Tax Considerations When Living Abroad

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Tax season is difficult enough. When living abroad, it can become even more complicated. As a U.S. citizen, you must file a tax return with the IRS, regardless of where you are living in the world. You also may need to pay and file taxes in the country where you live. Here are a few of the tax considerations that may affect you while you are living or working abroad.

Worldwide Income

Your tax return must include all your income, whether or not it was earned on U.S. soil. Income earned in a foreign country is taxable by the IRS and must be claimed on your tax return. It may also be taxed by the country where it is earned, causing a double taxation situation. However, you may be able to deduct the tax that you pay to another country. But this can be tricky. Number one, it must be considered deductible by the IRS, which can depend on the country where you are living. Secondly, you must be able to prove you paid the taxes – this can be difficult due to the difference in tax years, and documentation available in various countries.

Selling Your Home

If you live within the U.S., you may be able to avoid paying capital gains tax when you sell your home. If you sell a home while living abroad, you may also be able to avoid pay tax, but there could taxes due to the change in the currency values.

Foreign Earned Income Exclusion and Housing Deduction

Although income earned in a foreign country while living abroad must be claimed on your tax return, some may find tax relief using certain exclusions and deductions. Some American citizens can qualify for the Foreign Earned Income or Foreign Housing Exclusions. Eligibility for these exclusions include a residence test and you must be within certain income limits. For example, you must be working abroad for an extended period of time, including a full tax year. Income limits for 2015 were up to $108,800. To use the Foreign Earned Income or Foreign Housing Exclusions, you must use Form 2555 when you file your U.S. tax return and meet all the criteria.

It is important to know how living abroad will affect your tax situation. Publication 54 from the IRS is a guide for Americans living abroad. However, you may need more personalized assistance, especially if you encounter a tax audit or other tax issues with unreported offshore bank accounts, or assets. At Brager Tax Law Group, our team of experienced tax attorneys can help you decipher the tax laws pertaining to living abroad and get you out of tax problems when they occur. We offer online consultations through Skype – just fill out our online form. You can also call our office in California to set up a consultation in person at 1.800.380.8295.


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