If you are a U.S. citizen and are living in another country, you still need to file your tax return and pay taxes each tax year.  Use these tips to help you plan when and how to file your taxes while living abroad. 

1.     Avoid interest charges.

Even though the government gives you an automatic 2-month extension to file your taxes (deadline is June 15^th), you still have to pay any owed taxes by April 17^th. If you can’t file your return by June 15^th, you can request an extension (Form 4868) to October 15^th. However, any payments made after June 15^th will be subject to late payment penalties and interest charges.  Make sure you pay by the due date to avoid incurring unnecessary costs.

Use tax software to help you e-file Form 4868 to get an extension.

2.     Avoid double taxation.

The U.S. has tax treaties with many other countries to help reduce the total worldwide taxes a U.S. citizen living abroad must pay. Use Form 8802, Application of United States Residency Certification, to claim tax treaty benefits in the country where you reside. Visit www.irs.gov to view complete information about tax treaties.

3.     Calculate the exchange rate.

All income must be reported on your tax return in U.S. dollars.  In order to figure out what the exchange rate is, use www.oanda.com or consult the IRS page for Yearly Average Exchange Rates.

4.     Use the Foreign Earned Income Exclusion. 

If you’ve lived in a different country for at least a year and have earned income there, you may be eligible for the exclusions on foreign income and housing. On your tax return for the 2011 tax year, you can exclude up to $92,900 of income earned abroad. Use Form 2555 to claim these deductions.

Your tax preparation software can help you calculate these exclusions and deductions.

5.     Pay expatriation taxes.

If you have moved to a different country and renounced your U.S. citizenship, you are still required to pay expatriation taxes for the following 10 years. You may want to seek the advice of a tax attorney before you decide to give up your citizenship.

6.     Pay the Value-Added Tax.

The Value-Added Tax (VAT) mainly applies to people living in Europe who own a business. VAT is typically applied when a product or service is resold and/or value is added to it. It can be thought of as a national sales tax. It’s best to do research before you begin selling goods in services in another country or before you sell to another country.

7.     Pay state, federal and foreign income taxes.

If you live abroad, you still need to pay income tax both your federal taxes and state tax required by your home state, in addition to any foreign taxes of the country where you reside. Tax preparers and advisors abroad most likely won’t have specific knowledge about American federal or state taxes, so make sure you consult the tax laws of your home state and get advice from the IRS.

Use tax software to calculate to file your state tax returns as well as your federal returns.

8.     Deduct moving expenses.

If you moved to a foreign country because of your job or business, you can deduct moving expenses for a foreign move. However, a foreign move does not include a move back to the U.S. within the same tax year. Make sure you keep detailed records of your expenses in order to maximize and back up your deductions. You may want to request a filing extension until you get all the information needed to calculate your expense deductions.

9.     Use a domestic address.

If you are using a non-military address in a foreign country, you must print and mail your return to the IRS. This could increase the time it takes for your return to be processed and for you to receive your tax refund. Make sure that you are using a current domestic address, if possible. If you need to change your address, you must notify the IRS using Form 8822. 

10.   Get tax advice abroad.

The Taxpayer Advocate, an organization within the IRS, is available to help you with filing tax returns while living abroad. Call them at (787) 622-8940 for assistance in English or (787) 622-8930 for help in Espanol. You can also contact IRS personnel in the American embassies and consulates in the following countries:

U.S. Consulate, Germany
Tel: +49-69-7535-3834
Fax: +49-69-7535-3803
Email: irs.frankfurt@irs.gov

U.S. Embassy, England
Tel: +44-207-894-0476
Fax: +44-207-495-4224
Email: irs.london@irs.gov

U.S. Embassy, France
Tel: +33-1-4312-2555
Fax: +33-1-4312-2303
Email: irs.paris@irs.gov

U.S. Embassy, China
Limited taxpayer service at this time by appointment only. You may email for an appointment at amcitbeijing@state.gov.

 

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