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International Taxation: 3 Considerations for U.S. Citizens

Updated: Aug 25

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International Taxation


As globalization continues to shape our world, more U.S. citizens are finding themselves engaging in international activities—whether through working abroad, investing in foreign assets, or simply traveling. Additionally, more and more U.S. citizens are finding out from the IRS that they have additional income tax requirements due to their international activities.


Navigating international taxation can be complex, but understanding a few key points can help you manage your tax obligations and avoid potential pitfalls.


Know Your Reporting Requirements:


In addition to filing your annual tax return, U.S. citizens must be aware of additional reporting obligations for foreign financial accounts and assets. The Foreign Bank Account Report (FBAR) requires you to report any foreign bank accounts with an aggregate value exceeding $10,000 at any time during the calendar year. Similarly, Form 8938 under the Foreign Account Tax Compliance Act (FATCA) mandates reporting of specified foreign financial assets if they exceed certain thresholds. Failing to meet these requirements can result in substantial penalties.


Also, a good point to remember is that U.S. persons (citizens and residents) are taxed on their "WORLDWIDE" income.



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Understanding the Foreign Earned Income Exclusion (FEIE)


One of the most valuable benefits for US citizens working abroad is the Foreign Earned Income Exclusion (FEIE). For 2024, you can exclude up to $120,000 of earned income from U.S. taxation if you meet certain residency or physical presence requirements. To qualify, you'll need to demonstrate that your tax home is in a foreign country and that you meet either the Bona Fide Residence Test or the Physical Presence Test. However, remember that this exclusion doesn't apply to investment income or other sources of income, which are likely still taxable.


Take Advantage of Tax Treaties and Credits


The U.S. has tax treaties with many countries designed to prevent double taxation and provide guidance on how to handle income earned abroad. These treaties often offer reduced tax rates or exemptions for certain types of income.


Additionally, you might be eligible for a foreign tax credit, which allows you to offset the taxes paid to foreign governments against your US tax liability. It’s crucial to review the specific treaty provisions and credit options to maximize your tax benefits and ensure compliance.


Conclusion


Navigating international taxation requires careful planning and awareness of your obligations. By understanding these key considerations, you can better manage your tax situation and focus on making the most of your international experiences. Always consider consulting with tax professionals who specialize in international taxation to ensure you meet all necessary requirements and to optimize tax planning strategies. (For the record, I spent 12 years of my IRS career working as a subject-matter expert in international taxation.)


If you do find yourself dealing with international taxation issues or on the wrong side of an IRS notice, engaging a tax relief professional such as your premier tax resolution experts at Liberty Tax Defenders can provide personalized advice and assistance, ensuring you remain compliant while minimizing your tax burden.


Don't forget to reach out to us today for a FREE consultation!


To your success!



P.S. Make sure you get your FREE copy of our SPECIAL REPORT: "The 7 Secrets The IRS Does NOT Want You To Know!" (simply click on the link in the previous sentence, scroll down to the second section of our home page, and download your copy today!)


Or, email us at:  info@libertytaxdefenders.com for your FREE copy.



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