As an expatriate, it’s very common that you’re not aware of how the international tax system between countries operates and you end up with penalties and fines. United States of America and Eritrea are two countries that charge their citizens with taxes no matter where they live. They have bodies like International Revenue Service that track down all citizens around the world. Here is some advice for expats that can save them from tax troubles.
- Collecting Documents
Filing your taxes can be a stressful job if your documents are incomplete or disorganized. To make the process easier for yourself, start collecting all your documents in a folder. The documents should contain your travel history, the length of time you spent in each country, and all your expenses. File your documents through an online filing service to save time. You can even apply for a tax ID by filling the online Tax ID form. E-filing services charge you with one-time document processing fee. Be it filing your tax returns, opening a new bank account or starting a new business, filing returns has never been easier.
- Don’t Forget to File a Tax Return Every Year
Why is it important to file a tax return? Tax Return is a record of all the taxes you’ve paid in a year and it calculates if you owe more tax to the government or you’ll get a refund of the taxes you’ve paid. Even if your taxes are reduced that still does not eliminate you from filing your tax returns. Many Expats are not aware of filing their tax returns. The International Revenue Service not only provides you with a two month extension from the due date but also helps you in catching up for all the tax returns you didn’t file through Tax Amnesty programs. If you still fail to file your income taxes, then you face penalties ranging from interest on your tax debts to 10% of unpaid taxes per month. Lastly, don’t forget to keep a copy of your tax returns for yourself.
- How to Reduce your Taxes
Even though the tax system varies from country to country, there is a way you can reduce the taxes in your country of origin. Because expats are subjected to two types of tax; tax in the country of origin and tax in the country they work in, which result into them paying a lot of taxes. Since the tax rate in the two countries vary, taxes you pay in the country where you work will offset against the duties you owe in the country of origin. This is only possible if the country in which you work has a higher rate than your country of origin.
- Foreign earned income exclusion
Expats must qualify in order to exclude up to $100,000 of foreign income earned from US taxation. Firstly, they must pass a physical presence test which requires them to stay in the foreign country for exactly 330 days. Secondly, there is a Bona Fide Residence test for those who’ve lived in the foreign country for more than a year and do not plan on coming back to the country of origin. Lastly, income must be earned by working and not from pensions or any grants.