Do You Need to File Taxes When You Are Living Abroad?

By Top Tax Staff | Dec 23, 2014 7:00:00 AM | Tax Tips and Help

    

Do You Need to File Taxes When You Are Living Abroad

Paying taxes each year is an obligation that many Americans accept as a regular part of life. As the New Year starts, they begin to file their returns and pay what they owe to the government. This obligation also extends to Americans who work and live overseas. They can avoid falling behind on their taxes and being fined or jailed for tax evasion by understanding how and when to file returns while living abroad.

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The Basics of Filing Taxes while Living Overseas

The rules for filing and paying taxes for Americans living and working overseas are similar to those that apply for individuals living back home. If they receive income from a job, self-employment, investments, pensions and other common income sources, they must file a return and declare that money. They will either then owe the IRS money or get a refund, depending on how many dependents they claimed, what kind of exemptions they put on their returns, and other criteria.

However, some of the filing rules for overseas Americans are bit more flexible, particularly when it comes to the deadline for which returns must be received. Some of the key differences are:

  • The filing deadline is extended two months until June 15, as opposed to April 15 for domestic taxpayers.
  • People living abroad can get an extension until October 15 for unique circumstances, such as serving in the military.
  • If they are paid in foreign currency, they must convert their incomes to American dollars when filing. They can use an online calculator found on the IRS website for this purpose.

Aside from these notable differences in filing, people living overseas are still expected to prepare and submit their returns using one of the available methods. If they cannot afford to hire a CPA or choose to do their own taxes instead, they can submit their taxes by:

  • Mailing in paper returns to the IRS, using their mailing address found on the IRS website
  • Using FreeFile, a service found on the IRS website that lets people file their taxes electronically at no charge
  • Filing online using one of the available tax preparation services offered by major companies

Like domestic taxpayers, overseas Americans can call, write or email the IRS if they have questions or concerns while preparing their taxes.

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Challenges to Paying Taxes while Living Abroad

While paying taxes is an obligation that overseas Americans legally must obey, they also may experience difficulties in doing so. In fact, living overseas can be expensive. Many countries tax foreign workers even if they are not citizens or use any of the social services for which the taxes pay.

Countries that have socialized health care, for example, often tax 30 to 40 percent of Americans' wages who live in those places. Despite paying out such huge amounts to their host countries, these people still must pay taxes to the American government.

This obligation can leave Americans with very little money on which to live. Advocacy groups for Americans abroad seek to lessen this burden and help these individuals keep more of their incomes. Until the law is changed, however, the IRS will continue to expect these individuals to file and pay their taxes as required.

Living overseas is an ambition that many Americans have. They may not realize, however, that they will still be expected to pay taxes on their foreign incomes. They can prepare their returns and avoid being fined or penalized by knowing how and when to file their returns. Even if they already pay taxes to their host countries, Americans living overseas still have the obligation to pay yearly taxes to the IRS.

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