How to Better Understand Expat Tax Credits

Now that there's a more significant amount of people living in different places, it has become essential for them to know a lot about "taxes." While living abroad can be a great experience, understanding the other taxing structures in their current country can help expats avoid complications. There are ways through which you can better understand expat tax credits to maximize savings.

1. Maintaining Accurate Records

For you to be able to grasp an idea about the available expat tax credits, you need to look for ways in which you can keep accurate records. Expats who ensure to keep their expenses, taxes, and incomes paid can find it easy to enjoy tax credits that are suitable for them. Accurately documenting your things can help you to claim things that include foreign earned income exclusion, and foreign tax credits.

Also, if your aim is to enjoy the foreign tax credit set in place by the United States, then you need to keep an accurate and up-to-date taxing record. You can do that by tracking every earned income, expenses and foreign taxes paid to your current location. American expats who keep proper records can claim tax deductions and avoid punishment for not complying with tax rules.

2. Understanding the Social Security Taxing System

Undoubtedly, when someone doesn't know something, they can make mistakes that can sometimes be grueling and awkward. That's why an expat needs to understand the social security taxing system available to maximize tax credits available to their benefits. For instance, expats from the U.S. are excluded from making any tax payment based on social security taxes on the foreign income they earn in their current location.

However, it's essential to note that expats working with a United States employer abroad may still be required by the Internal Revenue Service to pay social security taxes. It's vital that expats know that the current tax rate for social security taxing is 12.4%.

Social security taxes are used to make benefits which include:

• Medicare Benefits

• Survivor Benefits

• Retirement Benefits

3. Having an Idea About Foreign Tax Credits

There are times when expats decide to make tax payments and end up paying double taxes to both their home country and current place of location. Well, for folks that understand foreign tax credits, they can avoid that as FTC allows them to reduce their tax liability. Reduction in U.S. tax liability for expats helps them to accurately know the amount of foreign taxes to be paid on their foreign income.

However, every expat should know that foreign tax credits can't be claimed on income that belongs to foreign earned income exclusion.

To be able to qualify for foreign tax credits, expats should:

• Have paid the tax

• Get the tax imposed on them

• Ensure the tax is legitimate

Sometimes, foreign tax credits can be so difficult to evaluate, and that means expats need taxing consultants to help them out.

4. Considering Policy for Tax Equalization

Interestingly, several organizations do offer tax equalization to their employees to ensure that they aren't stressed with taxing issues and get the proper treatment regularly. For you to find it easy to understand tax credits better, you need to consider tax equalization policies put in place by businesses. Tax equalization policies ensure employees don't get unnecessarily burdened due to the different taxing systems available in their home country and current location.

These policies help employees to ensure they can pay the exact amount of taxes in their current residential place as they'll have done in their home country.

Expats need to note that before their employers can implement tax equalization policy, they may need to gather details that include:

• Tax residency status

• Tax treaties between both home and host countries

• Income

Expats should have in mind that the policy can be a complicated one; therefore, having an idea about the terms and conditions provided is crucial before making acceptance.

6. Gathering Knowledge About Foreign Earned Income Exclusion

Do you know that one of the most significant taxes available to expats is the foreign earned income exclusion(FEIE)? In fact, with the help of foreign-earned income exclusion, you can exclude a total amount of $108,700 from your United States income tax. However, there are some qualifications that expats should meet the physical presence and legal residency test

When qualifying for a foreign-earned income exclusion, it's essential for expats to know that they should be fulfilling the following obligations:

• Having a tax home in a foreign country

• Having foreign earned income from performing services as an employee or independent fellow

Also, expats should know that only the federal income tax applies to foreign-earned income exclusion. Taking advantage of the FEIE for an expat means they may be unable to access other available tax credits.

Final Words

Without a doubt, folks will continue to live in different places globally, all thanks to the advent of digital domination occurring in industries. Expats need to know about tax credits available to avoid challenges that include paying extra taxes or facing penalties. Expats can better understand tax credits by maintaining accurate records, considering tax equalization policy, and acquiring knowledge about foreign earned income exclusion.

Angela Ash is an expert content writer, editor and marketer, who focuses on topics related to remote work, freelancing, entrepreneurship and more.