Foreign tax is a bit complicated and we can explain some important matters regarding:
- Travel (seeing if you will be out of country for 330 days)
- Foreign bank accounts (disclosures FBAR and tax return for any account, account over $10K at any time, and over $50K at any time)
- Cutting California residency if this is the case and how to support this position
Top 10 Things to Know about Foreign Taxes
A Staring Place
- USA taxpayers while earning or making income need to file a USA tax return when abroad. This is because the US “taxes worldwide income.”
- In order to reduce or eliminate double taxation there exists the Foreign Earned Income Tax Exclusion (FEIE) and the Foreign Tax Credit
- This relates to being out of country 330 days or more within a one year period and is a deduction on your tax return $108,700 for 2021 – This is time based and can be achieved a partial year – The deduction is doubled when two people are working
- 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.
- There are also foreign housing related possible deductions.
- 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.
- Be sure to cut CA ties as needed and know the CA rules and time requirements are different than the IRS.
- A tax extension is a likely first step in the first year you move to another country.
- You may need to wait the 330 days after leaving the country, at least, before receiving any partial FEIE benefit.
- If self-employed and abroad you will need to pay USA self-employment tax unless paying some similar to the foreign country where you work.
- Investment income will typically be USA taxed and not qualify for the FEIE.
- Track your travel schedule well and plan, plan, plan to ensure the proper deductions.
- There are many exceptions to all the rules so do consult a pro early, and plan.
