Do I Have To File US Tax Return From Abroad?

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Do I Have To File US Tax Return From Abroad?

I am an American citizen who has lived in Mexico for 20 years. An accountant told me that if I spend only 30 days out of the US a year, I don’t have to pay federal income tax. Is this true? If it is, then do I have to file a tax return every year?

Tabitha Paddock of Greenback Tax Services answered this question.

You are required to file a US tax return if you earned above the minimum amount required to file (which varies depending on your filing status). Generally speaking, if you are self-employed and earned $400 you must file, if you are single and earn above $10,000 you need to file, and if you are married and filing together this increases to $20,000. As a US citizen you are required to report your income to the US every year, even if you are living abroad and paying taxes to your host country.

However, there is an upside. The US has certain exclusions, deductions and credits in place to limit dual taxation. The biggest credit is the Foreign Earned Income Exclusion, which allows you to exclude over $100,000 of your earned income from your US taxes (so long as you are outside the USA for 330 days in a 365-day period). If you fall under this limit, you probably will not owe the US any tax – however, even if you won’t owe anything you still need to file.

You may also have been required to report your foreign bank accounts. If you had $10,000 or more in foreign bank accounts at any point during the year, a report of foreign bank accounts (FBAR) was required. If you are above these thresholds, you may need professional help with tax filing.

Moving Abroad Checklist

Initial Considerations

Will your partner be travelling with you?

If so, what will they be giving up in your present home and will they be able to continue with their career in your new home? You will need to check whether a separate visa is required for your partner to work or if your visa gives that right. If they are unable to work you will need to decide on the effect on your finances and what alternatives are available to give a fulfilling life (home business, training, voluntary work).

Are you taking family with you?

Moving with family raises many exciting opportunities, but also can create challenges. The HSBC Expat Explorer survey indicates that expat kids can take six months to settle in to their new country (see article). Getting young or even older children to prepare to move and leave their friends and family behind can be a challenge and should be thought through.

The options for education is another area that needs to be thought through.

Moving your child to a new country with a different education system can be a great opportunity to broaden their experience, but if they are close to key exams the timing can make this inadvisable. If you do take your family with you, it is important to decide between joining the local school system or choosing an international school.

Where will you be living?

Whether you will be living in a house or apartment, furnished or unfurnished, these decisions will affect what you need to take with you. The time you are planning to live overseas will also affect whether you should leave your property at home empty, rent it out or sell it. See the article Sell, Store or Ship.