Expat Guide 2018-19 For Us Residents Living Abroad

All US residents and citizens living abroad, including students and individuals, who are on military duty, are likely to file taxes in the US. They all have to report their overseas income to the US, it does not matter whether they live there or not, and they have to file in US dollars. If required, the US does allow a 2-month extension from the standard filing deadline.

What is the US tax year?

The tax year, which is also known as the ‘fiscal year’, runs from Jan 1 - December 31. Taxpayers are expected to file their taxes for the calendar year, by the following April 15. The deadline for filing taxes for 2018 would be by April 15, 2019.

Tax rates

There are 7 tax brackets- i) 10%, ii) 15%, iii) 25%, iv) 28%, v) 33%, vi) 35%, and vii)39.6%. These brackets for American tax for us residents living abroad are applied at various levels of income to each of the 4categories of taxpayers- 1) Single, 2) Married filing jointly, 3) Married filing separately, and 4) Head of the household. In addition to this, kids under age 18 at year-end are taxed on unearned income in excess of certain sums at their parents’ tax rate if this rate is higher.

Who must file tax?

While residing abroad, US citizens and non-residents must continue to follow the standard rules for filing US income tax returns. You must file if your gross income is in excess of the standard deduction as well as the personal exemption amounts, while if you are married and entitled to file a joint return, then you have to file only if your combined gross income is at least as high as the value of the standard deduction for you and your partner and two personal exclusions. 

A kid who is appealed as a dependent on the parents’ return needs to file his or her own return if his or her unearned or investment income exceeds certain amounts.

Read Also: What Are The Penalties For Not Filing Taxes While Living Abroad

In calculating these amounts, all compensation received abroad is included in gross income. Also, income that is excludable for other reasons, like interest on tax-free municipal bonds, is not included in the gross income. You have to file a tax return even if you foreign exclusions or deductions equal or surpass gross income or when credits, like the foreign tax credit, totally eliminate US tax liability.

What if don’t earn an income?

Clearly, if you don’t earn an income, you will not have to pay tax in the United States or anywhere in the world. But a tax return might still need to be filed, depending on your situations. For example- if the IRS investigate any disputes over your tax liabilities or status.

Can I surrender my US citizenship to avoid US tax?

It is possible to give up your US Citizenship, but there are implications of doing so and your prime motive for giving up must not be to avoid paying UK tax.  You must go for specialist advice from a qualified tax adviser if you are considering renouncing your US citizenship.