There are only two sure things you can be certain of in life: death and income tax. So when you’re trying to determine if you owe taxes to the US even if you live abroad, it’s best to get your facts straight. (Disclaimer: This post is NOT intended to give legal or tax advice.)
The long arm of the IRS extends to almost anywhere in the world. Therefore it is always best to stay on top of any potential liabilities, track your income, and be sure to note IRS rules to file on time and stay out of trouble.
First, to avoid a surprise tax bill in the future, you need to keep essential documents. Many people have failed to file taxes on time because they couldn’t find essential documents and receipts.
Therefore, prioritize organizing your office files to be sure you retain the right information to prepare your taxes efficiently. And if your office is a disaster, these 25 office organizing tips can help get you started on the right path.
Tax professionals are worth their fees
Make every effort to build a strong network with other professionals to be sure you have the support you need if you ever have trouble.
If you already have a tax problem, it’s best to hire a skilled tax attorney today. A tax attorney is professionally trained to help you resolve any back tax issues.
But, if you’re making your way on your own, consider these pointers to avoid any surprise IRS bills arriving at your door.
Paying taxes on worldwide income
You may assume if you work or live abroad that you’d be subjected to US taxation. However, you need to realize that taxes are calculated based on your citizenship, not residence.
The bottom line is it doesn’t matter where you reside, what matters is your citizenship. Therefore if you are a US citizen (or resident alien), you are bound by the same tax filing rules. This applies to income, gifts, and any other taxable events. Therefore, as a US citizen, any income you make is subject to US income tax, irrespective of where you reside.
Do not ignore your liabilities
Your tax record matters when traveling. If you have accumulated tax debts and your account is considered delinquent, you could have trouble traveling. So when you wish to use your passport for international travel, you must have a clean tax record.
The IRS certifies your ability to travel out of the country. If you have tax liabilities, the IRS informs your State Department that you are in default. Then the State Department will either revoke your existing passport for travel or can deny issuing a new passport once they have received this notification. Therefore, complying with tax law is important, wherever you happen to reside.
Currently, the threshold for reporting delinquent debt and triggering action on your passport is currently $53,000. This figure adjusts for inflation annually.
If you must face a serious situation as a result of unpaid taxes it would be a good idea to consider some professional representation to try and get a satisfactory resolution.
To resolve tax problems, you have 90 days from notice. This gives you about three months to resolve any tax issue before your passport is restricted. Tax resolution may include either complete debt payoff or by creating a simple, suitable payment arrangement.
But, if the state impacts your passport status you must first settle your outstanding debt. Then you’ll wait for the IRS to issue a Notice CP508R. This indicates that the IRS has agreed to the terms of your proposed settlement.
Extended time to file if living abroad
As already outlined, even when living abroad, you are subject to worldwide income tax as a US citizen. And, therefore, you are expected to file tax returns in the US. However, as a citizen living abroad, you are automatically granted a two-month extension to file. But, be aware. If you wait to file your taxes until the extension date, you’ll owe interest as calculated from the original date your taxes were due.
If you live abroad and earn an income it is highly likely that you will owe US taxes. So it is wise to know this, and adequately respond to IRS requests for information and tax payment. If you choose to ignore tax law for US citizens living abroad, know that your freedom to travel could be limited due to the considerable power at IRS’s disposal. So, pay your taxes, no matter where you reside.