When it comes to taxes, you’ll need to file a US Tax Return regardless of whether or not you live in the States since all US citizens must file each year. As if a big move abroad isn’t life-changing enough, things like marriage, having children and other important events can also impact your expatriate tax preparation. Here are several situations you’ll want to be aware of that might affect your filing status and how much you save on your expat taxes.
1. Moving Abroad
Since we focus on expatriate tax preparation, we’d be remiss not to mention the impact that moving overseas has on your US taxes! As mentioned above, you must file a US Tax Return even if you have moved abroad, and depending on your individual situation, you may have additional forms to file. Understanding your filing obligations can be confusing, especially since you may need to file taxes in your host country as well. Fortunately, the IRS offers several ways to help protect you from double taxation, including the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).
You’ll also want to understand your obligations regarding Social Security when moving abroad, so you will know to which country you’ll need to pay into. You can learn more about Social Security and living abroad right here.
One factor that has a big impact on your expatriate tax preparation is your relationship status. Did you just say “I Do”? If so, your filing status will change, as you will need to file Married Filing Jointly or Married Filing Separately – and determining which status is best for your bottom line may require some calculation. At any rate, if you have an employer, you’ll want to update your W-4 to reflect your marital status or if you are self-employed, you’ll want to adjust your quarterly estimated tax payments accordingly.
3. Buying a Home
If you’re planning to purchase a home, there are a number of things you’ll want to be aware of, including expatriate tax preparation implications. While buying real estate is not considered to be a taxable event, if you’re buying a home as your primary residence, you’ll open up the door for many deductions, including mortgage interest, real estate taxes, and private mortgage insurance premiums paid during the tax year, among others. Also, when purchasing a home abroad, whether as a primary residence or vacation home, it’s a good idea to consult with a tax advisor in your host country to ensure you meet all tax reporting requirements.
4. Selling a Home
On the contrary, when selling your primary residence for a gain, any profit you receive will be considered as income on your expat taxes. However, the ‘Sale of Main Home Exclusion’ may allow you to deduct certain amounts if you qualify for the exclusion by living in the house for a total of 2 of the last 5 years. The exclusion amounts are as follows:
- Individuals: May exclude up to $250,000 of the gain from taxation.
- Married Taxpayers (Filing Jointly): May exclude up to $500,000 of the gain from taxation.
When selling a home abroad, any gain that isn’t excluded using the amounts listed above will be considered foreign sourced income, which means you’ll be able to use the Foreign Tax Credit to help offset any tax incurred. Note that the Foreign Earned Income Exclusion (FEIE) can’t apply here, as this is not considered ‘earned’ income. To learn more about gains and losses in real estate transactions, visit this link.
5. Having Children
That sweet little bundle of joy brings you immense happiness…and yes, expat tax savings, too – such as:
- Child Tax Credit: Receive up to $1,000 per child, if you have US person child dependents on your expatriate tax return (under age 17 during tax year). This credit is modified based on income and filing status, and an additional child tax credit that might lead to a refund. However, if you use the FEIE, you will not be eligible for the additional credit. Get the facts about the Child Tax Credit on the IRS website.
- Child Care Credit: A dollar-for-dollar reduction in taxes paid, up to $600 per child. This can be taken if you paid for child care for a qualifying child in order for you to work or search for work. You can learn more about the Child Care Credit here.
- Education Credit: A college student attending an eligible institution will allow you to claim up to $10,000 in tax credits, which could even lead to a refund. An eligible institution is one that participates in the US Federal Student Aid Program and can provide you a Form 1098-T on which to report tuition and fees.
While all of the methods above affect your expat tax preparation, there are ways you can find to potentially save you more money come tax time. For a few specific money-saving ideas, download our tax guide for Americans working overseas.
Need Help With Your Expatriate Tax Preparation?
Whether you’re new to living abroad, or have been adventuring overseas for many years, our team of expat-expert CPAs and IRS Enrolled Agents can help you navigate the often-complex nature of expat taxes. Get started with us today for a hassle-free tax filing experience!