The Dominican Republic might offer that slower pace of life many yearn for, making it a popular location for Americans to expatriate to. When expatriating, confirming your continued tax responsibility and learning how it might change is crucial so you do not fall delinquent on your U.S. taxes.
Relocating to the Dominican Republic from the U.S. will not absolve you of your need to file an annual return with the Internal Revenue Service (IRS). Although you have to file taxes, you might not have to pay much to the IRS after claiming tax benefits for expatriates. These include the foreign tax credit (FTC) and the foreign earned income exclusion (FEIE), which work to eliminate double taxation and lower expats’ taxable incomes. There are extra filing requirements for expatriates with certain foreign financial assets and holdings, which our tax accountants can explain after reviewing your overseas finances. These include IRS Form 8938 and a Report of Foreign Bank and Financial Accounts (FBAR), which are due alongside tax returns.
Call US Tax Help’s tax CPAs for U.S. expats living in the Dominican Republic today at (541) 362-9127.
Do Expats Who Live in the Dominican Republic Need to File US Taxes?
The only way to eliminate your tax filing responsibility with the IRS is to give up your American citizenship. Otherwise, you must file an annual return with the IRS when you expatriate to the Dominican Republic.
While many countries only tax residents, the United States taxes citizens wherever they live. Even if you do not have to pay taxes after our tax CPAs for U.S. expats prepare your return, you must still file that return with the IRS, preferably before Tax Day.
When preparing your return, we will include income from all sources, as the IRS assesses taxes on worldwide income, not just income earned in the United States. We must provide information about your foreign employer and foreign assets, as well as other general financial and personal information.
Americans must file returns by the deadline of Tax Day to avoid interest accruing on unpaid taxes. That said, there is an automatic two-month filing extension for overseas U.S. citizens. This can be particularly useful if you have only recently moved abroad, learned of your continuing tax liability, and need time to sort things out. Remember that the extension to file does not stop interest from building on taxes owed to the IRS, which is why aiming for the normal filing deadline is still preferable for overseas taxpayers.
While you live in the Dominican Republic, the government there may also tax you on your income, so make sure to confirm your tax liability in your country of residence.
Complying with FATCA Reporting Requirements as an Expat Residing in the Dominican Republic
The Foreign Account Tax Compliance Act (FATCA) expanded filing responsibilities for expats and Americans with foreign bank accounts or financial assets. Learning about these additional responsibilities and how they might affect your tax return is important, lest you incur financial penalties.
FATCA created additional reporting requirements for those with certain foreign financial accounts and interests, namely IRS Form 8938. The reporting thresholds from Form 8938 vary, depending on whether taxpayers live in the United States or have expatriated elsewhere, such as the Dominican Republic. Furthermore, the filing threshold for married couples is twice that for single taxpayers.
Expats typically only need to be concerned about filing Form 8938 if they have hundreds of thousands of dollars in foreign assets, such as foreign bank accounts, securities, stocks, and bonds. We can monitor your FATCA reporting responsibilities as you accrue foreign assets while living in the Dominican Republic to ensure you do not fall delinquent with this vital international information return.
Taxpayers who do not report foreign assets on Form 8938 might be fined $10,000 per violation. If taxpayers continue to ignore the IRS after being notified of their failure to report, they could incur an additional $50,000 financial penalty.
Though not part of FATCA, Reports of Foreign Bank and Financial Accounts are reporting requirements for expats with upwards of $10,000 in their foreign bank accounts. Expats must file FBARs in addition to Form 8938, and failing to file either may lead to serious consequences for expatriates.
Does the US Have Tax Exclusions and Credits for Expats in the Dominican Republic?
The United States provides exclusions and credits for expats so that they can reduce their taxable incomes or avoid the effects of double taxation while staying in compliance with IRS reporting mandates for expatriates and preventing penalties.
The Foreign Earned Income Exclusion
The foreign earned income exclusion can reduce your taxable income in the IRS’ eyes. Currently, the FEIE limit is $1265,00, and each taxpayer can exclude this amount. That means married couples filing joint returns can each exclude $126,500, substantially reducing their joint taxable incomes. If claiming the FEIE eliminates your taxable income because it is lower than the exclusion limit, you still have to file a return. Our tax accountants can figure out your FEIE amount using Form 2555. We will also use this form to calculate your foreign housing exclusion. This lets expats exclude certain housing costs paid for with employer-provided funds.
The Foreign Tax Credit
The foreign tax credit works differently from the FEIE. Instead of reducing taxable income, the FTC applies taxes paid to foreign governments to taxpayers’ liability to the IRS. This helps prevent double taxation, the risk of being taxed twice on the same income by two different governments. We can figure out your foreign tax credit using IRS Form 1116, which we can attach to your tax return and submit to the IRS by Tax Day.
Call Our Tax Accountants for Help Today
Call US Tax Help at (541) 362-9127 to speak with our tax CPAs for U.S. expats living in the Dominican Republic.