Understanding Your US Expatriate Taxes While Living in a No-Tax Zone

US Expatriate Taxes and No-Tax Zones

As you’re likely aware of, US citizens have an obligation to report worldwide income, no matter where you live – and this can possibly lead to paying taxes and in some cases, double taxation, if your host country also has a filing requirement. Fortunately, the US provides several tools to taxpayers in the form of treaties, credits, deductions and exclusions that help prevent being double taxed. Additionally, there are a small number of foreign countries that have no personal income tax – which means you could potentially eliminate your liability for US expatriate taxes! Read on for details.

Understanding Your US Filing Requirement

As mentioned above, all US citizens must file a US Tax Return regardless of whether you’re living in the US or not, if you meet the filing thresholds. For your 2016 US expatriate taxes, the income thresholds are:

  • Single: $10,350
  • Married Filing Separately: $4,050
  • Married Filing Jointly: $20,700
  • Self-Employed: $400

You can see all 2016 tax filing requirements on the IRS website here. Fortunately, there are several ways to reduce or eliminate your US tax liability – one of the most popular options for expats being the Foreign Earned Income Exclusion (FEIE). This allows you to exclude the first $101,300 of foreign income from your 2016 US expat taxes. You must qualify for either the Physical Presence Test or Bona Fide Residence Test in order to take advantage of the FEIE. Download a US expat tax guide for more details on the FEIE and other ways to save on your taxes.

You may also want to take advantage of the Foreign Tax Credit (FTC), which is a dollar-for-dollar reduction of your US tax liability on foreign earned income. You can’t take the FTC on income you’ve already excluded with the FEIE, so you should determine which one would save you more – or use the FTC for income earned above the FEIE exclusion amount. Learn more about the Foreign Tax Credit here.

Living in No-Tax Zones

When deciding where you’d like to start your adventure abroad, choosing a country that’s a ‘tax-free zone’ may not have been on your radar – but there are certainly advantages to doing so! If your host country has no personal income tax, there’s a chance you could entirely eliminate your tax liability, since you may be able to exclude all income from your US expatriate taxes with the credits, deductions and exclusions provided by the IRS. So, you’re probably wondering which locations are tax-free…here’s the full list:

  • The Bahamas
  • Bahrain
  • Bermuda
  • Brunei
  • Cayman Islands
  • Kuwait
  • Oman
  • Qatar
  • Saudi Arabia
  • United Arab Emirates

If you’re curious about tax rates around the world, check out this helpful scale.

US Expat Tax Deadlines to Know

If you happen to live in one of the places above, you’ll be fortunate to not have a filing requirement in your host country – but don’t forget to file your US expatriate taxes! Here are the deadlines you should be aware of this year.

  • April 18: This is known as ‘Tax Day’ for most Americans, but US expats receive an automatic two-month extension for filing their tax return. Do note, though, that any taxes owed are due by this date or interest will begin to accrue.
  • June 15: This is the expat tax deadline for Americans living overseas. If you need more time, you can also request an extension by this date, which gives you until the October 16th deadline to file.
  • October 16: This is the final tax deadline if you requested an extension.

You should also be aware of Foreign Bank Account Report (FBAR) and FATCA Form 8938 filing requirements (get the details in this article). Both of these will follow the expat tax deadlines this year. However, while Form 8938 accompanies your US expatriate taxes, your FBAR will need to be submitted to the US Treasury Department.

Need Help Filing Your US Expatriate Taxes?

One of our expat-expert accountants will be happy to assist you with your expat tax filing needs to ensure you’re taking advantage of all the savings applicable to your tax situation. Get started on your expat taxes now and gain unbeatable peace of mind!