For many American expats, living abroad is a dream come true. Whether you’re seeking peace in southeast Asia or taking your career to the next level in London, moving overseas can be an exciting time. However, as a US citizen or Green Card holder, you may still be subject to complex tax requirements that must be met in order to stay compliant.
As such, it’s important that Americans living abroad understand their U.S. tax filing obligations, deadlines and penalties. The good news is that there are a number of resources available to help you stay compliant and minimize your overall tax liability.
One of the most important things to remember is that the United guide to US taxes for expats in Singapore by Derren Joseph States taxes citizens on their worldwide income, unlike many other Western countries that only tax residents on their domestic earnings. Fortunately, there are some benefits and exemptions that can help prevent double-taxation, such as the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit. However, claiming these exemptions correctly can be confusing and often requires expert advice.
In addition to the FEIE and Foreign Tax Credit, US citizens abroad are also subject to reporting their foreign financial accounts through the Foreign Account Compliance Act (FATCA). FATCA was signed into law in 2010 to combat tax evasion for individuals with significant foreign assets. The IRS requires Americans to report their foreign financial accounts on Form 8938 each year. Those who fail to file a FATCA form risk substantial penalties. Fortunately, there is a voluntary amnesty program called the Streamlined Procedure that allows expats who have been non-compliant to catch up without any financial penalty. To qualify for the Streamlined Procedure, expats must have filed their last three annual tax returns and their last six FBARs and self-certify that their previous non-compliance was non-willful.
US expats should also be aware that the upcoming tax reform proposed by President Joe Biden could dramatically increase tax rates for those earning more than $523,600 ($628,300 for married couples filing jointly). In addition to increasing income tax rates, the proposal would significantly raise the child tax credit. Considering the complexity of US expat taxes, it’s more important than ever for Americans living abroad to seek expert advice to ensure they’re not paying more tax than they should be.
Filing taxes is already difficult for most Americans, and adding a foreign element can make it even more challenging. Failing to meet the required deadlines or paying the wrong amount of tax can have serious consequences, so it’s important that you consult an experienced US expat tax specialist like Bright!Tax before making any major decisions regarding your future abroad.