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Top 5 US Expat Tax Filing Strategies in 2019
It's filing season - here are some top tips for overseas Americans, provided by US Expat Tax firm Bright!Tax
With 2019 tax season in full swing, here are our top 5 tax strategies for US expats when they file their federal tax return in 2019.
★ 1 - Get and Stay Compliant
Because the US taxes are based on citizenship, all US expats who have at least $12,000 annual income, or just $400 self-employment income, are required to file a US federal tax return, reporting their worldwide income.
The IRS now has access to both foreign tax information (provided by foreign governments), and foreign bank and investment account details provided by foreign banks, so for the first time living abroad no longer means being ‘out of range’ of the IRS.
So the first and best strategy for US expats in 2019 is to ensure that they are compliant and up to date with their US tax filing.
Expats who need to file multiple years to catch up can do so without facing penalties under and IRS amnesty program called the Streamlined Procedure, so long as they do so before the IRS contacts them.
★ 2 - Claim US Tax Exemptions
When expats file, including those filing previous years under the Streamlined Procedure program, they can normally eradicate their US tax bill by claiming one or more IRS exemptions.
These exemptions include the Foreign Tax Credit, which gives US tax credits to the same amount as foreign taxes already paid, and the Foreign Earned Income Exclusion, which lets expats simply exclude $103,900 (for year 2018) of their earned income. Which exemption it is more advantageous to claim depends on several factors relating to each expat’s circumstances, such as where the income is sourced, income types and levels, and family situation.
Unfortunately, the US-UK tax treaty doesn’t exempt expats from filing or owing US taxes automatically, so expats still have to file and actively claim exemptions to reduce (and most often eradicate) their US tax bill.
★ 3 - Don’t Neglect the Additional Filing Requirements for Expats
Expats may also have to report any foreign bank and investment accounts that they have control or signatory authority over, if the total combined value of their account balances exceeds $10,000 at any time during the year, by filing a Foreign Bank Account Report, or FBAR. Penalties for neglecting this rule are steep, starting at $10,000 a year for unintentional errors or noncompliance.
Expats are also required to report their foreign financial assets on form 8938 if they total over $200,000, as well as any foreign businesses and trusts. Expats with a significant stake in a foreign registered business may also be subject to new taxes introduced in the Tax Reform when they file in 2019.
★ 4 - Claim the New Child Tax Credit
Expats who claim the Foreign Tax Credit and who have children with a US social security number can also claim the new Child Tax Credit.
The new Child Tax Credit was introduced as part of the Trump Tax Reform, and it merged the previous Child Tax Credit and Additional Child Tax Credit, which was refundable.
The new Child Tax Credit allows expats who owe US tax to claim a $2,000 tax credit per qualifying dependent child, or those expats who don’t owe US tax to claim a $1,400 ‘refund’ per child. Many US expats living and earning in the UK who claim the US Foreign Tax Credit won’t owe US tax, as their UK income tax bill will be higher than their IRS tax bill, so claiming the Child Tax Credit will give them a $1,400 payment per qualifying child.
★ 5 - Seek Help
Filing as an American expat can be complex, due to the additional form filing required to claim IRS tax exemptions and relating to reporting foreign accounts, assets, and corporations. To ensure that expats file not just to avoid unnecessary taxes and fines but also to their maximum benefit, we recommend that expats living in the UK seek assistance from a recognized US expat tax specialist.
Bright!Tax (brighttax.com) is an award-winning, leading, specialist provider of expat tax services for Americans living abroad. If you require any assistance filing your US taxes, get in touch at firstname.lastname@example.org.