Expats From the United States Should Be Aware of The Following Eleven Tax Filing Facts
As an American living in Saudi Arabia or GCC, one of their main worries as an expat would be dealing with the taxes they owe to the U.S. They will need strategies not to have any liabilities when it comes down to taxation. Still, luckily, every foreigner should know many things about tax filing so they can make this process easier for themselves.
1. Many American Expats Owe No Taxes in The United States
Expats who live in Saudi Arabia or GCC countries as dual Citizen or moved abroad must file taxes in their new country, but this doesn’t always mean they’ll be penalized right away. They may save money on their return by taking advantage of incentives. To begin with, the Foreign Earned Income Exclusion and Domestic Tax Credit ensure that their income is not taxed twice if they live in such countries that has income tax.
They can save themself a lot of money by using this credit as opposed to paying taxes in America since it will lower how much U.S. tax has been due on top of what’s already paid abroad through another country’s policies regarding taxation.
2. The Foreign Earned Income Exclusion Is Not Applied Automatically
Even if they are an expatriate, it’s essential to understand the tax implications of living abroad. Many people reduce their overall liability in this regard by omitting income taxable in one’s native country from taxation altogether—and FEIE can save them up to $108700K in TY2021!
They may also be eligible for another deduction under section 911(b), exempting foreign real estate from value-added taxes (VAT). If they want to take advantage of this benefit, it’s crucial that their Form 2555 accurately reflects the amount of time that has passed since leaving America. The FEIE will only be applied when submitting the form with an effective date.
3. Before Applying For FEIE, they Must Pass A Residency Test
The Physical Presence Test is a requirement for the Foreign Earned Income Exclusion. It requires them to spend at least 330 days in Saudi Arabia or a foreign nation during an eligible twelve-month period. Day counts do not include time spent on land, air, or sea travel that isn’t occurring within the borders of another country – so if their trip includes transiting through multiple nations, this won’t count towards meeting this threshold.
The best way to avoid missing out on valuable benefits is by keeping track of their travel dates. The bona fide residency test can be more sophisticated, and if they’re not sure if they qualify, then seeing an Expert in taxes like Khaled Alaboudi, an IRS-registered tax preparer, will help clear things up. Khaled is a trusted tax specialist in Riyadh, Saudi Arabia. He works closely with individuals and small businesses to ensure they are compliant on all of their taxes to local and international clients.
4. The FTC Cannot Be Utilized To Minimize Taxes On Excluded Income That Is Related To The FTC
Filing for a Dual-Foreign Exemption (FEIE) and using the Foreign erred Trading Company Service to reduce their tax liability can give them an edge in international business. However, be aware of some drawbacks before going ahead with this strategy. If they’ve already exempted any income from taxes through FEIE, then it’s impossible to use FTC as well since that would create another saving loophole. The good news is there are still plenty of ways around these problems by making smarter choices or taking action now instead of waiting until later when paying bills becomes overwhelming.
5. Income Earned In The United States Is Not Tax-Free
If they have an asset in the United States, be aware that it is not eligible for FATCA and therefore cannot help save taxes.
6. If they Make A Mistake On their Return, they Can Correct It
Filing errors are common among expats, but they don’t have to be costly. By updating their earlier return with Form 1040-X, they can avoid fines and possible penalties if appropriately reported within three years or 2 Years after paying dues for it go away on its own, seek Expert help if applies to them.
7. If their Total Accounts Balance Exceeds $10,000, they Must Complete A Foreign Bank Account Report
FBAR is a way to keep their taxes in check and avoid unwanted attention from the IRS. The Report of Foreign Bank and Financial Accounts Form 114, which needed to be submitted using E-Filing for convenience purposes, only requires that they disclose all foreign bank accounts with balances over $10k when filing it online or by paper form if needed.
8. Expats With Extremely Valuable Assets Must Complete Form 8938
The Foreign Account Tax Compliance Act (FATCA), like the FBAR, was designed to keep expats from hiding money in foreign accounts and assets. They must file Form 8938 if any of their above-$200K or more worth on December 31st will be reported as liable for tax purposes by an overseas jurisdiction regardless that they were not resident there at some point during this period.
It’s also applicable when individuals combine both single statuses with their spouse – meaning they could be subjecting themself up against two charges rather than just one. They acquired foreign assets worth $400,000 or more on December 31st, or more than $600,000 throughout the tax year if they are a married couple filing jointly.
9. Giving Up Citizenship Won’t Help them Avoid Paying Taxes
Some expats think to renounce their U.S. citizenship entirely to escape the hassle and cost of paying taxes. If they plan on doing so, be aware that it is not an easy task; to start this process, all they have to do is follow IRS standards for filing five consecutive years before their date of departure- but there are many other implications as well, such as problems with travel documents. And there is a lot of expats do not understand there is no tax liabilities if their total income is below $108,700. Thay just need to comply and file their taxes every year free of any obligations. US Tax Global Service LLC provides a free phone consultation today.
10. Catching Up With their Tax Obligations, Most Do The Followings:
Must Submit their last three years of Federal Income tax returns.
Must Submit their last six years of FBAR (Foreign Bank Account Reports).
Pay any taxes that are due, if any (Mostly, they do not have any taxes once they claim one or more expat exclusions), meaning; for the tax year of 2021, they will have up to $108,700 of total income without paying any taxes.
11. To Make Tax Filing Easier, Speak With An Expat Tax Service
If they’re not a U.S Tax expert, then the complicated tax code can be hard to follow–even if their income comes from abroad and all of it is reported correctly! Obtaining expatriate tax services will make things easier on themself rather than risking any unnecessary charges by doing anything shady or illegal.
At U.S Tax Global Service LLC, the goal is to help individuals and businesses prepare their taxes correctly by providing accurate information so they can do it efficiently while also meeting deadlines as individuals, a small business, or a large business enterprise! CEO Khaled Alaboudi is also an IRS Certified Acceptance Agent in Saudi Arabia and GCC Countries, specializing in helping a none American citizens and individuals who need or are required to apply for ITIN (Individual Taxpayer Identification Number). His tax preparers have experience working with international clients as well!