January 28, 2020 - International Tax

Hi all – time for another tax update! When I was with Thailand, I ran into my college friend Diane Long. She was (and still is) traveling abroad with her husband and she made me realize something – people don’t know that I also prepare international taxes. I have plenty of international clients and I work remotely to help them meet their US tax obligations. Thus, I’d like to dedicate this update to the topic of international tax.

Did you know that when you’re a citizen, green card holder or permanent resident you’re subject to tax on worldwide income! Yes, even if you lived abroad the entire year and worked for a foreign employer – you must STILL file a US tax return and (maybe) pay US taxes. So how does that work? Is there double-taxation? Not necessarily.

When you live abroad – you can qualify for the foreign income exclusion via one of two tests. The first test is the “physical presence test”, which requires you to be abroad for at least 330 days out of a calendar year. If you satisfy this test – you can exclude up to $105,900 worth of foreign income. The second test is the “bona fide residence test” which requires you to attest that you’ve moved abroad semi-permanently, you don’t intend to return to the US any time soon and you’re living there for the full calendar year. Under this test the dates in/out of the US have less relevance. If you qualify under this test, you get the same $105,900 foreign income exclusion.

What if you don’t qualify under either test? Then there is the foreign tax credit – this means you get a credit for any taxes you paid to a foreign country on the foreign income. Here is an example, you worked in Germany for 6 months, made $50,000 and paid $20,000 in taxes. The US tax burden is $10,000 on the same income, therefore you get a credit of $10,000 and pay $0 to the US. What if you worked in Russia and paid 12% tax on your income but the US taxes the same income at 25%? You must pay the difference between the US and Russian tax.

What if you’re self-employed? What if you’re living in a country that has a tax treaty with the US? What about Social Security and Medicare tax? What if you want to renounce your US citizenship? What about foreign bank accounts? In this case – PM me or go to my site: taxology.me.

I hope everyone has found this to be helpful.