5 Things Every American Expat Should Know About Their Taxes

Taxes for US expats can be overly complicated. Read on to find out the top 5 things every American expat should know about their taxes whilst abroad.

Do US expats even pay US taxes?

There is no short yes or no answer to this, as it depends on your situation.

Essentially, as a US citizen, you have a tax obligation to the US. There is also the possibility that your tax obligation could apply to State taxes. Whether or not you pay any is down to meeting certain thresholds for your earnings, and in a lot of cases you may not end up owing any tax. Tax can also be reduced by offsetting foreign income with things such as foreign tax credits if you are eligible.

Taxable foreign income for US expats includes:

  • Employment Income
  • Dividends & Interest
  • Rental Income

As an expat, you can receive penalties if you do not file a US tax return

Non-compliance, and especially willful non compliance, may be met with hefty fines and so it is important to understand your deadlines and any potential sanctions from the IRS. Sanctions can range from small fines to losing your US passport or imprisonment.

We recommend getting in touch with a specialist US tax adviser to avoid such penalties, which is why we have partnered with USTAXFS.

There are tax treaties in place that can help prevent you being double taxed on foreign income

There are a number of treaties in place with over 70 Countries to avoid the double taxation of your foreign earned income. In addition, you may be eligible for the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC) which have different criteria to qualify, but can reduce your tax liability. 

However, be careful when choosing between FEIE or the FTC, or claiming both as this decision can have a substantial impact on the outcome of your tax return. Things to consider include, your housing expenses, future plans to live and work abroad, your dependents, the source of your income and type, your current resident Country and their tax laws, and more.

Be careful when you marry a non-resident when it comes to filing your tax return

Naturally, it is not uncommon to marry a non-US resident whilst abroad. When this is the case, consider carefully the different tax options available to you and whether you wish to choose to file a joint tax return as if you opt to have your Spouse treated as a US person, they could become obligated to pay US taxes on their entire income and have further reporting requirements. It is essential to seek professional advice on this matter.

Retiring abroad does not exempt you from US taxes

Escaping the IRS and US taxation is not as easy as retiring abroad. You may need to file and pay US taxes subject to various criteria even if you have retired abroad. It is also vital to understand the rules around 401(k) and IRA withdrawals. As is often the case, it is highly recommended to seek the advice of a US tax expert.

Get a helping hand whilst navigating the complex World of US expats taxes

While current everyday life and financial pressures can make your US expat tax obligations the last thing on your mind, getting professional input in this area is one of the most useful things you can do. This is why we have partnered with US Tax & Financial Services to ensure that our investment solutions for US expats are aided by holistic tax solutions to make your life as stress free as possible.

Get in touch today and book your initial, no-cost and no-obligation meeting. Send us an e-mail to info@pattersonmills.ch or call us direct at +41 21 801 36 84.