Taxes: You Owe, You Owe, Even When You Live Abroad

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A remote work setup (Image by Rudy and Peter Skitterians from Pixabay)

Are you a U.S. Ex-pat living abroad? Don’t Forget to file your U.S. Taxes

So you’re an American expat living overseas. As part of your residency here, you make money. But do you pay U.S. taxes on that income?

Haven’t you ever considered filing your taxes through expat tax software?

Several factors come into play when determining if income is taxable or any applicable exclusions (e.g., foreign earned income exclusion).

World’s Greatest Military

The United States is a world power with a strong economy and one of the greatest military in the world. Therefore, many ex-pats from other countries come to the U.S. for a lot of reasons, such as finding better jobs, fighting for democracy, and fighting for freedom.

However, no matter how patriotic you are, if you’re an American ex-pat living abroad and your income goes over the specified limits, you’re going to be paying U.S. federal taxes on your income earned overseas.

Taxes Overview

As an ex-pat, everything about U.S. taxes is a little more complicated than what a regular American citizen would have to deal with. This is because the IRS tax code differentiates between a U.S. citizen living in the United States and someone who lives abroad.

Like most countries on Earth, the U.S. has a complex tax structure that requires its citizens to pay either no taxes on income earned abroad or potentially pay up to $92,900 of taxes on foreign income (for U.S. citizens).

This means income earned at a foreign affiliate of a U.S. company is still subject to U.S. taxation. Earned income is earned income no matter where you live, even in an ex-pat community in a high-tax country like France or Belgium.

Downtown Bardstown Kentucky. photo.
Downtown Bardstown Kentucky. photo.

States for ex-pat taxes

If you’re a digital nomad (or plan to be one in the future) considering ex-pat taxation and residency, this is definitely something worth thinking about.

From my own experience, I have more than a few friends who didn’t find out about the proper state of residency for their situation until it was too late because they made assumptions about how things should go.

Even worse, some still live abroad in countries that tax them heavily because they failed to take the right steps during their initial planning.

New York City's only elevated park, with tremendous views of the skyline.
New York City’s only elevated park, with tremendous views of the skyline.

No income tax states for the ex-pats

When comparing state costs of living, many people miss the fact that some states have no income tax.

Alaska, Florida, Nevada, South Dakota, Texas, South Dakota, Washington, and Wyoming. Other states don’t have income tax on residents, but they do tax nonresidents. Paying taxes is not your favorite activity, right? That is why the states mentioned above with no income taxes can be quite attractive. These are the best states for expats to come from in the U.S.

The best US states for expats
  • Kentucky.
  • New York.
  • Florida.
  • Hawaii.
  • Colorado.

State and federal taxes for the past year

Mahogany reception desk at the Biltmore hotel.
Mahogany reception desk at the Biltmore hotel.

As an ex-pat, one of the biggest questions that come up every year concerns U.S. Tax Returns. To file or not to file? Would taxes be owed or refunded?

Of course, the most common question is whether being outside the country would exempt them from being taxed by the U.S. Internal Revenue Service (IRS).

While there are some exemptions, many ex-pats and retirees find themselves owing taxes for past years.

If you’re retired, you may be able to live abroad without losing all of your Social Security, Medicare, and pension benefits.

To qualify for the benefits, you’ll need to satisfy some requirements.

If you have a home in the U.S., you’ll need to check to see if you qualify based on your permanent home.

You must also have no abode in the U.S. for 330 days during one of the past three years, along with several other criteria.

You Gotta Do It

Filing taxes can be a headache, but that doesn’t mean you shouldn’t do it. Many ex-pats don’t file their tax returns because they feel it’s too much of a hassle.

This is dangerous as the U.S. has strict laws about not paying taxes if you live outside the country.

Do you feel tired of juggling with your tax payments for ex-pats? Every time you get a 1099-INT or 1099-DIV or an annual tax return, you need to contact your foreign financial institution.

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