Tips for Filing Income Taxes From Overseas

By Trevor Onions , last updated December 5, 2011

Many Americans travel abroad for extended periods every year, and most would benefit from picking up tips for filing their income taxes from overseas. Although you might be living in a foreign land for years at a time, you're still considered a full fledged citizen with all the duties and privileges of Americans who are still at home. Paying income taxes to the IRS is mandatory, and your tax rates typically stay the same. Filing from overseas carries some notable differences, however, and being mindful of them helps you avoid any misunderstandings or problems at tax time.

About Filing Taxes Overseas

First, knowing when to file your return is extremely important. For the average ex-patriot or American living overseas for a long period, April 15th remains the deadline for paying any taxes due. If you're expecting a refund, or you don't mind paying additional interest, the IRS grants overseas citizens until June 15th file their return, effectively a two month extension.

If you need a further extension, you may request one that could push the deadline back until October 15th. Interest as well as penalty charges normally apply, but exceptions are sometimes granted under law, particularly for military men and women who are serving in combat zones.

Tax payments and returns should still be mailed to IRS centers located in the US. It's worth noting that there are IRS outposts in places like Germany, Britain, and China, but these exist primarily to help overseas citizens answer questions, rather than collect their returns. Play it safe by filing electronically or by sending paper forms and checks back to the homeland if you want to avoid potential mishaps.

Reporting Your Foreign Income

Many Americans who live abroad end up working for some amount of pay in a currency different from the US dollar. Whether you're earning Euros or Japanese Yen, it's your responsibility to translate your earnings back into dollars. Luckily, the IRS suggests that you use the annual average of the foreign currency's exchange rate with the dollar, providing some protection from volatility in world currency markets.

Dealing with foreign earnings carries additional hassles that many citizens don't deal with, but there are some benefits, too. Be sure to take advantage of the generous allowances given by the IRS for reimbursement of moving expenses. Certain kinds of foreign housing costs also qualify for deductions, particularly if you're responsible for your living needs, rather than an employer.

Avoid allowing yourself to be double taxed by multiple countries. If taxes are automatically paid by you, or extracted from your pay check by a foreign government, then you likely qualify for a foreign tax credit on your US return. Depending upon the severity of the foreign taxes, this can significantly reduce any income tax bill owed to the IRS, or increase the size of your refund. Be careful about claiming the full foreign tax credit and allowances for housing, since they all contribute to the same allowable total deduction, from the IRS' perspective.

Filing your income tax return from overseas isn't terribly difficult if you consider these guidelines. Use them to your advantage and keep your tax record clean as you earn and live abroad.

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