Filing a tax return is crucial especially when you are a US citizen or resident alien living abroad. The filing process requires increased compliance with US tax laws of which the burden is placed on the shoulders of a taxpayer.
To determine if a taxpayer needs to file a tax return, they may use the online tool from the IRS: https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return
Individuals may not be aware of professional tax service providers when living abroad who can assist with timely tax preparation and filing which can help taxpayers avoid potential penalties.
As a consequence, there are US taxpayers living abroad who self-prepare their return and here is a list of common mistakes:
- Failing to understand the need of filing a tax return when living abroad. Certain US taxpayers living abroad have an impression of not being required to file a tax return when earning a Non-US sourced income.
- Unaware of their increased compliance requirements when living abroad such as disclosing information about foreign bank accounts and foreign financial assets to the IRS.
- Failure to claim deductions that are available to US taxpayers living abroad. Such deductions could include foreign earned income exclusion, foreign tax credits and foreign housing exclusion or deduction.
- Many taxpayers have been involved in virtual currency transactions and failure to report such can result in potential penalties for taxpayers.
- Failure in understanding the reporting requirements of their complex foreign pay structures and benefits.
- Failure in calculating their reportable income accurately due to different tax years between the US and the foreign country.
- Unable to take advantage of tax treaty (if any) between the foreign country and the US due to their complex language.
- Failure to understand, determine and comply (if required) with their state tax filing obligations while working and living abroad.
Above are some common errors made by taxpayers living abroad and it is never too late to seek for a professional tax help.
Disclaimer: This information has been prepared for informational purposes only, and is not
intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors or consult us regarding your own personal tax situation as this article was intended to be general in nature.