Americans living overseas could be missing a financial trick by failing to file a tax return in the US.
The USA is the only country where citizens living overseas are expected to pay tax at home as well – and understandably, many expats resent the Internal Revenue Service (IRS) for chasing them down.
The new Foreign Account Tax Compliance Act (FATCA) – which starts from January 1, 2014, will make life even harder by obligating foreign financial institutions to tell the IRS about the accounts and assets held for US citizens.
However, although Americans must pay tax in the US on any money they earn worldwide, filing a tax return could represent a good turn for many, according to tax advisers Greenback.
The tax firm argues that while the IRS takes away from many expats, others also gain from refunds and if they do not file a return they could miss out on the bonus.
IRS wants to pay out
This is backed up by the IRS, who issued a statement saying: “Even if you do not need to file a tax return, you may still put one in as you may be owed a refund if too much federal income tax has been deducted from your salary or you qualify for unclaimed tax credits.”
The IRS goes on to tell taxpayers why they should file a tax return:
- As an employee of a US corporation, you may have had too much federal income tax held back
- Filing a return clears up problems over estimated returns or overpayments in prior years
- Anyone with an income of less than US$50,270 in 2012 should file a return as a fifth of taxpayers are due an earned income tax credit averaging $2,200 for the year
- The IRS also has a pile of cash waiting to pay out for child tax credits, the American opportunity credit for students and health care tax credits.
Greenback also points out that filing a return can lead to paying less tax on any income earned overseas.
Completing a tax return triggers the Foreign Earned Income Exclusion that ring fences $97.600 of overseas earnings in 2013.
“The Foreign Housing allowance is another expat relief that can offer great savings on the amount of tax an expat might expect to pay in the US,” said a Greenback spokesman.
Both credits are aimed at reducing double taxation for US expats – but can only be claimed by filing a tax return.
|click here to connect with an independent financial advisor for expert, whole of the market advice today.|