If you are a U.S. citizen living abroad or planning on moving overseas, it is vital to understand how the U.S. government will tax you. The United States government employs the method of worldwide taxation on her citizens including those born in the United States, outside the United States, or those who have immigrated to the country.
As a U.S. citizen living abroad, you are required to report annually on your worldwide income. This means that even though you are earning money outside of the United States, you must report the income that is being earned and deposited into a foreign bank account. This includes but is not limited to:
- Paychecks
- Self-employment
- Interest income
- Rental income
- Dividends
- Or any other type of income
There is no need to panic or assume that you will be taxed twice! The IRS generally prevents double taxation from taking effect by allowing individuals to claim either the foreign earned income exclusion, or the foreign tax credits that offset the U.S. taxes.
Additionally, you may have to disclose your ownership, whether direct or indirect, in foreign entities to the Internal Revenue Service. You may also have to disclose your financial interest in any foreign owned bank account(s) at any point during the year and if, in aggregate, your bank account(s), either separately, jointly, or signature authority thereon, ever exceeded $10,000 USD at any point during the year.
If you are a U.S citizen living abroad, relocating or planning to retire abroad, then contact XPAT 1040 to assist with your international tax compliance now.
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