The pandemic and the Great Resignation untethered a lot of people from office work. Today, your workplace could be an on-site office, at home, or a remote office. For some, that remote office is on the road in the U.S. or abroad. Digital nomads appreciate changing scenery and a lifestyle that is anything but static. But as much as things change, some things stay the same—and that includes tax obligations to the Internal Revenue Service (IRS).
Making a move abroad or living the van life in the U.S. has its own challenges. It can be easy to lose track of exactly what your obligations are—especially if you are living in a foreign country. Keep these tips in mind to stay on top of your U.S. taxes:
- Outside the U.S.? You still need to file taxes: U.S. persons living abroad are required to file a tax return if your income from wages, dividends, rental income, or account interest meets the U.S. threshold (about $13,000 in 2022). The obligation to file income taxes in the U.S. is based on citizenship, not the place of residence. Longtime residents of foreign countries who hold U.S. citizenship can be unpleasantly surprised to learn they are subject to penalties for failure to file U.S. tax returns.
- Foreign bank accounts: If you are, or have been, residing abroad, you quite likely have a bank account. As a U.S. person, your bank is obligated to respond to the Foreign Account Tax Compliance Act (FATCA). Bottom line is that your bank must report your holdings if they meet the reporting threshold for any year. You are also obligated to file an FBAR if your foreign account(s) exceeds $10,000 at any point during the year. Be aware, that because of the FATCA reporting requirements, foreign banks may have complicated application rules for U.S. citizens or charge higher fees.
- Take advantage of tax breaks: Be sure to take advantage of the foreign earned income exclusion (FEIE) and any tax credits that could be available to you. The foreign tax credit (FTC) is a dollar-for-dollar reduction of your tax liability. These options can reduce your tax bill and help you avoid being taxed twice on your income. Tracking your time abroad is important for obtaining these tax breaks.
Other things to consider include checking to see if you still need to file state taxes to the state where you lived prior to going abroad. Also, if you are self-employed, you will still owe social security taxes in the U.S. Lastly, the U.S. gives you more time to file your returns and reports if you are living and working abroad. Tax Day for ex-pats is June 15.
Has the IRS contacted you about an offshore tax investment or audit?
Representing local, national, and international clients from offices in Chicago and Cleveland, the tax attorneys at Robert J. Fedor, Esq., LLC can answer your questions about the IRS and provide strong representation on matters of criminal tax defense, FBAR issues, and other tax controversies. Call 800-579-0997 or contact us today.