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What Tax Benefits Are Available for U.S. Taxpayers Living Abroad?

Posted on in Taxation Law

san jose tax lawyerTaxpayers in the United States often have difficulty navigating the complex tax laws. For U.S. citizens or residents who live in other countries, these issues can become even more complicated since a person may be required to pay U.S. taxes on income they earn, and they may also need to pay taxes in that country as well. Fortunately, U.S. taxpayers who live abroad can take advantage of a number of benefits that will allow them to address their tax issues properly and avoid unfair financial burdens. However, they will also need to make sure they are properly reporting their foreign income and the assets they own in other countries, which will help them avoid potential penalties.

Tax Benefits for Those Who Live Abroad

To address the concerns that affect taxpayers who live primarily in another country, the Internal Revenue Service (IRS) has made the following provisions:

  • Automatic extension - Most taxpayers are required to submit their annual income tax return to the IRS on April 15. However, those who live outside the United States or Puerto Rico will receive an automatic extension of 2 months, as long as they can show that their main place of business is outside the United States or Puerto Rico or that they are on duty outside the United States or Puerto Rico as a member of the military. 

  • Foreign earned income exclusion - Taxpayers who live abroad may be able to exclude some of the income they earn in a foreign country from their taxable income in the United States. Generally, if a person resides in a foreign country for the entire tax year, or if they are physically present in another country for at least 330 days during a 12-month period, they may exclude a certain amount of their foreign earnings. The exclusion amount is adjusted each year for inflation; in 2022, the amount is $112,000. Wages, salaries, and other forms of income may be excluded. A taxpayer may also exclude the value of meals and lodging provided by an employer as long as these were provided on the employer’s premises and for the employer’s convenience.

  • Foreign housing exclusion - A taxpayer who meets the residence requirements for the foreign earned income exclusion may also claim an exclusion or deduction for their housing expenses. This exclusion will apply to expenses paid with income earned from an employer or expenses directly paid by the employer. The amount of the exclusion is determined by taking the total foreign housing expenses and subtracting the “base housing amount,” which is calculated based on the maximum foreign income exclusion amount and the number of days a person resided outside the United States during the applicable tax year. Applicable expenses include reasonable amounts paid for housing, but they do not include the costs of purchasing property, buying furniture or accessories, making improvements to a home, or meals.

  • Foreign tax credit - For those who did not use the foreign earned income exclusion or the foreign housing exclusion, they may receive credit for the amount of taxes paid to a foreign country. These amounts may be taken as a credit against a person’s tax liability, or they may be deducted from a person’s taxable income.

Contact Our San Jose Foreign Resident Tax Attorney

If you reside in a foreign country but are required to pay taxes in the United States, determining how to handle tax-related issues can be complicated. At John D. Teter Law Offices, we can help you settle issues related to tax liabilities, and we will help you utilize the available laws to minimize the taxes you will be required to pay or determine how you can avoid penalties. Contact our San Jose, CA foreign resident tax lawyer at 408-866-1810 to learn more about our services.

Sources:

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion

https://www.irs.gov/individuals/international-taxpayers/foreign-housing-exclusion-or-deduction

https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit

https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-automatic-2-month-extension-of-time-to-file

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