Taxation Abroad

US Persons at Home & Abroad

US Citizen and US Resident Aliens (Green Card Holders) must file US Tax returns annually, no matter where in the world they may live, and report their worldwide income to the United States. When foreign assets or foreign income is involved , there is the potential for a special reporting, depending on the nature of the assets or income. 

The days are past when many taxpayers could safely take the position of not handling foreign matters. With a greatly expanded emphasis on any financial transaction with a foreign taint, many more US taxpayers are finding that they do, indeed, have some reporting requirements. The importance of helping taxpayers comply properly is reinforced by the rather automatic imposition of substantial penalties for failing to report, or for merely being late with a required filing.

Eliminating double taxation

Contrary to a surpassingly common myth amongst taxpayers, just because income has been taxed in another country does not excuse a US person from reporting that income on their US tax returns. This responsibility extends to US taxpayers living abroad as well as those living in the United States. Furthermore, income must be reported using US laws and conventions, which can sometimes differ in fact from the foreign country’s rules even though the terms used to identify the income or convention may be similar.

Here are the common general foreign pitfalls to avoid:

  • Incorrect Exchange rates
  • Incorrect depreciation
  • Tax-free savings account or investments
  • Schedule C Expenses and Rental expenses
  • Social security Agreements & US self-employment taxes
  • Pensions and pension rollovers
  • Incorrect Foreign tax credits.

Living abroad & the foreign earned income exclusion (2555)

For those US citizens (and Green Card holders) living outside of the United States on April 15th, not merely traveling outside of the US, the normal filing date for their US tax returns is June 15th. This automatic living abroad extensions does not apply if they have US sourced employment or self-employment income during the tax year being filed. 

Foreign earned income exclusion

Foreign earned income for this purpose means wages, salaries, professional fees, and other compensation received for personal services that the taxpayer performed in a foreign country during the period for which they meet the tax home test and either the bona fide residence test or the physical presence test. It also includes non-cash income (such as home or car) and reportable employment allowances for reimbursements. Foreign earned income does NOT include passive income, such as interest, dividends, pensions, rents and the like.

At HerrickGlobal, we can give you peace of mind that comes with knowing you will not face the unknown alone. Our highly trained advisors can handle all of your tax filing needs quickly and efficiently. Schedule an appointment today - we look forward to meeting you!