Tax Considerations When Working Abroad | Get Financial Freedom Tips | Transform Your Financial Future


Wednesday, December 10, 2014

Tax Considerations When Working Abroad

There are many important considerations when it comes to living abroad. While many people will spend a lot of time thinking about their new work and living situations, far too many people fail to properly consider the challenges of filing taxes when living abroad. Filing taxes is unpleasant for everyone, and the emotional and logistical challenges only increase for people that are living outside the countries in which they are citizens. American citizens must have an idea of what is expected of them in advance. Different tax consulting services should be able to help them save time and money.

Geographical borders and economic borders

American citizens will still have to pay tax on the money that they earn in other countries. However, that doesn't mean that their taxation situation is identical to the one that most Americans will experience. In many cases, American citizens will be taxed according to American taxes, and according to the taxes of the nations in which they were living at the time. Americans living in Canada will owe both governments taxes. As such, living abroad can quickly become a financial burden for many American citizens.


One measure that American citizens in this situation can take involves making a claim for a tax credit related to what they pay abroad. The IRS will, however, require documentation that supports the fact that the American citizens paid the foreign tax. While this may seem like a straightforward requirement, many bureaucracies move very slowly. The American citizens may not get the paperwork they need at the right time. People that want to take advantage of this opportunity will need to work very quickly.

The Foreign Earned Income Exclusion is another option for American citizens in this situation. This tax break is only available to American citizens that have lived in the foreign country in question for 330 days in 12 consecutive months. Getting the documentation in order can be difficult and time-consuming, but Americans living abroad should seize the opportunity.

Liquid assets abroad

American citizens that are working with liquid assets abroad will have an easier time than American citizens that are not. For instance, Americans who are trying to sell houses may end up paying very high taxes in the process if they are living abroad at the time. As a result, the financial transaction may not even be worth it for them. Given the recent housing crisis in the United States and beyond, many Americans have been in situations like this. Americans who are planning on living abroad may have to reconsider becoming homeowners entirely. It may be better for them to focus on assets that have more liquidity.

Tax Considerations

Citizenship changes

Some Americans who are struggling with paying two different sets of taxes may ultimately decide to renounce their American citizenship. Some people may decide to become citizens of nations in which they're stayed for long periods of time anyway, so this may not be a sacrifice for everyone. However, there are plenty of people that understandably want to have as many options open to them as possible and establishing citizenship in a new country is often time-consuming and difficult.

Americans living overseas do have options when it comes to managing their taxes. Living abroad anywhere is going to present some challenges. Savvy individuals will always try to make the most of their situations and improve their odds.

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