Does Dual US Citizenship Affect Taxes?
Having dual U.S. citizenship, meaning you have citizenship with the U.S. and a foreign country, can impact your taxes, depending on where you live. If you live abroad, you will have to claim certain credits and exclusions to avoid double taxation.
Having dual citizenship with the U.S. and another country can impact your taxes. You will still have to report your annual income to the United States and possibly the other country you have citizenship with, depending on its taxation system. If you have citizenship with another country and live there, you might be able to qualify for certain tax perks designed for American expatriates. For example, the foreign earned income exclusion can allow you to eliminate a significant portion of your income from taxation. And the foreign tax credit can allow you to avoid double taxation while living in a foreign country as an American citizen.
To get help with your taxes while living overseas, call the tax CPAs for American expatriates at US Tax Help at (541) 362-9127.
Dual US Citizenship and Tax Liability
Having dual citizenship with the U.S. and another country will not eliminate your tax liability. This goes both ways. For example, U.S. nationals who have dual citizenship with another country and foreign individuals who get dual citizenship with the U.S. will have to file taxes with the IRS.
Any person who has citizenship with the United States, even if they have citizenship with another country, has a tax liability to the United States. This is because the U.S. operates under a citizenship-based taxation system.
So, even if you move abroad and ultimately get citizenship with another country, you will have to file an annual tax return with the IRS and you will continue to be taxed on your worldwide income.
Alternatively, suppose you have moved to the United States, gotten citizenship there, but maintained citizenship with your previous country of residence. In that case, you will have to pay taxes in the United States. Whether or not you have to continue paying taxes to the other country you have citizenship with will depend on its taxation system. The only way to totally avoid taxation as a person with dual U.S. citizenship living in another country is to renounce your American citizenship.
Renouncing your U.S. citizenship to lower your tax liability can put you in a difficult situation should you wish to return to the United States at any time in the future. Furthermore, renouncing your U.S. citizenship is hardly necessary when you use all of the available tax perks the IRS provides for expatriates.
Can Having Dual US Citizenship Help Your US Taxes?
Although you will still have a tax liability if you have dual citizenship with the U.S. and another country, you might be able to lower your tax burden. This is because there are specific exclusions available to expats who have established residency in a foreign country.
When assessing an expat’s eligibility for tax credits like the foreign earned income exclusion, the IRS uses the bona fide residence test and the physical presence test. These tests aim to prove that an expat has been a resident of or physically present in another country long enough to qualify for expat-specific tax benefits. If you have dual citizenship with another country, it may be easier for you to meet the bona fide residence or physical presence test. You will still have to meet either test, as being a dual citizen alone is not sufficient. That’s because you can have dual citizenship and still live in the United States.
If you qualify for expat tax perks after establishing your dual citizenship with the U.S. and your current foreign country of residence, our tax CPAs for American expatriates will help you use them. One of the biggest exclusions available to expats is the foreign earned income exclusion, which allows you to exclude up to $120,000 of your foreign earned income from taxation by the IRS. Additional credits and exclusions are available to expatriates, including those with dual citizenship with a foreign country.
Preventing Double Taxation as an Expat with Dual US Citizenship
Double taxation is a real concern for expats with dual U.S. citizenship. If you primarily live in a foreign country as a U.S. citizen, learning how to avoid double taxation on your income is important.
The best way to do this is by claiming the foreign tax credit. The IRS devised this perk to help expats living in other countries avoid double taxation, specifically. Using the foreign tax credit, you can apply taxes paid to your country of residence to your IRS tax liability. For example, suppose you paid $500 in income taxes to your foreign country of residence. That can be applied to your tax liability to the IRS. So, if you would also owe $500 to the IRS, your tax liability for the year would fall to zero. And, if your foreign tax credit is higher than your owed taxes to the IRS for the year, it can be applied to future years. Preventing double taxation is important, so that you are not taxed twice on the same income.
To properly claim the foreign tax credit and help you avoid double taxation as an expat with dual U.S. citizenship, our tax accountants will help you file Form 1116 and attach it to your annual tax return. The foreign earned income exclusion can also prevent double taxation from taking place and is claimed using Form 2555.
To ensure you are not subject to double taxation, file your annual tax return and all necessary supplemental forms with the IRS by Tax Day. Expats also get an automatic two-month filing extension for their annual tax returns.
Call Our Tax Accountants Today
Call our tax CPAs for American expatriates at (541) 362-9127 to get assistance from US Tax Help today.