What Country is the Best Place to Live to Minimize Your Taxes?
Becoming an expatriate doesn’t mean that you’re no longer an American citizen. As long as you remain a citizen of the United States, you’re required to pay taxes to the American government. But expatriates may wonder if they’re perhaps paying too much in taxes or if they’re eligible for certain benefits that could result in a higher tax refund or lower tax payment, and whether moving somewhere else could affect this.
The truth is, even expatriates need to pay federal income tax. Short of renouncing your American citizenship, there’s no way for expatriates to avoid their taxes. There’s no one place to live outside of the United States that best minimizes your taxes. However, there are some potential tax benefits that you may be eligible for as an expatriate. While you will still have to pay federal income tax, it may be reduced if you’re eligible for the Foreign Earned Income Exclusion and Foreign Tax Credit benefits. You might receive a larger tax refund and may still be eligible for the same tax credits you were when you lived in America, or you could ultimately pay the same tax.
US Tax Help offers tax filing assistance to our expatriate clients. Our certified public accountants can help you understand what benefits you’re eligible for while living overseas. If you’re an expatriate seeking a stress-free tax filing experience, call (541) 362-9127.
How Can Expatriates Minimize Taxes?
As long as you’re an American citizen, you’re required to pay US taxes. That includes expatriates who reside in another country. However, filing overseas can be confusing. It can be hard to know what exemptions you qualify for, and IRS jargon can be difficult to comprehend. That’s why enlisting an experienced CPA can limit stress and confusion when filing taxes as an expatriate.
Though the only way to fully eliminate United States taxes is to renounce your American citizenship, expatriates may qualify for tax benefits that reduce the taxes they owe to the IRS. If you’re an American living overseas, you may be eligible for the Foreign Earned Income Exclusion and the Foreign Tax Credit benefits. These benefits can increase your refund by reducing the amount of taxes you’re responsible for.
Foreign Tax Credit
The Foreign Tax Credit benefit allows eligible expatriates to claim taxes paid in their country of residence as a credit. For example, say you paid the equivalent of $100 in taxes to your country of residence. In that case, that amount would be credited toward your tax bill. This benefit can get tricky to understand, so it’s helpful to enlist an experienced CPA. A CPA can determine if you’re eligible for the Foreign Tax Credit, minimizing your taxes.
Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion allows expatriates to exclude a certain amount of their annual foreign income from their federal taxes. For 2021, the maximum exclusion is $108,700 per person. For married couples, the maximum exclusion is $217,400 jointly. That means the IRS can deduct that amount from your taxable income for the 2021 tax year. The Foreign Earned Income Exclusion benefit only concerns foreign income, meaning money made in the country you reside in. For example, if you live in a foreign country yet work remotely for an American company, the benefit wouldn’t apply. While there are eligibility requirements, the Foreign Earned Income Exclusion benefit can greatly reduce the federal income tax expats are required to pay.
These two benefits allow expatriates to reduce the taxes they’re obliged to pay to the IRS. Essentially, living outside of the United States can lower your taxes. However, you will still have to file your taxes with the IRS and will likely have to pay taxes in your country of residence. Though you may pay less in United States taxes, living outside of the country doesn’t exempt you from filing.
Other Ways for Expatriates to Minimize Taxes
While the Foreign Earned Income Exclusion and Foreign Tax Credit benefits are perhaps the best ways to minimize United States taxes while living overseas, there may be some other credits and deductions that can help. An experienced CPA can inform you about other potential benefits for expatriate taxpayers to help minimize their taxes.
Expatriates may no longer have to file state taxes in their previous state of residence. Generally, most states only require expats to file state taxes if they have lived in that state during the specific tax year and if they generated some of their income in that state. However, some states still require you to pay state taxes if you own property, have an ID from, or have bank accounts located in that state. If you’re still paying state taxes as an expatriate for several years, you may be able to stop. Look into the tax requirements and specifics of your previous state of residence to be sure.
Child Tax Credit
Expatriates remain eligible for the Child Tax Credit, even when residing in another country. It applies to taxpayers with children and dependents, offering credit to guardians for each dependent they have. The credit received is decided by income and number of dependents, so it looks different for each family. However, this is an example of the tax credits expatriates are still eligible for, despite living outside the country. Expatriates may be unaware of the tax credits that apply to them once they have moved outside of the United States.
Though expatriates live outside of the United States, they’re likely still entitled to the same tax benefits and credits they were eligible for while they resided in America. An experienced CPA can help you understand what credits and deductions you qualify for as an expatriate, minimizing your taxes.
Call US Tax Help to File Taxes as an Expatriate
If you’re an expat who needs help filing your taxes, our CPAs can help. Call US Tax Help for a stress-free filing process today at (541) 362-9127.