Living abroad can be tricky in many areas of life, especially when it comes time to pay taxes. If you’re shocked at the mention of taxes, please know that it’s only a myth that U.S. citizens living abroad don’t pay taxes. Filing taxes abroad isn’t too different of a process from filing in the United States. So how do you stay in good standing with the IRS when you’ve left the “land of the free?” While we recommend consulting with an international CPA for advice specific to your case, we’ve put together a non-comprehensive guide to understanding taxes while abroad.
Understanding your obligations when paying taxes abroad
American citizens living abroad are required to pay the same taxes that they are mandated to pay when living on US soil, even if they’re earning all of their income in a new country. The only way to change that is by relinquishing U.S. citizenship. If you’re holding on to your US citizenship, then income, estate, and gift tax returns are all due in the usual fashion; the only difference is that you’ll receive an automatic 2-month extension tacked on to the traditional filing due date if you’re living abroad when filing. Now, despite having to pay taxes, certain individuals can utilize the FEIE (Foreign Earned Income Exclusion) which allows up to a $105,900 exclusion if the below requirements are met.
Are you able to utilize the FEIE?
If you’re working as an employee or independent contractor in another country, you could get out of paying taxes to the US government (currently up to $105,900) under two conditions. You’ll have to establish a tax home in another country, proving your intent to stay there. You can prove it through documentation showing you no longer own a residence or office space in the United States, and that your true home is now in another country. You’ll also have to pass either the Bona Fide Resident Test or the Physical Presence Test. These prove that the taxpayer is either a true tax-paying resident of another country or that the taxpayer has been physically present in a foreign country for at least 330 full days in any 12-month period that began or ended in the tax year in question.
When and where to file
Americans living in another country get an additional two months to file their tax return, but be aware that any money owed to the government begins collecting interest April 15th. So, you really only get an extension on filing the return itself, not on any money owed. After you’ve spoken to a certified international CPA (see a list of qualified, IRS-certified professionals here) and you’re comfortable with what you owe, you may either mail your return or file online by June 15th. You can mail your return to the Department of the Treasury (Internal Revenue Service Center) located in Austin, TX 73301-0215. If your income falls under the threshold of $66,000, you may file electronically for free.
If you’re claiming the exemption from the FEIE, please don’t forget to attach for 2555 with your return.