For Those Moving Overseas This Summer, Prepare Now Before You Go

As a U.S. citizen (expatriate) or resident alien, your worldwide income generally is subject to U.S. income tax regardless of where you are living.

Read the full press release, originally published on PR Web, below:

With the summer school holidays underway, traditionally many Americans looking to undertake a big move abroad will take advantage of this time of year to relocate. Given the complexity of a big move, one of the areas that is often overlooked is effective tax planning for expatriates. U.S. tax rules can be confusing and learning the rules in advance can save future expatriates time and money, and help them to avoid penalties. According to Greenback Expat Tax Services President David McKeegan, “The more expatriates know about U.S. expat tax preparation basics before they move abroad, the better prepared they will be to file a complete and accurate expatriate tax return and maximize the savings on their U.S. expat taxes.”

Here are a few tips to help prepare Americans currently undertaking their move abroad.

First, all American citizens must file a U.S. Tax Return, even if they are filing and paying taxes in a different country of residence. According to the IRS, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same for any U.S. citizen or resident alien, whether they are living in the United States or abroad. Worldwide income is subject to U.S. federal income taxes, and potentially state taxes, regardless of where a citizen or resident alien resides.

Second, taxpayers may be required to report foreign bank accounts via two different forms — one to the IRS and one to the U.S. Department of the Treasury. Mr. McKeegan points out that there are also required forms that must be filed separately from tax returns, like the Report of Foreign Bank and Financial Account, TD F 90-22.1, also known as the FBAR. The deadline for filing the FBAR is strict — June 30 of each year — and penalties can be severe for those who do not file. Another form requirement is the new IRS Form 8938, Statement of Specified Foreign Financial Accounts, required if a taxpayer’s foreign assets met or exceeded a $50,000 threshold (higher for expats). “These forms are very different and it is important not to confuse the two. One does not replace the other and both may be required for an individual,” warns Mr. McKeegan.

Third, just because taxpayers need to file doesn’t mean they will be double taxed. Being an expat comes with benefits for the reduction of dual taxation. Expats are eligible for the Foreign Housing Allowance, the Foreign Tax Credit, and the Foreign Earned Income Exclusion which allows Americans living overseas to exclude $92,900 from their foreign earned income for the 2011 tax year, and $95,100 for 2012.

Mr. McKeegan notes that it is necessary that taxpayers qualify for these credits each year by having a foreign earned income, acquiring a tax home in a foreign country, residing in a country with a non-discriminatory tax treaty with the U.S., and passing either the Physical Presence Test or the Bona Fide Resident Test. “Expat tax preparation is incredibly important, and taxpayers must do the due diligence before they leave in order to ensure that they file their U.S. expat taxes correctly and save as much money as possible,” Mr. McKeegan adds.