7 Common Tax Mistakes Expats Make and How to Avoid Them KEY TAKEAWAYS
Educate yourself about the tax details in your home country as well as the new country. Awareness of different tax deductions will help you save money. The IRS keeps a strict vigilance over your sourced income and failing to report even a small amount may incur penalties. Keeping a record of your expenses makes it easier to reduce expenses in areas like moving and travel costs. Understanding the Foreign Earned Income Exclusion helps in managing any extra taxes because you are earning abroad. Tax season can be a stressful time for many people, but it is especially difficult and tricky for expats who need to navigate the unique tax laws of two countries. A simple mistake or oversight could end up being expensive.
In this blog post, we will look at seven common tax mistakes that expats make when filing their returns, as well as some tips on how to avoid them and keep your finances organized throughout the year.
Ready to learn more? Let’s get started!
Not Filing Taxes in their Local Country Moving to a new country is an exciting adventure. However, with it comes a lot of new responsibilities, including filing taxes. It’s necessary to understand the laws in a new country and file your taxes accordingly.
Ignoring this responsibility can result in costly consequences such as penalties, fines, and legal troubles. You might feel dreadful about filing taxes in a new country, but not doing so could lead to more stress than you can imagine.
Educate yourself on the laws and regulations, including the filing deadlines, and seek the help of a professional if needed.
Not Knowing about Tax Amnesty Programs There are many different tax amnesty programs available to expats, but unfortunately, not everyone is aware of them. These programs can help those who have neglected to file their taxes in the past, as they offer a chance for taxpayers to fix the problem without facing heavy fines or penalties.
Also, IRS tax amnesty programs may even offer an opportunity to reduce or eliminate the amount of money owed. It’s relevant to research these programs and understand their requirements so you can take advantage of them if needed.
Keep in mind that while tax amnesty programs can be incredibly helpful, they are also time-sensitive and only available for a limited period.
Failing to Claim Deductions As an expat, navigating the details of tax laws can be dreadful. It’s easy to overlook tax deductions that you’re eligible for, especially if you’re not familiar with the country’s legal system.
However, failing to claim these deductions can cost you higher charges. By learning about the tax deductions available to you as an expat, you can ensure that you’re taking advantage of every opportunity to save money
Not Reporting International Income It’s important to make sure you report all foreign-sourced income, no matter how small it may be. Some people think that because their earnings are not within the United States, they don’t have to report it.
However, this couldn’t be further from the truth. The IRS expects taxpayers to report all income , regardless of where it was earned. Not reporting international income could result in costly fines and penalties, so it’s best to always be cautious and report everything.
Keep in mind that the IRS has made it easier to report foreign income, so there is no excuse not to do so.
Not Keeping Records of Expenses If you’re living abroad, it’s important to keep track of all your expenses. Not only does it help you manage your budget, but it can also come in handy when it’s time to file taxes.
While you may not be able to reduce every expense, some of them can be considered deductible. These could include expenses related to your job search, moving costs, or even travel expenses related to visiting family back home.
Not Understanding Foreign Currency Conversions Foreign currency conversions can be a tricky feat to get right. It’s easy to get lost in the endless exchange rates and calculations, leaving you confused and frustrated.
However, there are ways to educate yourself on the proper methods to convert foreign currencies to US dollars. By learning the necessary steps, such as finding the current exchange rate and knowing the currency’s market value, you can easily avoid any confusion or discrepancies.
EXPERT ADVICE The currency exchange market is volatile because of changing government rules in different countries. Therefore, it is recommended to move smaller amounts of money over time rather than making a lump sum transaction at the last minute.
Not Understanding the Foreign Earned Income Exclusion Navigating the world of taxes can be confusing enough as it is, but when you add in foreign income, things can get even more complicated. Understanding the Foreign Earned Income Exclusion is relevant if you’re earning money abroad and want to ensure you’re properly calculating what you owe.
This exclusion can help you save on your bills, but it’s important to know if it applies to you and how to properly calculate it. Don’t let confusion about the Foreign Earned Income Exclusion leave you stressed before the tax season.
As an expat living abroad, many money considerations may apply to you. It is important to understand the details of these tax laws to ensure that you remain compliant with all regulations and properly protect your finances.
With a bit of effort and research, expats can enjoy a stress-free financial situation when handling taxes. Sign up for our free webinar to learn more about what you need to know about expat taxes!
