Moving to another country from America can be an exciting opportunity especially if you have lived in the States all your life. But at the same time, the opportunity comes with the extra challenge of smartly managing the expat taxes that are applicable on all qualified citizens.
Expats always have a massive concern of not ending up paying the taxes twice. However, in reality, expat life can offer you a lot of tax avoidance if you know all the tips and tricks to make that possible for you.
As your next step after moving would indeed be to look out for expat tax CPA in the United Kingdom, we want you to still hold on and get a detailed grasp on the entire matter. After all, the more knowledge you will have, the better you will be able to deal with the matter even with the help of professionals.
So, let’s begin!
1. You Need Those Additional Tax Forms
As an expat, it is about time that you would be using the forms that you may haven’t used before. By that, we mean you need to get familiar with the following forms:
- Form 2555 (The Foreign Earned Income Exclusion and the Foreign Housing Exclusion or Deduction)
- Form 1116 (The Foreign Tax Credit)
- FinCEN Form 114 (FBAR or Financial Bank Account Report)
- Form 8938 (Statement of Specified Foreign Financial Assets)
Before you underestimate the value of these forms, they serve to be an entry towards tax savings for expats while ensuring important declarations to the US Government at the same time.
2. Take Advantage of Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) To Save Taxes
With the FEIE, expats get the liberty to exclude an income of up to $100,000 from their income taxes. However, to qualify for it, you either need to be a bonafide resident in the United Kingdom or spend at least 30 days in the US every year.
On the other hand, the FTC offers a dollar-for-dollar tax credit if you have paid any tax to the UK government after earning in the country.
Together, the FEIE and FTC can offer maximum tax savings. But you need to apply for them beforehand as the savings won’t be implied automatically.
3. Try Moving To A No Income Tax State Before Going Abroad
A lot of Americans fall into the trap of state-related tax obligations once they move abroad.
The situation can become more complicated if you belong to one of the“sticky” states such as Virginia, California, and New Mexico. These states consider you a tax resident and hold you responsible for taxes even when you aren’t living in the States.
A good tip to get rid of this unnecessary tax obligation is that you should look out for establishing residency in a no income tax state before going to the UK.
4. Report Any Foreign Bank Accounts or Assets That You May Have
This is a key requirement that can be fulfilled through the relevant forms (as mentioned above FinCEN Form 114 & Form 8938). In case of having foreign bank accounts, the requirement to report depends upon the total balance you may have. For foreign assets or investments on the other hand, it becomes mandatory only when the value exceeds a certain threshold.