Lost in Taxation: 7 Tax Tips that Every American Expat Should Know


Whether it’s a new career opportunity or insatiable desire for adventures and new cultures, there comes a time when you need to get your luggage and go. Although, the US government encourages its citizens to travel and live abroad, the country has specific rules that should be taken into account when preparing a trip. The complexity of the tax laws requires thorough understanding and responsible attitude. Completing the process is a great achievement by itself. Go beyond what it’s required and take advantage by saving some of your taxes.

  1. On Time

Absent – mildness is not a valid excuse and will not pass in the Internal Revenue Service (IRS). Failure to file the necessary documents may result in civil or even criminal charges. Despite your current location, your income will be a subject of taxation if you’re a US citizen, resident or if you hold double passport. Revenue that is below a certain limit makes an exception. The minimum is determined by your filing status. For singles the barrier is $9,350. For married individuals, there are two options – filing jointly (MFJ), filing separately (MFS).In the first case your income should not be above $18,700. In the latter, it should be less than $3,650.You can also file as head of a household (HOH) if you’re unmarried but you support other members of your family. In this case your income should be less than $12,500. This may prove particularly advantageous if you have a foreign spouse that is not a US citizen or doesn’t hold a green card.  Choosing the right filling status will give you the opportunity to benefit from lower taxes.

  1. Know Your State

Although most of the states enforce tax rules, seven of them make an exception. Washington, Florida, Nevada, South Dakota, Alaska, Texas and Wyoming will not charge your personal income. On the other hand, states like Louisiana, Missouri, Oregon, Montana, Iowa and Alabama allow tax deduction. Therefore you may consider transferring your residence in a place with milder requirements, before going overseas.

  1. Foreign Earned Income Exclusion

The most efficient way to reduce your tax is by applying for FEIE.  You have to fit certain requirements in order to be eligible for the income exclusion. First, you have to be resident of the foreign country for at least 330 days. Second, your foreign earnings should not be above $97,600, the number being adjusted to the current inflation rate. The IRS also provides you with opportunity to apply for a partial – year exclusion. If you have already paid your foreign taxes, you qualify for deduction, in order to avoid double taxation.

  1. Housing Exclusion

Another way to decrease your taxes is housing deduction. The allowance covers costs for rent, furniture, utilities etc. You can exclude up to 30% of your income taxes. The percentage can be adjusted for more expensive locations. The IRS is flexible and will allow higher deduction. If your residence is provided by the employer, you may not be required to pay taxes.  This may occur if the residence is completely furnished and is offered on the premises of the business and not personally by the employer. The employee should also be legally enforced by the contract to accept lodging.

  1. Moving Expenses

In addition to the FEIE, you can also cut off your moving expenses. First you need to claim your worldwide income in the IRS. Your eligibility depends on your employment term in the foreign country – it should be above 39 weeks. For self – employed individuals the period is 78 weeks. The allowance covers travel and transportation expenses such as moving household items, personal possessions, storage and lodging. Keep in mind that if you have applied for a housing expense and income deduction, you cannot benefit from the moving allowance.


  1. Foreign Bank Accounts

It is recommendable to avoid investing in foreign mutual funds. This also includes passive foreign investment companies (PFIC). When receiving and claiming income derived from such an entity, you become a subject to severe taxation. Foreign pension plans and insurance schemes also classify in this group. An exception makes mutual funds structured as partnership. If you find it hard to distinguish the PFIC institutions, consult with a US tax advisor. If you want to play safe just keep all your investments under US custody. Of course, this is not always the case. Think what will make sense to you in the current situation. For instance, taking part in foreign funds can serve as a shield for your income from local taxes. In order to make an adequate decision, research the tax laws in the country you are planning to move in.

  1. Other Taxes

Don’t forget that your social security and Medicare are also subjects to taxation. Usually it depends on the treaties between U.S. and the foreign countries. These can significantly affect your pension and social security plans, so you need to examine them closely.

To summarize, you need to get fully acquainted with the tax laws both in your home and host country. This is important not only because it may constitute criminal offences, but also because it may save you a lot of money. For more ideas: http://manwithvanbromley.org.uk/