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Tax for Expats: How an expat tax can affect you

Author: Benedict Kemper
by Benedict Kemper
Posted: Sep 18, 2018

As you may know at this point, living, working, and earning outside of the USA affects your taxation in a variety of ways. Navigating the laws around tax for expats can be very confusing, and it is worrying, as well, to think that you might owe money or have tax obligations to the US government that you were not aware of. To help you sleep at night, or at least to help you make future decisions, here is some information on how the expat tax, and its frequent changes, can affect you.

First of all, what exactly is an expat tax?

The USA taxes its citizens on their worldwide income. That means that every US Citizen, even those not living or earning money in the United States, must file a tax return and fill in all the forms and paperwork that are relevant, according to their individual situation and an ever-changing stream of regulations. Taxes (and tax for expats) can have negative consequences for everyone, but they can have benefits as well.

The important thing to remember is to file first and ask questions later.

Without the proper information being given first, nothing can happen. One of the reasons that people have failed to file tax for expats over the past few years is that they do not realize that they are in fact US citizens, or that they have this obligation. Green Card holders, spouses, or people who lived in the US for many years before returning home to their own country still may have filing obligations, even if they never earned a US income. You may not owe any money at all, but the tax for expat penalties come from non-disclosure.

What do you do?

The best thing to do is get good advice. Income tax filing is not an area that should be managed alone. If there is anything about your tax return that makes things even a little bit out of the ordinary, then don’t try to save money by filling out files and forms yourself. Yes, the advice is available online, and so are the appropriate forms, but when it comes to filing tax for expats, you should work with a professional in international taxation, one who keeps abreast of the constant changes to the regulations. In the long run, it won’t save money to go it alone.

You may even get money.

The new laws and recognitions regarding tax for expats is not just for the benefit of Uncle Sam. Not only does filing now save headaches in the long run, but there is also precedence to consider. Once started, it’s easier to keep going, to keep the appropriate forms filled in, and to develop a habit of collecting and keeping paperwork and documentation that may be needed in the future.

There are exclusions and exemptions as well.

Filling out all the appropriate paperwork ensures that you can take advantage of the appropriate Foreign Earned Income Exclusions, the Foreign Bank and Financial Account Reports, and other necessities. This year, the transition tax is in effect, and it impacts those Americans who own small businesses abroad or who gained earnings from US business while living abroad. Earnings can be taxed at up to 15.5 percent if the earnings are held as cash, and at 8 percent otherwise. This tax can be paid in installments over eight years. Of course, not everyone leaves America forever. Most expats still keep ties to family and everything else that they left behind. Not filing tax for expats or keeping up with tax obligations, whether intentionally or not, can affect your right to inherit property in the United States, or to will your money, property, or other assets to family in the United States. Social security, pensions, and medical care may not be something that you think about now, but they may become significant to you and to your dependents in the future.

What are the exemptions that affect you? How much is it necessary to earn before you have to pay tax for expats? These questions lead to more questions that are not easy to answer because, when it comes to taxes for expats, not everyone is living under the same situation. That is why it is a very good idea not to leave home without an expert in international taxation to watch your back.

Esquire Group, a boutique international tax advisory firm specializing in tax consulting, tax planning and compliance and helping corporate and individual taxpayers with Offshore Voluntary Disclosure Program, asset protection, and tax consulting for US expats. To learn more about us, visit www.EsquireGroup.com/about.

About the Author

I'm a freelance copywriter and I write on a variety of topics.

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Author: Benedict Kemper

Benedict Kemper

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Member since: Sep 26, 2016
Total live articles: 24

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