While it is true that you have a responsibility to pay taxes as an expatriate working and earning money from another country, it can be very disadvantageous especially if your income is not really that much. You might be just working for fun or maybe you are doing small projects and you do not earn a massive income compared to the standard income earned in the US. You are liable to paying that legal percentage for the expatriate tax. The good news though is that if you meet certain requirements, you can benefit from foreign income exclusion under specific circumstances.
While it is true that you have a responsibility to pay taxes as an expatriate working and earning money from another country, it can be very disadvantageous especially if your income is not really that much. You might be just working for fun or maybe you are doing small projects and you do not earn a massive income compared to the standard income earned in the US. You are liable to paying that legal percentage for the expatriate tax. The good news though is that if you meet certain requirements, you can benefit from foreign income exclusion under specific circumstances.
For those expatriates who are still considered as US taxpayers, they gain some break on their tax paying options. If you live abroad and you meet certain requirements, you can get foreign income exclusion or you can also have a deduction of the foreign income that you make based on the tax code of America. Sadly, there are some changes in some aspects of the tax benefits especially in housing costs. Those US workers who have foreign postings will most likely use the tax savings to get housing costs that receive unfavorable treatment nowadays.
If you are going to try your luck with the foreign income exclusion, you have to know your range. In the last few years, the amount of foreign income that you can exclude is around $90,000, slightly higher that it was 4 years ago. This is due to the inflation rates. Therefore, the amount may have increased but in terms of value, depending on where you reside, they might still be the same. A disadvantage would be the amount of excludable income which is slightly higher.
In the past, with the foreign income exclusion, once the worker has deducted the exclusion amount, they already have the taxable amount. Now, no matter the resulting taxable amount, the taxation method is still in the same bracket even before the exclusion was made. That means the expatriate tax loses its tax reducing benefit. That means if you belong to the $100,000 bracket, even if you are left with $8,000 of taxable amount, the percentage will still be on the total amount of earnings.
Housing limits
If you are a tax payer who qualified for foreign income exclusion, you can also benefit from a tax break for housing costs. Sadly, with changes greatly reducing tax benefits, they have to be creative in their ways to make the most out of their salaries. Some people can consider the housing as a deduction. Of course, you have to understand that there is also a limit with exclusions, at only 30% so for housing which is normally 16%, you already consumed half of the Foreign income exclusion.
Understand that even if the benefits seem to have become very limited due to the changes with the expatriate tax, you still have to pay your dues. You just have to plan well and take advantage of the benefits like deductions and exclusions to get the most out of your income.
Tired of making calculations for your expatriate tax http://www.artiopartners.com ? Do you want to take advantage of foreign income exclusion http://www.artiopartners.com but do not know how? Our services on international taxes can help you in addressing your most basic to the more complicated issues in accounting and paying your taxes to your country.