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5 questions and answers about taxes while living overseas

On Behalf of | Aug 21, 2018 | International Tax Law |

You grew tired of living in the United States. You decided it was finally time for a change. After all, in your line of work, you can live anywhere you want. You moved overseas and set up a new life for yourself, something you always wanted to do. You cut ties with the United States.

Or did you? You are still a U.S. citizen. What does this mean for you financially? Here are a few questions and answers that can help you understand your tax obligations.

1. Do you have to pay U.S. taxes?

Yes, you do. No matter where you live, the IRS wants to know how much you made in worldwide income. You then have to pay income tax on that amount, just as you would if you still lived in Maryland. After all, in today’s global economy, money comes from all over the world. Citizens still have an obligation to pay taxes to their home countries.

2. Can you deduct foreign taxes?

You typically can. If you had to pay taxes to the U.S. territory or the foreign country you moved to, then you can use that as a tax credit. This is a general rule of thumb, but make sure you know exactly how the IRS views your situation to make sure it’s not an exception. Still, the United States may not force you to pay taxes twice.

3. What currency do you use?

You did not necessarily get paid in U.S. currency. What currency are you supposed to use when you fill out your income taxes? The answer is simple: You still use U.S. dollars. Even when you use another currency to pay your taxes, you still fill out the paperwork in U.S. dollars.

4. Can you file online?

You can. Understandably, this may be a bit easier for you. The IRS has a federal filing system you can use for free if you earned less than $66,000. If not, you can still use electronic methods with other tax preparation services. There is no need to file a paper copy, though you still want to keep digital copies for your records.

5. Why do you have to pay taxes when you do not live in the U.S.?

Many people wonder why they have to pay taxes at all. The general idea is simply that people — especially the wealthy — should not be able to use overseas living as a way to shield themselves from tax obligations. As a result, taxing worldwide earnings makes it easier to simply apply taxes to all U.S. citizens.

If you have any further questions about your taxes, make sure you look into all of your legal rights and the steps you need to take to comply with international tax laws.