Once you move to a new country, it is an exciting prospect because the change is welcome. However, moving to another country also involves learning the laws of their land. The biggest problem that people find with the change is tax rules, especially after moving to the US. The US expat tax laws are pretty complicated but not without solutions.
Of course, there is an intricate system involved but the best thing about taxation is that you can always find a legal way to work around problems. So, if you are in the process of filing your expat returns, hold on for a while and read the following tips –
Make Use of Foreign Tax Credits
For US citizens, tax has to be paid on the income you earn anywhere and everywhere, even if your place of residence is somewhere else. However, you can exclude your foreign income while calculating your taxes. For this, you need to fill out a form for excluding your foreign income. There would be a physical presence test to qualify for this.
An added advantage of filing the foreign income exclusion form is that you would now receive foreign housing credit. This increases your housing deduction by almost 45% and depends on the area of your residence. To top it all, areas with a higher standard of living like London, Singapore, Dubai, Hong Kong, Perth and Paris have a higher deduction.
The forms would have to be filed properly and in order if you wish to receive these benefits. The two forms are –
Form 2555; and
Keep An Eye On The Exchange Rate
Probably the most practical tip of all. When you are filing your tax in the US, obviously the payments would be made in US dollars. However, the conversion is done on a daily rate basis by the IRS, except for some cases where an average annual rate is taken as the base. There are many methods and you have to choose the right one when exchange rates are concerned. Take the help of a professional if you are unsure about something.
Watch Out For the Accountant’s Fees
This is a tip that, if followed, might save you quite a bit of money. The accountant’s fee that you agree to pay when you hire a professional accountant to file your expat returns should be flat. Many accounting companies can be sneaky in this department. They don’t give you the full bill structure in the beginning and later when the actual bill is delivered, it costs a lot more than what you expected.
It is best to deal with prices that are transparent without having to worry about supplementary services constantly. Make it a one-time single payment to save yourself the hassles.
Make sure that you choose a good accountant to help you with these intricate and technical details.