When you move outside the United States for a job or retirement, what about income taxes? Last week, I got a chance to answer these questions at a workshop for people planning to move outside the U.S., sponsored by Your Expat Expert.
In general, the rules for filing and paying income, estate, and gift taxes are the same whether you live in the U.S. or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside. There are some differences, though.
It’s important to know four of those differences ahead of time to track the information you will need if you live outside the U.S. —
1. Filing Deadline
U.S. citizens and resident aliens residing overseas or who are in the military on duty outside the U.S. are allowed an automatic two-month extension to file their returns and pay any amount due. For a calendar year return, the automatic extension is to June 15.
2. Foreign Earned Income Exclusion
Foreign earnings up to an annually adjusted limit can be excluded from taxable income, $100,800 in 2015. Foreign earned income is income for services performed in a foreign country when your tax home is in a foreign country. Self-employed taxpayers can also take the foreign earned income exclusion, but not to reduce self-employment tax.
3. Housing Deduction or Credit
Qualified taxpayers can take a housing exclusion or deduction up to 30% of the foreign earned income exclusion. Housing costs paid with employer funds are eligible for an income exclusion. Housing costs paid with self-employment earnings are eligible for an income deduction.
4. Days Overseas vs. the U.S.
To qualify for any of these foreign earned income exclusions or deductions, your tax home must be in a foreign country and your days visiting the U.S. are limited. You must be an overseas resident for an uninterrupted period of at least one entire tax year, or you must physically be overseas for at least 330 full days during any period of 12 consecutive months.
U.S. citizens living abroad need to know more than “the usual” when they file their income tax returns. So if you’re planning an overseas move, learn more at http://1.usa.gov/1ohAW2f or talk to a qualified tax professional.