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Expatriate Tax

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Expatriate Tax

It seems exotic at first — working in Abu Dhabi, Sydney, Berlin or anywhere beyond the borders of the U.S. — but when it comes to paying your taxes back home, it can look like a nightmare. Whether you’re planning to move to another country or you’re already working in another country, you may have questions and concerns about the process known as expatriation tax or expat tax.

First things first: you can’t surrender your U.S. citizenship to avoid paying taxes. You’ll lose your passport and still be liable for your tax obligations. Miller & Company LLP, NY Certified Public Accountants, a best rated CPA firm in NYC.

Just because you’re working for a foreign company on foreign soil doesn’t exempt you from paying expat tax to the U.S. government. Don’t think they won’t come after you for it, either. The United States does tax American citizens abroad, and doggedly pursues those taxes, perhaps more vigorously than any other country.

Navigating the Expat Tax Waters

The international tax accountant experts at Miller & Company with offices in NYC and Queens can help you pay expatriation taxes in a timely manner. You’ll most likely have to pay taxes to your host country and to the U.S. government. The U.S. has tax treaties with more than 42 countries that involves trading data on American citizens in those countries. So, don’t think that paying taxes in another country covers you from your obligation to pay taxes in the U.S.

If you don’t owe U.S. taxes, you aren’t legally required to file, but filing a U.S. tax return every year is a preventative measure to avoid tax disputes and to bypass the Statue of Limitations. If you fail to file taxes in any given year, even if you don’t owe money, it may trigger an IRS audit, and you’ll be liable if their decision goes against you.

The IRS created a tax guide for citizens living and working in a foreign country. Download that form directly from the IRS website, or simply hire the best rated CPA company in NYC Miller & Company to prepare and file your taxes for you. These experienced tax accountants deliver everything you need when preparing your expat taxes.

Exclusions and Earning Thresholds

A tax exclusion reduces the amount of gross income you have to report on your tax forms. An earning threshold is the amount of income at which you’re liable to pay taxes. In 2016, for example, the threshold for tax-free earnings for Americans on foreign earned income was $100,800.

Other types of income — like interest, dividends, rental income and capital gains — aren’t considered earned income, but are subject to being taxed. In other words, if you make less than the threshold from your job overseas, you don’t have to pay income tax on it. However, this exclusion only applies when you file your tax return. That’s why you should file even if you don’t think you owe taxes.

Housing Tax Breaks

Along with an exclusion for your foreign earnings, expats are eligible for tax reductions based on housing costs. If you rent or own a home overseas, you can exclude a portion of those costs. The foreign housing exclusion permits expats to offset living expenses against their tax liability. To calculate this exclusion, deduct the base amount from your foreign housing costs. Note that there’s a limit to the expenses you can claim.

To qualify, you have to demonstrate that you’re a legitimate resident in the host country. In other words, you must provide proof of residency in the country for the entire year that you dwelt outside the United States — proving an absence from the U.S. between 330 and 365 days.

Claim All Your Exclusions

You must claim all of your foreign qualified exclusions on Form 1040 of your income taxes. It’s not an automatic process. Keep in mind the exclusions only apply to income earned from your employment in the foreign country, not other types of income.

Additionally, you must fill out IRS Form 2555 and attach it to your Form 1040. Form 2555 helps you determine if you qualify for the exemptions. The form also stipulates what to do and what not to do to take advantage of the exclusions. Form 2555 also reports the most recent caps on those exclusions. For excellent expatriation tax advice, contact best accountant New York, Miller & Company.

Self-Employment Taxes for Expats

If you plan on living and working for yourself in another country, you’re liable for U.S. self-employment taxes. If you own a foreign company or own a multinational company and have payroll taxes withheld from your paychecks, you aren’t liable for paying Social Security taxes to the U.S. However, if you’re self-employed and working in another country as an independent contractor, you have to complete and file a Schedule C with your U.S. tax return, as well as pay the required payroll taxes on your net income. The self-employment tax rate can’t be reduced by the foreign income exclusion.

If you own a company in another country — or own more than 10 percent of that company — the IRS requires you to file Form 5471 to report your ownership stake in the overseas business. If your foreign company makes a profit, you may owe taxes on that profit. The NYC tax accountants at Miller & Company can tell you more about this form and its requirements. In a nutshell, any income that you derive from a foreign source must be reported to the IRS — including royalties, capital gains and trusts.

Extensions Are Available

If you’re living in another country on the tax due date of April 15, the IRS grants an automatic extension of two months, until June 15, to file your return. This applies only to returns for the previous calendar year. If you need additional time, you may request an extension and file just as you would if you were in America, pushing the filing date as far back as October 15th.

You still have to pay penalties and interest if you push the deadline back, just as if you lived in the United States. Extensions may be necessary, since many countries end their financial year after April 15th, as opposed to December 31st like in the U.S. A leading tax accountant in the Manhattan area, such those at Miller & Company,  can help you figure out your expatriation taxes regardless where you live and work.

Do you have questions about services we offer including Expatriate Tax in NYC and Long Island? Would you like to receive a personal Expatriate Tax consultation customized to your specific needs? To schedule an appointment with a nationally recognized, best accountant New York, Paul Miller of Miller & Company LLP firm, please contact our Long Island or NYC tax accountants for a FREE CPA consultation.

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