Do I Have to Pay Tax on Money Transferred Overseas?

Say you want to transfer money overseas. Maybe you’re receiving a gift, getting an inheritance, or moving existing funds from one bank account to another. You may be wondering if you’ll be required to pay tax on that money. Failure to report large sums of transferred money may result in a fine, so it’s important to know what’s taxable or reportable and what isn’t.

You may have to pay tax on money transferred overseas. Whether or not you do depends on several factors including the sum and source of the money and the tax codes of both countries involved in the transfer. Generally, you won’t have to pay taxes if you’re transferring your own funds from one account to another. However, transferring money overseas may be taxed if it’s an inheritance, a gift, or capital gains. That generally depends on whether you’re the sender or receiver of the funds. Tax codes on transferring money can be confusing, so having a trusted CPA in your corner is important.

US Tax Help offers tax filing assistance for businesses and persons filing in the United States from outside of the country. We know that money transfers are common among businesses and individuals, so understanding the tax codes around them is important. Call our experienced CPAs for US expats for guidance today at (541) 362-9127.

When Do I Have to Pay Tax on Money Transferred Overseas?

Generally, money moved from one bank account to another is not taxable. Of course, that can vary depending on the country you are transferring money in and out of. In most cases, money transferred overseas is treated the same as money within the United States, as long as you’re an American citizen.

From Domestic to Foreign Accounts

If you’re a US expatriate living overseas, you may have multiple bank accounts. You’ll likely have a bank account in the US and another in the country you reside in. Transferring money from one account to another generally doesn’t require you to pay US taxes on the transfer. Of course, that depends on the country’s tax code you’re transferring money to, as well.

Your gross worldwide income is still taxable. Transferring your money from one bank account to another doesn’t make it non-taxable on your federal tax returns in the eyes of the IRS. So, while you may not have to pay tax on the transfer itself, you will have to pay tax on the funds when you file your tax returns, as you always do.

Gifts

When money is transferred overseas as a gift, you may not have to pay taxes on it. In cases where gifts are taxable, the sender is required to pay tax, not the recipient. This rule stands for overseas money transfers. Generally, sending a gift via money transfer is not taxable, though the sender may need to report it to the IRS. In 2021, the annual gift tax exclusion caps at $15,000, per recipient. Beyond that, gifts become taxable to the sender.

Of course, United States tax codes aren’t the only laws at play when transferring money overseas. Your country of residence may have contradictory laws regarding taxation on gifts received from overseas. That’s why it’s important to work with an experienced CPA to understand what money transfer amounts are non-taxable when in the form of a gift.

Capital Gains

When assets are transferred overseas, the same taxes apply as they would in America. Capital gains come from the sale of an asset, such as a property, business, or stock. Capital gains are a large sum of money accrued from a sale.

If you sell a property in America while living abroad, you will still have to pay standard capital gains tax on the money that gets transferred to you. Conversely, you may also have to pay taxes on capital gains earned outside of the United States whether the funds are transferred or not. While the Foreign Tax Credit allows for taxes for expatriates to be reduced if they paid taxes in another country, you might still be required to pay the difference in the United States.

Transferring funds to another country doesn’t exempt you from paying taxes on those funds come Tax Day. As long as you are an American citizen, you are still subject to the US Tax Code. That’s why working with an experienced CPA can be beneficial. If you’re in a situation where you’re considering transferring large sums of money overseas, the CPAs at US Tax Help can inform you about the taxes that may still apply. There may also be other required reporting forms to fill out, such as an FBAR or a FATCA form.

Why Do I Have to Pay Tax on Money Transferred Overseas?

American tax codes still apply, even overseas, because the United States has a citizen-based taxation system. Regardless of where they live, American citizens living abroad are still required to abide by the same tax codes as those living in the United States.

Because the United States has a citizen-based taxation system, expatriates must file American taxes while living overseas. When you’re an ocean away, it can be hard to know what benefits you may qualify for and how to navigate the confusing tax system. US Tax Help can alleviate that stress. Our experienced CPAs work with expatriates overseas to help make tax season easy.

If you’re unsure how money transfers overseas may affect you as an expatriate, call US Tax Help for guidance. We’ll work with you to file your taxes and inform you about the various tax credits and benefits available to expatriates.

Call US Tax Help for CPA Services for Expatriates

When expatriates need assistance filing their American taxes, US Tax Help is there. Call the experienced CPAs at US Tax Help today at (541) 362-9127.