Whether you are a permanent resident, citizen of a foreign country, permanent citizen of US or a US green card holder who works abroad, you have to file U.S. taxes and report your income. But, certain rules about American Tax for US Residents Living Abroad, regulations, and benefits are available to expats, including the foreign earned income exclusion. Apart from this, you may still owe state taxes as well. But, this depends on the state you lived in before moving abroad as the tax residency rules vary state by state. For example- Many states will allow the foreign earned income exclusion, and this can affect your taxable income. But, consulting with a professional expat tax expert will help you find out if you are still required to file a state income tax return or not.
Reasons on Why Should File A US Expatriate Tax Return?
The first important reason is it’s the law. If you are a U.S. citizen or resident alien, you need to port income from all sources within and outside of the U.S. Whether you wind up paying tax on that income is irrelevant or not – the income itself must be reported. Some other reasons that make filing U.S are:
- If you fail to file, then you cannot claim foreign income exclusion as well as you may be liable for penalties. In addition to this, if you meet the qualifications for Foreign Earned Income Exclusion you are eligible to exclude up to $100k. But you must file so as to avail of this exclusion.
- You are an expat and get married to a non-U.S citizen in your overseas country. You want to introduce your new spouse to your family after marriage and visit them in the US. Keep in mind that without filing federal tax returns, this can be very difficult. So, you have to submit copies of tax returns for the last 3 years in order for your spouse to obtain a U.S visa.
- If you are a US green-card holder, then filing U.S. tax return establishes Good moral character” in the eyes of INS U.S. Citizenship and Immigration Services (USCIS) for immigration compliance.
- Also, per section 1 of the Internal Revenue Code, you have to file US tax return if you meet filing needs. Whether you must file your tax return depends on 3 key factors- 1) gross income, 2) filing status and 3) age.
- Americans living abroad are taxed on their overseas income. Even if, some expats have left the US a long time ago as well as don’t have any income from the US, they are still required to file tax returns.
There are many special circumstances that need American expatriates to file US expat tax returns. For example-Net self-employment income of $400 or more, Alternative Minimum Tax due, Household employment taxes due, FICA taxes on unreported tip income, Additional taxes on a retirement plan or health savings account, Distributions are received from an MSA or Health Savings Account, Earnings in the amount of $108.28 or more from a tax-exempt church or church-controlled organization and Requirement to repay some recapture taxes on US expat tax returns
American expatriates who need to file US tax returns, FATCA, FBARs, PFIC, and other overseas tax issues, must consult a professional tax expert that provides international tax services.