Tax Filing Abroad


To live and work abroad is a privilege that many enjoy due to the many advantages that come with experiencing the expat lifestyle; however, paying taxes is not one of these. Expats often have to deal with the headache of paying taxes to two countries— their current country of residence and the country they came from. To lessen the stress, here are some helpful tips to take note of when filing taxes abroad.

Determine the status of your residency

There are two tests which expats can take advantage of when living abroad. A physical presence test and a bona fide residence test. Both tests determine whether or not someone is truly an expat, as by American standards, a bona fide resident has lived and worked abroad for one year with no plans to return to his or her home country.

You may need to pay for state income taxes

If you’re an American citizen, you may be aware that 41 states impose income taxes on their legal residents, even for those who live outside the United States. Although some states do not have a personal income tax— such as Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. To avoid confusion and other possible problems, it is better to be aware of this information beforehand.

You can apply for tax deductions

One of the perks that come with being an expat is that there are various deductions that are made available to relieve the burden that comes with paying taxes to two different countries. For American expats, there is a foreign earned income exclusion which essentially protects their income earned abroad from being taxed in the states, allowing exclusion of up to $92,900 of their income. For expats who live in the UK, the United Kingdom offers foreign tax credit, which gives expats a tax credit for the taxes used to pay governments abroad.

While this process of calculating and paying taxes when living abroad can be confusing, it can be a good idea to review the process and rules involved in your home country regarding these matters before you go abroad. It may help you save money in the end.