Understanding the US code of taxes can be a daunting task for those citizens living abroad. While the information may appear complex and confusing, you may have to dig deep into it to know where you stand. However, you need to follow a set of advice to overcome the complexities. If your global earnings surpass the threshold, you have to file the Federal Tax Return every year.
The income may come through salary from different sources, rents, dividends. Try to know the threshold amount. With the eligibility of earning refunds and credits, you may file the return even if you do not have to do it mandatorily. If you owe special taxes, you have to file the return as well. Read the following advice to know about the expat taxes.
1.Changing a previous return
Mistakes may happen and you may forget to mention a source of income on the tax return. You may not have received all the deductions to which you are entitled. You have to preferably change it before the error comes to the notice of IRS. If you choose to get the refund or the credit, you must amend the return as soon as possible to avoid the complexities.
2. The foreign tax credit can lessen the US taxes
If you live in a country that imposes high taxes or your income exceeds the FEIE, the FTC or the Foreign Tax Credit can help you to reduce the liability of the US taxes. Several taxpayers may be eligible for FEIE and FTC. If you claim the child tax credit, the FTC will serve you a better opportunity to save money.
3.Owing to the taxes
The Taxpayer Americans Living Abroad must know that there are deductions, credits and exclusions offered to them to ensure that they are not paying taxes twice against the same income. Most of the taxpayers can offset the money earned from the foreign location with the help of FTC, FEIE, and FHE.
4.No FTC on excluded income
If you decide to exclude some of your income with Foreign Earned Income Exclusion, you are no longer eligible to use the Foreign Tax Credit. When you find out that you could not claim the entire amount of taxes you paid on the foreign income, you can carry forward them for the next ten years.
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5.Passing the residency test
You have to pass the Physical Presence Test to prove that you have been physically present in that country for a period of 330- 365 days to use the Foreign Earned Income Exclusion.
6.Qualifying as an expat
Once you qualify for the physical presence in a foreign country, you must also count your days of travel. The time is taken during the travel whether by sea or in the air, the period will not count when you need to qualify as an expat. Knowing the dates of travel can help you stay on track.
7.Filing for extension
If you worry about missing the FEIE or the tax benefits when you move abroad in the latter part of the year, you can apply for an extension to buy more time.
If you want to know more about the tax structure for the expats, you can try to gather information online to clarify your doubts.
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