Are you a US citizen living and working overseas? Filing your tax returns is a duty that you are required to fulfill. But filing tax returns is not the most enjoyable thing about living or working abroad. Although filing is an obligation, most expats don’t end up paying any taxes. Here are 4 ways expats can reduce their taxes.
The Foreign Earned Income Exclusion can save you thousands of dollars. It is the best way to save on taxes. You can suffer double taxation if you fail to claim the Foreign Earned Income Exclusion. Imagine being forced to pay taxes to the United States for income that you have already been taxed in your host country. Fortunately, the Internal Revenue Service understands this predicament, hence the provision of the Foreign Earned Income Exclusion.
This exemption allows expats to exclude the first $105,900 of the foreign earned income from their 2019 tax returns (filed in 2020). However, to take advantage of the Foreign Earned Income Exclusion, you must pass one of the two residency tests:
The cost of living outside the United States can be very high. Fortunately, the IRS understands this and has come up with some ways to offset this for US citizens living abroad. Foreign Housing Exclusion is one such way. It allows US expats to exclude their housing expenses (up to a set limit) from their taxable income. With Foreign Housing Exclusion, you can exclude the following expenses:
Claiming the Foreign Tax Credit can save you huge bucks. The Foreign Tax Credit is a dollar-for-dollar credit on every dollar you have paid as tax to your host country. Of course, you can’t claim Foreign Tax Credit on income you have already claimed Foreign Earned Income Exclusion. You can only use Foreign Tax Credit on income above the Foreign Earned Income Exclusion limit.
Claiming exemptions is a great way for expats to save on their taxes. Filing your tax returns on time can also help you save on your taxes. You see, every tax due after the deadline begins to accrue interest from that day onward. Filing returns from abroad is not easy. It is a complex process with a lot of reporting needed and exemptions to be claimed. You should consider seeking help from incredible platforms such as https://taxfyle.com/taxes-for-expats. More often than not, this will save you time, money and stress.