Turn Your Foreign Dreams Green:
Expat Tax in the US
If you are an American citizen living abroad, or if you are a green card holder living abroad, which is to say someone with permanent residence in the US, then you may consider yourself an expat ( ), and you may be worrying about the expat tax in the US. Truth be told, however, the legal definition of expat, under the aegis of the IRS, is a former citizen or permanent resident of America who has since renounced their citizenship. If you fall into this conception of expatriate, then the following will only be relevant to you if you have forfeited US citizenship after the latest Form 1040 file date (generally April 15th, if you are a calendar year filer); this is because you will owe back taxes from the time you were living in the US. This distinction between the colloquial and legal understandings of expat are important to understand since ‘colloquial expats,’ foreign nationals in the country in which you are living, are still beholden to the exigencies of the IRS.
Instances of Obligation
Although you may have moved for work, retirement, or with a spouse, and though you no longer receive tax-funded American amenities, a foreign national with US citizenship will nonetheless have to pay taxes on any number of assets and incomes. Indeed, even if you moved for your spouse’s work, you may be beholden to expat tax in the US. However, if you yourself do earn wages or salary abroad and are taxed within the purview of that state’s laws, you will still have to file taxes in the US on your income as long as it is excluded on IRS Form 2555. If it is not excluded, then you can apply for a foreign tax credit. The amount of reduction to your overall taxes depends on the ratio of excluded income to total income. As a rough estimate, in some cases, while earning over $110,000 abroad, the foreign tax credit can be used to deduct as much as $1400.
Otherwise Than Obliged
That said, there is another means of reducing the weight of expat taxes in the US on your foreign earnings; though, as with all business involving the maintenance and management of taxable assets and capital, the process can be seriously eased with the help of a tax lawyer. There are two key methods of attenuating the strain the IRS will put on your foreign earnings.
The first, and likely the one you will have read about, is FEIE—the Foreign Earned Income Exclusion. This exclusion, as per the rate for 2017 earnings, is $102,100. This concretely means that, if you earn more than the above amount, you can deduct said amount from your US taxable income and incur expat taxes in the US only on the remainder. Due to the stacking rule, the remaining taxable income will still be taxed at the unreduced, original amount, from which you deducted the $102,200. (Refer to the filing thresholds that correspond to your grouping option—whether you are filing jointly, separately, are a senior or not, &c. Last, be sure that, when considering your taxes abroad ( ), you pay attention to all of both active and passive modes of income—from capital gains to alimony. And don’t fret too much about that April 15th deadline—expats get an automatic extension to June 15th.