What Americans Living Abroad Should Know
Living abroad is now easier than ever, thanks to online resources and tech tools for communications and collaboration. Whether you are going abroad for work, vacation, or social reasons, you can live a happy and comfortable life in your new country and even generate more income. However, moving to a foreign land takes more than just packing the bags. You have to keep in mind a few other things, such as the tax obligations, health care systems, and residency restrictions because every country offers unique rules to expatriates. It's normal to be overwhelmed when moving abroad because you don't know how to conquer some fears. This guide explores the most common fears of moving abroad and how to deal with them. Of course, the biggest issue revolves around tax fillings, so it will shed light on this to ease your mind and help you make an informed decision. Learn more about U.S. expat tax services.
U.S. Expat Tax Services and Payments
"Do U.S tax expatriates pay income tax?" "How much do they pay, and what are the exemptions?" These are common questions to many people planning to move abroad because the U.S tax systems can confuse expatriates.
While many countries' taxes are based on residence or income generated from the country of residence, U.S tax payment systems are based on citizenship and not the city and the country of residence. As such, all Americans living abroad are subject to tax payments, irrespective of their country. Green card holders have tax obligations as well.
Taxable income for expatriates includes:
- Rental income
Expats with registered foreign businesses should report by filling out form 5471. Expats with foreign rental properties should fill in tax reports on form 1040. Some expats may also continue paying state taxes. If you come from California, South Carolina, or Virginia, the chances are high that you will still have to pay your state taxes even when you move abroad. Confirm your state's rules first to know your tax obligations and requirements to avoid tax surprises.
If you live with children in your foreign country, you can claim a tax credit. You can only claim this credit on Form 8812 for your dependent children. This refundable credit can be a big boost when living in a foreign land.
It's possible to get special tax benefits when you are a U.S resident living abroad. The two main tax credits include:
- Foreign tax credit
- Foreign earned income exclusion
The Foreign Tax Credit allows U.S residents living abroad to ask for credit on their foreign income.
Foreign Earned Income Exclusion works best for U.S expatriates who pay a higher tax for their foreign income than what they pay when living in the country. Usually, the claim for Foreign Earned Income Exclusion should be accompanied by IRS Form 1116 when filing the annual tax bill. Also, you should prove that you are living abroad for you to get the income exclusion. The IRS requires you to pass two tests: the Bona Fide Residence Test and the Physical Presence Test to qualify for the income exclusion.
It's worth noting that you cannot apply for both the Foreign Earned Income Exclusion and Foreign Tax Credit at the same time. You can only use both when you have different types of income, meaning you apply for your varying incomes.
Reporting Foreign Accounts and Assets for U.S. Expat Tax Services
In addition to the annual federal tax filings, Americans living abroad should provide a Foreign Bank Account Report, commonly known as FBAR. If your foreign bank account is worth more than $10,000, you should provide an annual report by filing FinCEN form 114 online.
Similarly, you should report your foreign financial assets by filling out Form 8938. There are hefty penalties for expatriates who fail to report their foreign accounts or assets; hence, you should comply to avoid legal repercussions.
Other Common Fears of Living Abroad and How to Deal With Them
Moving abroad may be easy, but there are multiple fears to deal with, especially if this is your first time going out of the United States. Other than the tax payments, here are other common concerns for U.S. expats and how to deal with them. If you can manage your tax payments and these other things, you can have a better experience in your new country.
Language can be a significant challenge if you move to a country where English is not the first language. Before you leave, research the commonly spoken language and learn the essential words. You can also download the language translations apps and make friends with the locals to capture your new language quickly.
Money is a significant concern even when you are financially stable. You will want to ensure that you don't go broke when you go to your new country, and this means you should have a plan. Carry enough money for your survival in the first two months. If possible, learn the friendly money transfer methods that you can use to get money from your family in the U.S. Most importantly, find a job in your new country to sustain yourself without having to go broke.
Safety is another big concern when moving to a new country. If you have never been to the country, read blogs to get an idea of the safe places to reside in. Avoid crowded places, and don't get drunk in the first days of your arrival in the new country. Get travel insurance, and know the emergency numbers to call when you are in danger.
Leaving your family and friends is never easy. To avoid loneliness in your new country, be sure to have a social life. Make friends and learn the local language. If the loneliness is too much to bear, don't sink into depression. You can go back to your country because maybe, that was not the right time or country to go to.
Moving Overseas? Seek Professional Help and Guidance Regarding U.S. Expat Tax Services
When moving to a new country, there are many things to consider, from the tax to finances to language barriers. If you have never moved to another country before, you may need help to calm your fears and gain insights on the most critical aspects.
Tax filing, for instance, can be a bit complicated for U.S. expat tax services, so it's wise to know your options based on your income and nature of work. Our tax advisors can handle your tax concerns to help you meet tax obligations related to your work. Contact our team today for help and advice.