Filing with turbotax review8/9/2023 Even if the stock's worth in euros remained flat, if the value of the euro versus the dollar rose significantly while you held the stock, you would end up with more dollars if you sold the stock. Foreign currency gainĪ tax issue that surprises some expatriates is a currency gain on which they could owe taxes, Wilson said.įor example, say you bought stock with euros when you were living abroad. You pay the British tax, and subtract that rate from the American tax, so you pay just 10 percent of the $68,000 in American taxes. Your income tax rate in the United Kingdom could be 20 percent and your American rate 30 percent. You can use the Foreign Earned Income Exclusion to exclude $112,000 of that income from taxes. Say you lived and worked in London in 2022 and made $180,000 a year. In effect, you pay only the higher of the two tax rates, split between the two countries. Under this section of the tax code, you subtract the lower of the tax rates from the higher. tax code allows you to take a foreign tax credit. If you’re also paying taxes in the United States, that would be double taxation. Once you’ve been overseas for an extended time-usually at least half a year, Wilson said-you become subject to taxes in your country of residence. The exclusion also can’t be claimed on the high seas, he said. Wilson recalled a case in which Americans tried without success to claim the exclusion because they were living in Antarctica. If there’s no government where the expatriate is living, the exclusion can’t be claimed. But if the expatriate visits the United States for more than 35 days in that period, the benefit is lost. If the expatriate makes $115,000 in 2022, tax must be paid on the difference between his or her salary and $112,000, or $3,000. That means an expatriate making $75,000 overseas would pay no taxes, although they still must file IRS Form 1040 and claim the exclusion. To qualify, that person must have lived outside the United States for 330 days in 12 consecutive months, said Wilson, a partner in the Denver law firm of Holland & Hart. If an American moves abroad, they can exclude foreign-earned income up to $112,000 as of 2022 from U.S. One tax break for expatriates is the Foreign Earned Income Exclusion. John Wilson, adjunct professor of international taxation, University of Denver "We tax both citizens and residents on the basis of worldwide income." The good news is that the Internal Revenue Service offers several breaks to keep the long-distance taxes to a minimum. “The fact that you’re still a Canadian citizen doesn’t subject you to worldwide taxation.” “In Canada, when you move away, you stop being a tax resident,” Wilson said. For residents of Canada, the rules are different. The United States is one of a handful of countries that require this comprehensive taxation. “We tax both citizens and residents on the basis of worldwide income,” said John Wilson, an adjunct professor of international taxation in the graduate tax program at the University of Denver. You are required to file taxes on foreign income even if you pay taxes in the host countries. If you’ve never lived abroad for an extended period of time, you probably don’t know the United States requires its citizens to continue to pay taxes back home. Among the concerns of living outside the United States-making a living and leaving loved ones behind, for example-are the tax issues that develop if you retain your U.S. For some, the attraction is a great job that happens to be in an exotic land for others, it’s simply the romance of joining the tradition of famous expatriates such as Ernest Hemingway, Scott and Zelda Fitzgerald and Gertrude Stein.īut then, reality strikes. Living abroad is a compelling vision for many people.
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