclusion.
For 2020, the first $107,2002 of earned income overseas can be excluded from income taxes.
This exclusion can be used in any foreign country, whether or not you pay income taxes in that country.
There are a lot of rules regarding qualifying for this exclusion, so they must be followed closely.
I have written a 320-page book, Foreign Earned Income Exclusion, specifically on this exclusion.
If you think you might be eligible for the Foreign Earned Income Exclusion, you will find this book to be a real asset for you.
Your US Expat Tax Won’t File Itself
It would be best if you were proactive in making sure your tax returns get done correctly with all the foreign elements reported.
You cannot wait until the last minute to find a tax preparer.
It is better to find a trustworthy and experienced tax preparer who can provide you with advice as you make financial decisions and help you document your tax return at the end of the year.
Is your domestic tax preparer or CPA experienced with foreign information returns?
According to the IRS, less than 1% of all individual tax returns are international.
Thus, domestic tax preparers and CPAs are unfamiliar with the filing requirements and penalty risks.
Does Consumer Tax Software Support US Expat Tax?
Because the US expat tax marketplace is so small, no commercial tax software adequately supports the requirements of Americans living abroad.
We know that US expat tax filing requirements and the difficulty of finding qualified preparers may be overwhelming.
But don’t panic.
All you need is a plan and a qualified tax preparer to be on your team.
To get more information about US expat tax returns and the Foreign Earned Income Exclusion purchase my books below.
You can also schedule a consultation with me to discuss your particular situation and get a quote for services.
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