Faq: Tax For Expats
- Read More About:
- Best Services Tax Preparation For Startups
When it comes to tax for expats, there are a lot of questions. Things can get very complicated very quickly, especially once you factor in unique situations, like dependents who are not US citizens, income made from something other than your salary or hourly wage, investments that you have made, or assets that you have secured. Here are a few answers to common questions about taxes for expats that can help you to stay compliant and pay the right amount of tax.Q: What are Income Tax Treaties and Can I Use Them?A: For many people living abroad, they can actually pay a reduced income tax rate based on the country in which they reside. Sometimes they can actually not pay income tax to the IRS at all, but it all depends on the country. Tax for expats varies quite widely from country to country.The United States has specific income tax treaties with many nations around the globe that were created to be mutually beneficial for both nations—and help with tax for expats. These treaties are often to encourage people and experiences to cross borders, like artists and valued skill sets, without making the trip too burdensome to be profitable.While the IRS website lists the countries with which the US has tax treaties, you will need to consult a tax for expat specialist to understand if that treaty applies to your work, and how much you will save because of that treaty.Q: I Pay Taxes in the Country I Work, Do I Get Double Taxed?A: There is a common misconception that the United States Government will tax you your full foreign income regardless of the taxes that you pay to a foreign nation in which you paid your taxes. This is simply not the case. The IRS has rules set out to provide tax credits and deductions based on tax for expats paid abroad so that you are not simply taxed into making no money.Like tax treaties, these deductions and credits based on tax for expats change from country to country, which is why many people rely on tax experts to help them figure out the best tax strategy for their income level, location, and future plans.Q: Do I Pay My Taxes in US Dollars?A: The short answer is yes. You need to pay your American taxes in American dollars, but the actual exchange rate varies since exchange rates change every single second in multiple markets around the world. In general, tax for expats is paid on an annual average for the year, a number that you can easily find on the website for the IRS. If you made money on specific days, then you can use that day’s specific exchange rate as well, which is also provided on the IRS’ website.Filing tax for expats is complicated, which is why your best bet for filing your expat tax return is to rely on an experienced, professional accounting firm that specializes in foreign taxes and expats. They can help you file the right amount of tax and stay within the rules laid out by the IRS.