As a U.S. citizen or green card holder residing abroad, you have to file a U.S. tax return on your worldwide income. The U.S. has tax treaties with many countries, which allows the federal government to exchange data on its citizens for tax purposes. Most importantly, if you do not file a tax return for a given tax year, the statute of limitations on that year never runs out.
The good news is that most expats don't end up paying any taxes to the IRS. First of all - the taxes you already pay in the foreign country count against your US tax obligations. Secondly, you also probably qualify for the
foreign income exclusion, which lets you subtract roughly $100,000
from your earned income for U.S. tax purposes.
There are also a number of other
deductions available to expats. As a result most of our clients never
actually pay anything to the IRS - they simply file the tax return and
foreign tax credits.
These tax credits can be used at a later date to offset future tax
obligations, but they can only be accrued by preparing a tax return.
There is one more important reason why you should file your tax return each
year while living abroad. The statute of limitations for IRS audits expires
three years after you file. This means the IRS can not go back (absent fraud)
and try to audit or change the return later. Therefore, you should file your
return even if you have no income or do not owe taxes in order to place a
3-year limit on audits and eliminate potential future problems when you
decide to return to the U.S.
At TFX we have built an innovative tax preparation system that
enables us to provide a variety of tax-related services to our clients no
matter where they live. You can have your tax return prepared by a
professional dedicated to the expat community. It will be done on a timely
basis - our normal turnaround is 15 business days - at a reasonable cost and
with minimal effort on your part.