Many U.S. citizens take job opportunities that move them and their families out of the country. While they may not be earning money on American soil, it does not mean that they are exempt from paying federal income tax. Here are some things Connecticut residents who are considering the expat lifestyle need to know.
Expats may qualify for certain exclusions not offered those residing in country. For instance, there are housing and foreign earned income exclusions that can help reduce the amount they owe in taxes. These are not exclusions granted to just any U.S. Citizen living and working in a foreign country. One must prove he or she qualifies by satisfying the requirements of the physical presence test or the bona fide residence test — both of which look at how much time during the year one is actually living in his or her new country of residence.
Many expats put money away in a U.S. pension while they work overseas. Contributions to IRAs are typically tax deductible. That does not change simply because one’s income is from a foreign source. As long as the money being contributed meets the definition of approved earned income, the tax deduction applies.
When people move for work, moving expenses may be tax deductible. That holds true for expats. A benefit for expats that others may not enjoy, though, is that, even if their employers reimburse them for moving expenses, they can still claim the moving expenses on their taxes. However, the moving expenses tax benefit has been removed from tax law, meaning that the 2017 tax year is the final year expats can claim this deduction.
There is a lot more that can be said about expats and income tax. A lot of it can be quite confusing and is better explained in conversation rather than in writing. Connecticut residents thinking of moving out of country for work, or former residents already turned expats, can turn to a tax law attorney for help figuring out how life as an expat will affect their tax responsibility.
Source: smartbrief.com, “What new US tax laws mean for expats in their first year abroad“, Ephraim Moss, Esq. & Joshua Ashman, CPA, Feb. 8, 2018