When it comes to the do’s, don’t’s and if’s of filing taxes for U.S. expatriates, the rules may seem complicated, but it is suffice to say that if you are a U.S. citizen living abroad, you MUST file a United States tax return. Expats will be happy to learn, however, that although they are required to file a tax return, they may have little or no taxes to actually pay. This is determined both by the amount of income they earn and a variety of possible exclusions and deductions that are based on residency and work status.
The Internal Revenue Service has their own means of seeking out non-filers and enforcing filing compliance. While it may seem tempting to forgo the filing process while you are out of the country, the repercussions can be extensive and costly. As with a normal U.S. residents, failure to file results in penalties and fees that will continue to accrue for as long as taxes go unfiled. U.S. citizens, even those living abroad, are liable for any penalties that build up, in addition to actual taxes that may be owed. For example, if an expat lives abroad for 5 years and fails to file a tax return during that time, he will be responsible for paying any taxes owed plus any accrued penalties and fees upon his return to the United States.
There are individuals that may consider changing their national citizenship to avoid paying U.S. taxes. This is also a terrible idea and the IRS is very diligent in seeking out those that attempt to do so. Expatriates who are considered high-income (typically over $500,000 per year) are carefully monitored by the IRS, and the government will assume that an individual has changed his citizenship specifically to avoid paying U.S. taxes unless there is substantial evidence to the contrary.
Tax liability and filing requirements while living abroad can be tricky, but the U.S. is also conscious of the fact that expats may be paying taxes to a foreign government as well. In these instances, it may be possible to receive a tax credit based on taxes paid to a foreign treasury. Based on the circumstances surrounding your residency and income, you may qualify for certain exclusions and deductions that can greatly reduce, or even erase, your total tax liability as an expatriate. The U.S. government has developed special forms and processes specifically for those individuals living abroad. Naturally, it is advisable to seek the advice of a tax professional if you have questions regarding expatriate tax procedures, and this is especially true for those who will be filing away from home.
There is a very minute group of expatriates who are exempt from the tax return filing requirement. This group is based on age, income and employment status, but always check with a qualified professional before assuming that you may fall into this group, as the consequences of not filing can be extensive if you do not qualify.
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Should I File a US Tax Return if I am an Expatriate?
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