Moving to another country is an exciting prospect with attractive career opportunities, cultural experiences, and living in a new location. You’re probably preparing a detailed checklist of the different aspects of the move you need to handle. One of the most important things to make the list is a consultation with an expat tax CPA specializing in taxation regulations. You must stay compliant with the rules not just in your new host country, but also with the US IRS back home. Here are some of the most common tax filing errors you’ll avoid by working with an expert professional.
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Not Filing Tax Returns in Both Countries
Even though you’ve moved permanently to another country, you’ll still file returns with the IRS. If you retain American citizenship or a Green Card, you must declare the annual income from worldwide sources in the report. This rule applies even if your income is below the taxable bracket. You must also establish residency. If you have lived in the country for a set amount of time, you are liable to pay taxes.
Estimating Annual Income or Copying a Previous Year’s Return
When filing taxes, the IRS expects you to put down accurate figures of your income from worldwide sources and not just estimates. Each figure will have to be backed by paychecks and receipts, whether you’re claiming deductions for work-related expenses, living costs, or any other. And, when preparing your returns for the IRS, never make the mistake of copying a previous year’s return. Check and recheck all the figures you’re reporting and pay the taxes, or you risk incurring fines and penalties.
Not Reporting All Your Income
When you talk about reporting “income,” know that this figure includes all your earnings, not just the salary or wages you earn from employment. For instance, rental income from property you’ve leased out back home, retirement plans, stock, returns from investments, bonuses, and gratuities. Even if you’ve paid taxes on that income in your returns filed with the IRS, the Australian Taxation Office needs to see the details in your Australian return.
Not Taking Advantage of Deductibles
Most country governments have a treaty to help residents avoid paying double taxes on the same income. Accordingly, the IRS has provisions like the Foreign Earned Income Exclusion (FEIE), Foreign Tax Credit (FTC), and Foreign Housing Expenses (FHE). The FEIE allows you to deduct your income from a preset income bracket and pay taxes only on the balance. Further, you can claim tax credits for the dues paid to the ATO in your IRS return by using the FTC exclusion. Your CPA will direct you on using these credits to offset the total taxes you need to pay.
Taxation laws can be complicated for US expats since they must comply with regulations in two countries. Getting expert advice will help you avoid fines and other penalties.
