Expat Tax Advice from US Tax Specialist Thomas Carden
Income taxes can be complex to navigate, so the first thing you want to do as a US taxpayer is to fully understand your personal tax situation and obligations. Every individual has a unique tax profile, and professional tax advisers can not only help you avoid the negative consequences of incorrect or delinquent tax filing, they can inform you of deductible amounts that can save you substantial amounts of money.
American International Tax Advisers is an expat tax firm based in Bangkok, Thailand. The company specializes in US tax and assisting US citizens and resident aliens remain compliant with their IRS tax obligations.
We arranged an interview with Thomas Carden of American International Tax Advisers to discuss expat tax for US teachers abroad. Thomas is highly qualified in the area of US taxation. He has been working as a tax specialist for more than 20 years, and has a Bachelors in Global Business Management, as well as a Masters in International Tax and Financial Service Law.
In the interview, we discuss many of the topics covered in this article, as well as what US expat teachers can do to prepare themselves for life abroad and managing their tax affairs.
The Basics About US Tax Filing Requirements
Who Must File a Tax Return?
Many American ESL teachers assume that they are not required to file a tax return while living abroad. This is an incorrect assumption, which can lead to both legal and financial consequences. If you are a US citizen or resident alien living abroad, and your income meets the minimum filing threshold, you must file a tax return each year to report your world income.
The minimum threshold for filing a tax return depends on a combination of:
- Your Gross Income
- Your Age
- Your Status
- Number of Dependents
- Whether you are a Dependent
- How you earned your income (i.e., employed, self-employed, investments, etc.)
The IRS publishes an updated Filing Requirements Chart for Most Taxpayers, which you can check to determine your personal tax filing obligations. You can also refer to Publication 501, which discusses some tax rules affecting every person who may have to file a tax return.
When Must You File Your Tax Return?
The IRS requires you to file your tax return for the previous year by April 15. US citizens or resident aliens who live abroad during the deadline date receive an automatic two-month extension without requesting an extension. While this means you have until June 15 to file your tax return, you must still pay any tax due by April 15, as the IRS will charge interest on tax due starting April 15.
Foreign Earned Income Exclusion
What is the Foreign Earned Income Exclusion?
US citizens and resident aliens living abroad may be eligible for the Foreign Earned Income Exclusion (FEIE) for some or all of the income they earn outside of the US. Each year, the IRS revises the FEIE amount to account for inflation. As of 2019, the maximum exclusion amount is $105,900. This means that qualified income up to this amount may be excluded from income tax in the US. Not all income earned outside of the US qualifies for the exclusion. However, most American teachers legally employed or self-employed in a foreign country should be able to apply for the FEIE successfully.
To qualify for the FEIE, you must be out of the US for 330 out of 365 days, or living abroad as a legal resident of a foreign country. If taking the exclusion as a resident of a foreign country, you might spend 3 to 5 months a year in the US, but never 6 months.
Misconceptions and Consequences of Not Filing Your Tax Return While Living Abroad
One of the biggest misconceptions amongst US teachers living abroad is that they are automatically entitled to the FEIE, and are thus not required to file a tax return with the IRS as long as their income falls within the maximum exclusion amount. This misconception leads to many American ESL teachers failing to meet their tax filing obligations, which can result in legal and financial complications down the road.
At the most basic level, failing to file your tax return on time can result in penalties plus interest on outstanding amounts. However, at a more serious level, the IRS may move to have your passport revoked if you have a significant tax debt, which, as of 2019, is $52,000 or more. If your passport is revoked due to serious delinquent tax debt, any visas in your passport will effectively be nullified, and you would be residing and working illegally in that country. Without a valid passport, you would not be able to exit the country, nor apply for new visas.
The good news for US teachers living abroad is that in most cases they will not owe any taxes to the IRS on their foreign earned income, provided that they file their income tax return on time each year.
Other Financial Reporting Obligations
US expat teachers may also be subject to other filing requirements, such as if you have any foreign bank accounts with balances exceeding $10,000 at any time during the year. It’s important not to neglect these filing obligations, either.
Other Tax Deductions and Exclusions
Aside from being required to file your tax return with the IRS, there are other good reasons you want to file. For example, you may be eligible for a Foreign Housing Exclusion or Deduction, which means you could qualify for a tax exclusion or deduction for your housing expenses abroad if your housing expenses meet certain criteria. Also, if you have dependent children while living abroad, you may also qualify for a tax credit of $1,400 per child under certain conditions. This can be a substantial amount of money for American ESL teachers.
Additionally, if you are living abroad and earning a taxable income in a foreign country, you may be eligible for a Foreign Tax Credit, further reducing your US taxable income.
Special Offer: Free 30-Minute Tax Consultation with American International Tax Advisers
American International Tax Advisers is offering our US expat teacher audience a free 30-minute private consultation about their personal tax situation. The free consultation comes with no obligations whatsoever. However, should you decide that you need to retain a professional tax adviser to help you navigate your taxes, we have also arranged a base fee of $300 for US tax filing with American International Tax Advisers, for American ESL teachers legally residing in a foreign country, regardless of your location.