Many people believe that a US citizen gets a free pass if he/she works outside of the US. However, whether you are working in the United States or you are overseas, you generally have to file a US tax return being that you are still a US citizen. The amount of money you made, your filing status, and age all play a part in determining whether you need to file and what the income threshold is.
Before discussing filing details, realize, if you have money in a foreign institution over $10k, then you need to disclose your foreign accounts in Part III of Schedule B. Furthermore, you will need to fill out form TD F90-22.1 (prior to 2013). However, for 2013 or later use FinCEN Form 114. This is not to be sent in with a tax return as it is sent to a different address (on the form). For more information from the IRS, go here.
In handling your tax returns (whether past or present), you will need to fill out the respective form 1040 (Schedule C). If you have received a gift from a foreign “trust” or person you will need to fill out Form 3520 or 3520-A. When you report your income, you will report it in US dollars taking into account exchange rates.
Most of the time you will not have to pay any taxes unless you still report income after taking into account the Foreign Earned Income Exclusion as well as the Foreign Housing Exclusion. You can deduct up to $95,100 for 2012 (if single), $92,900 for 2011, with the Foreign Earned Income Exclusion. In addition, the Foreign Housing Exclusion allows you to deduct any housing payments (made by you or your employer) if you were there for a year (Bona Fide Residence Test) or you were abroad (in many countries) at least 330 days in a 12-month consecutive period (Physical Presence Test). You can deduct no more than 16% of the Foreign Earned Income Exclusion. To claim these exclusions IRS Form 2555 (Foreign Earned Credit) must be filled out and attached to your 1040. If you do not have a housing exclusion to note then IRS Form 2555-EZ can work.
Working Abroad Tax Recommendations
- Do not delay because the longer you wait, the worse penalties can get. It is NEVER too late to file a return.
- Use a tax professional as the forms can get complex and time-consuming. You are usually better off with a tax pro because they can help make sure not only you fill out all required forms correctly but you get the biggest deductions.
- If you need guidance in filing back taxes, follow our easy steps on filing back IRS taxes.
Request Filing and Help From Abroad
Why a Tax Professional
A tax professional can file your back taxes and make sure you get the most out of your deductions and if you cannot pay the taxes owed (if any) they will find the best way for you to settle.
Ways to Settle Back Taxes
If you owe taxes after you file, here are some common methods that can be used to settle the taxes owed. The method you choose depends upon your unique financial situation.
Consequences of IRS Catching Non-Filers
Having unfiled returns is far worse than filing the returns and not paying. Here are the consequences if your tax returns remain unfiled and possible tax penalties.
Amend Incorrect Tax Returns
Reduce tax debt owed by amending old returns to claim exemptions that you may have missed. The IRS is very understanding to mistakes, they happen to everyone.
File a Tax Extension
If you are abroad and cannot file your taxes, you can easily file for an extension with the IRS.