Trouble in Paradise: Paying Taxes While Living Abroad

There’s one thing that the 6.32 Million Americans living abroad have in common, they still have to pay the IRS income tax on any earnings they make. It doesn’t matter if you’re a Texan living at a beach side condo in the Philippines or a North Carolinian staying at a run down hostel in Amsterdam, you still have to pay the tax man.

Luckily, any American living overseas has an automatic two month extension to file or efile

their taxes which is due on June 15th. If that is not enough time you can request another extension to October 15th. Also, if you’re an expatriate who has an Adjusted Gross Income of $58,000 or less you can file your returns for free using freefile, which is available on the IRS’s

website. You should also know that the income you report on your tax return must be in U.S. Dollars. The yearly average exchange rate is typically used to report foreign-earned income.

When filing your taxes you should keep in mind that the United States has tax treaties with over 42 countries. These treaties have provisions in place that limit double taxation by the country you’re currently residing in and by the U.S. They do these by allowing you to credit any taxed foreign income on your U.S. tax returns which, in most cases, offset any U.S. tax you owe on your world wide income.

These treaties are also in place so IRS officials can collaborate with foreign tax officials to report on anybody who may not be paying their income tax. Any fellow ex-pat who tells you that you can avoid the I.R.S. by simply moving to another country is sorely mistaken. Even if you do manage to avoid paying taxes while living abroad, once you return to America you will be forced to pay any penalties and interest rates on unreported income you received while abroad. These interest rates can pile up at a mind blowing pace. Also, many states, such as South Carolina and California, also require you to pay state income tax as well despite how many years you have been living outside the country.

Social security is yet another factor when filing your taxes. If your foreign employer withholds social security and other payroll taxes then you don’t have to pay U.S. social security. However, if you are a contract employee or self-employed then you must file a schedule C with your tax return.

Living abroad has many advantages. You can travel around the world, meet new and interesting people, experience fascinating cultures, and often, depending on the country, save money by living in a country with a lower cost of living. However, living abroad does make the already tiresome task of filing taxes even more bothersome. Still, with enough preparation (especially given the automatic two month extension) and a little help from tax professionals, you should be able to file your taxes with only a limited amount of hassle.

Jason Bartoli
Jason Bartoli

"Jason is the best person you'll ever meet here. He's just a ray of sunshine. An adventurer, businessman, and has a 4.9 Uber rating. Lovely person inside and out. I say, go message him" - My Mom

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