Individual Taxation

Do I need file US TAX Return while living abroad?

Yes, if you are a USA citizen or Green Card Holder you need to file your USA Individual Tax Return annually and include your worldwide income even if you work outside of the United States,

Whether you are living within the United States or abroad, your worldwide income is subject to U.S. income tax. However, certain exclusions and foreign tax credits are available to individuals which can help reduce or eliminate US tax liability.

Tax filing due dates and extensions

The normal USA tax filing deadline is April 15th, as a USA citizen or green card holder living abroad you are entitled for an automatic 2-month extension until June 15th for the filing of your USA tax return without the need to request an extension. If additional time is required, an extension needs to be filed to get more time until October 15th which can be requested by filing Form 4868 with the IRS.

Tax liability payment or payable tax

It is important to note however that the extension is available for filing of the tax return only.  Any tax liability must be settled by April 15th or interest will start to accrue on the tax payment due from April 15th onwards.

Foreign Earned Income Exclusion and Foreign Tax Credits

Foreign Earned Income Exclusion

As a USA Citizen and Green Card holder living outside the United States, based on your living conditions, you may qualify for foreign earned income exclusions (FEIE) and / or foreign income tax credits.  Both helps you in reducing or eliminating USA tax liability. There is a possibility that you qualify for the foreign earned income exclusion and foreign housing deduction. If eligible, you can exclude up to around $105,000 (annually adjusted for inflation) from your income and you don’t need to pay any tax on this income.

Foreign Housing Credit

You are entitled an additional deduction available if renting a home in a foreign country. To be qualified, you must be one of any of the following:

  • A USA citizen who is a valid resident of a foreign country or countries for the whole period that includes an entire tax year,
  • A USA resident alien who is a citizen of a particular country or countries where the United States has an income tax treaty and a valid resident of a country other than the United States for a period that includes an entire tax year,
  • A USA citizen or a green card holder who happens to be physically present in a foreign country or countries for at least 330 days during any period of 12 consecutive months.

Foreign Tax Credits 

If you are working in a foreign country and paying income taxes on your earnings in the said foreign country, you can claim credit for the taxes paid on your US tax return by filing foreign 1116 with your USA tax return.  Depending on how much tax is paid in a foreign country and what your tax liability is on your US tax return, you could potentially reduce or eliminate your USA tax liability.

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Report of Foreign Bank and Financial Accounts (FBAR)

As per the Bank Secrecy Act, every year you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts. You report the accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) on Financial Crimes Enforcement Network (FinCEN) Form 114.

Who Must File

A U.S. person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report:

  1. a financial interest in or signature or other authority over at least one financial account located outside the United States if
  2. the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

Generally, an account at a financial institution located outside the United States is a foreign financial account. Whether the account produced taxable income has no effect on whether the account is a foreign financial account for FBAR purposes.

But, you don’t need to report foreign financial accounts that are:

  • Correspondent/Nostro accounts,
  • Owned by a governmental entity,
  • Owned by an international financial institution,
  • Maintained on a U.S. military banking facility, 
  • Held in an individual retirement account (IRA) of which you’re an owner or beneficiary,
  • Held in a retirement plan of which you’re a participant or beneficiary, or
  • Part of a trust of which you’re a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.

You don’t need to file an FBAR for the calendar year if: 

  • All your foreign financial accounts are reported on a consolidated FBAR, or
  • You jointly own all your foreign financial accounts with your spouse and:
    • You completed and signed FinCEN Form 114a authorizing your spouse to file on your behalf, and your spouse reports the jointly owned accounts on a timely-filed signed FBAR. 

Note: Income tax filing status, such as married-filing-jointly and married-filing-separately, has no effect on your qualification for this exception.

When to File

The FBAR is an annual report, due April 15 following the calendar year reported. You’re allowed an automatic extension to October 15 if you fail to meet the FBAR annual due date of April 15. You don’t need to request an extension to file the FBAR

How to File

You must file the FBAR electronically through FinCEN’s BSA E-Filing System. You don’t file the FBAR with your federal tax return

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