Let’s face it – filing an expat tax return can be quite complicated. Throw in a unique career – think pilot or seafarer – and your situation can become even more complex, since you’re always on the go and don’t spend much time at ‘home.’ However, understanding your tax requirements doesn’t have to involve pulling your hair out – here are a few helpful pieces of advice to make the process simpler!
1. Track Your Time Carefully
As an expat, in order to use one of the biggest cost-saving exclusions (the Foreign Earned Income Exclusion) on your expat tax return, you’ll need to track your time spent outside the US. As a pilot or seafarer, tracking this information can be tricky since you’re often over international waters and away from your home. Also, defining your ‘foreign earned income’ is not as simple, since it’s hard to keep track of crossing borders when traveling by air and sea. And since money made over international waters isn’t counted as foreign income, it’s critical that you track time spent between the US, foreign countries and over international waters.
2. How to Qualify for the Foreign Earned Income Exclusion
We alluded to the Foreign Earned Income Exclusion (FEIE) above, but you may be wondering what it’s all about. This exclusion allows Americans working overseas the ability to claim up to $101,300 of foreign earned income on your expat tax return (and $102,100 for 2017 taxes) – meaning you wouldn’t need to pay US taxes on that income. To qualify, you must meet one of the following tests:
- Physical Presence Test: This test requires that you live abroad for 330 out of any 365-day period.
- Bona Fide Residence Test: This test requires that you live outside the US for a full calendar year. Additionally, you must not intend to return to the US to live for the foreseeable future and show that you’ve established your residence in the foreign country.
As a seafarer, you may find that it’s easy to meet the Physical Presence Test, depending on where you spend most of your time during the tax year. As a pilot who spends a lot of time flying internationally, though, you may find that setting up residence outside the US is a big benefit to you come tax time. Read more about how to save big on your expat taxes in this article.
3. Why Keeping Accurate Records Is Key
You already know that keeping travel records is important in order to apply cost savings to your US Tax Return, but there are other documents and pieces of information that are critical to hold onto as well. Expats have a greater probability of being audited, mainly due to the nature and complexity of filing an expat tax return. In the event of an audit as a seafarer or pilot, you’d need to provide accurate information depicting how much you earned in the US and abroad – which might be easier said than done!
4. Interpretation of Tax Requirements Varies
When it comes to taxes, sometimes the tricky rules and requirements can complicate matters for expats and those who travel often. It’s to your benefit to gain as much knowledge as you can about the rules and requirements that pertain to your situation, to ensure you’re prepared when tax time rolls around. Feel like you need a little expat tax advice? If that’s the case, it’s always recommended to discuss your situation with a tax professional, who can help ensure you cover all your bases when it comes to your US expat tax return!
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