It is a daunting tax to try to sit and understand the tax code of the USA, especially without the help of an expert guiding you. The tax becomes even more difficult, when you are an US expat. The confusing and complex information is hard to understand by anyone. There are finer nuances to the tax laws, which increase its complexity. In fact, the complications have increased quite a bit ever since the new tax reforms were announced. It helps to navigate through the intricacies of the tax laws if you have a basic idea about a few things.
Expats need to file US taxes if they have income
Expats will have to file US taxes when they have income or get certain special credits. Matthew Ledvina, one of the top tax advisors in the US, suggests that if the worldwide income of an US expat is more than the filing threshold, they will have to file Federal Tax Returns every year. Such incomes can include rental income, dividends, interests, and salary from non-US and US sources.
The threshold remains at $400 regardless of filing status when you are self-employed. In fact, you might need to file the taxes even if special taxes make you subject to the filing requirements. It helps to get in touch with an experienced US tax advisor to clarify the matter beforehand.
Previous returns can be amended if there’s a mistake
If you have had no help in understanding your taxes, mistakes are likely to happen. However, the good news is that you can file an amended return for that financial year using form no. 1040X, in case you failed to take all the deductions or report any part of your income.
The penalties are less if you file for the amendment before the mistake catches the eyes of the IRS. The clock gets ticking after you file your original return, and there is a certain date within which you need to file the amended returns. So, if you have any doubts in your mind, talk to an expert tax advisor.
Lowering expat taxes through Foreign Tax Credit
Matthew Ledvina suggests the US expats to use the FTC (Foreign Tax Credit) to eliminate or offset the US tax liability. He says that you can choose this way if your income goes over the FEIE (Foreign Earned Income Exclusion) or you stay in a high-tax country.
The FTC comes with a dollar-on-dollar credit for the taxes that you pay to a foreign nation. You can elect it by filing form 1116. Many of the taxpayers have the eligibility for both the foreign earned income exclusion and foreign tax credit. But, significant tax savings can be ensured by going for the foreign tax credits over exclusion, if the taxpayer also claims child tax credits.
You can even save up on the US expat taxes, if you take the right measures for it under the competent guidance of a well-reputed tax advisor.