Foreign tax is a bit complicated. We can explain some important matters regarding:

Top 10 Things to Know About Foreign Taxes                    

A Starting Place

  1. USA taxpayers who earn or make income abroad need to file a USA tax return. This is because the US taxes worldwide income.
  2. The Foreign Earned Income Tax Exclusion (FEIE) and the Foreign Tax Credit reduce or eliminate double taxation.
    1. You are eligible for a deduction if you are out of the country 330 days or more within a one-year period. This is time based and can be achieved over a partial year.
    2. The Foreign Tax Credit can be used instead of the FEIE which is common when actually paying foreign tax in another country and making more than the FEIE limits.
  3. There are also foreign housing related possible deductions.
  4. Caution on all foreign bank account reporting requirements from having any account, an account over $10K at any time, and an account over $50K at any time. Thresholds are subject to change.
  5. Be sure to cut CA ties as needed. CA rules and time requirements are different than from of the IRS.
  6. A tax extension is a likely first step in the first year you move to another country.
    1. You may need to wait at least 330 days after leaving the country before receiving any partial FEIE benefit.
  7. If you are self-employed and abroad, you will need to pay USA self-employment tax unless paying something similar in the foreign country where you work.
  8. Investment income will typically be USA taxed and not qualify for the FEIE.
  9. Track your travel schedule well and plan, plan, plan to ensure the proper deductions.
  10. There are many exceptions to all of the rules. Please consult a tax professional early and plan.

Here are some of the more common disclosure and reporting issues we see. For all things foreign be extremely careful regarding:

  1. Foreign asset ownership / Two types of disclosures
  2. Ownership in foreign partnerships or non-publicly traded mutual fund equivalents
  3. Ownership of your own foreign company
  4. Operating any foreign branch equivalent
  5. Foreign trust related disclosure
  6. Hiring foreign contractors
  7. Foreign earned income exclusion
  8. Foreign tax credit
  9. Relating to business acquisition in general
  10. Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts

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