Do you Know How Much Foreign Income is Tax Free?

Before you know the exclusions of the tax amount, you have to understand that the rules of filing tax returns apply to those people who live or work in a foreign country. With income sources ranging from wages, tips, consultancy fees, social security interest, farm income, income through rental property, capital gains, pension fund, and various other sources. You may be liable to file tax returns 

if you have not resided in the country for several years. Apart from this, the tax obligations may remain if you are married to someone with income sources if all or a part of your income was already taxed at the source and all of it is earned through the foreign sources.

Mitigating The Tax

When you need to learn about American Tax for US Residents Living Abroad, you can visit the official website like USA Expat Taxes to know more about the rules that apply to your tax filing status. Basically, there are two methods that can help you to reduce the amount of tax the FEIE or Foreign Earned Income Exclusion and the FTC or the Foreign Tax Credit. However, you cannot skip the tax filing procedure if your income moves above the filing threshold. 

The FEIE for which the IRS Form 2555 is to b used allows you to get a certain amount of exclusion. For all those planning to file the return in 2018, the amount is $102,100. It implies that you have to subtract this amount from your total income and the remaining amount becomes taxable in the US. However, this exclusion is only applicable to what you earn in a foreign country and not for capital gains, pension, dividends, or sources of income in the US.

Read Also: The Penalties If You Don't File Your Taxes For One Year?

Foreign Tax Credit

This is another method allowing you to get exclusions in the tax you have to pay for the money earned in a foreign country. For this, Form 1116 of IRS is to be used by the US residents. If the foreign country imposes tax on the income, the amount can be subtracted from the tax you have to pay in the US. 

In most of the cases, this deduction reduces a substantial amount on the US tax bill. With the combination of FEIE and FTC, you can easily reduce the burden of tax. The American Tax for US Residents Living Abroad must be examined in varying facets before you know whether you are excluded from paying US taxes or not.

Discontinue or Limit Tax Withholding

If you wish to qualify for the tax exclusion for foreign income, you have to work under an employer that limits the withholding income tax from your entire or part of the wages. On the other hand, for pension payment withholding, you have to provide an address in the United States or possession until you certify that you are not a resident of that country or someone who has left US for a long time.

Other Exclusions

If you are a citizen of US living and working abroad, you may also qualify for exclusions that are to be annually adjusted against the rate of inflation. Additionally, you are also liable to exclude the tax from income of the value of meals ad lodging that your employer provides.

Read Also: How Taxes Work? Here is 7 advice if you Wanna Live Abroad