As you know from this blog there are lots of wonderful things about being an expat and living in Australia. There are tons of places to visit, new foods to try and people to meet. One thing that is not so wonderful though, is dealing with taxes in two countries. Even though we don’t have an income in the United States, as citizens we still have to file every year. This is cause for lots of confusion and questions, especially for new expats.
Just the other day I was having lunch with a friend who just moved here and she was asking me questions about taxes that I unfortunately did not know the answer to. Then later that week on a playdate, a different friend had tax questions. That same week I got an e-mail from Taxes for Expats wanting to work together. We decided to have a question and answer session with the president of their company that hopefully new expats will find helpful. These are all questions I have sourced from my fellow Americans living in Australia. If you are an American expat and have further questions, you can contact Taxes for Expats or check out their very informative website.
What is the most overlooked refund/benefit opportunity for expats?
The most overlooked benefit is the ability to claim spousal exemption ($4K off your taxable income) when spouse is a non-resident alien. Your foreign spouse does not need to become a US tax resident and report her income. As long as they don’t have income from US sources you can take exemption for spouse while filing Married Separately.
Can expenses in host country be used as write-offs for US taxes? If so, are there any limitations? (eg. pregnancy, work, moving to/from US)
Certainly — moving expenses are one of the most beneficial. Please see https://www.taxesforexpats.com/articles/financial-planning/using-moving-expenses-to-reduce-expat-taxes.html
Separately for deductions, please see https://www.taxesforexpats.com/articles/tax-saving-stategies/standard-vs-itemized-deductions-on-the-us-tax-return.html for my article on breakdown beteen standard and itemized deductions and which you should use depending on your personal situation.
How will cash outs from Super Accounts be taxed on return to the US?
Firstly we recommend you check out our Australian Tax Guide — https://www.taxesforexpats.com/australia/us-tax-preparation-in-australia.html which has more info pertinent to you.
With regard to Superannuation accounts: Your Australian employer is required to put 9.5% of your salary into the SA fund. The IRS considers it as salary. Ie if salary = 100k, salary that is put on the return (from the IRS perspective) = 109.5K.
Any contributions that employee makes voluntarily have no consideration by the IRS (ie it’s the same as spending money on camping supplies).
- When the employer makes the 9.5% contribution, the employee has to pay a 15% fee on that amount (1.425% of salary). This fee allows the employee to withdraw money from the fund upon retirement tax-free.
- For the purposes of US tax reporting, the 15% fee (15% of 9.5% = 1.425% of salary) is taken directly from the employer contribution. So the actual contribution to the fund is 8.075%. Hence THIS is the actual amount reported to the IRS as income (i.e. 108.075% of actual salary) and which is used to calculate your US tax obligation.
Now – when you withdraw – the key question is how will your withdrawals taxed by the IRS? The short answer is that these benefits are partially taxable on U.S. tax return. The taxable portion is be determined based on the history of your own contributions and employer contributions to the plan. Unfortunately it does get complicated, we’ll be happy to handle this for you during tax preparation
How will regular savings accounts be taxed when moving back to the US? Is there a benefit to moving smaller amounts over time (maybe a set amount each year) back to the US before returning?
You can move money to and from your own checking/savings accounts how you wish – there is no tax from this. Retirement withdrawals are a different story – but regular financial accounts have no restrictions.
What are the major differences filing taxes while living abroad on a temporary visa versus a permanent resident?
With a temporary visa you have low chances to claim yourself a Bona Fide resident of that country. You will have to meet the Physical Presence test to qualify for the foreign earned income exclusion. Other than that US filing requirements are the same regardless of your visa status in the country of residence.
If you have income in US and host country, how/where should taxes be filed and what should be taken into consideration? Does a US income effect the write-off options for US taxes?
If you are a US citizen or Green Card holder, you must file a US tax return declaring your worldwide income to the IRS annually, no matter where you live. Tax reporting requirements in the host country vary and also depend on your immigration status. Some countries accept certification of US residency as a basis for tax exemption. However, most often must file tax return in both countries and claim foreign tax credit to eliminate double taxation of the same income.
Foreign Earned Income Exclusion: My husband, kids and I moved to Brisbane January 10, 2017. In order to take advantage of the Foreign Earned Income Exclusion on our 2017 taxes, can we use the “bona fide resident” test, or do we need to use the “physical presence test”?
For 2017 year you may only use the Physical Presence test as you need to spend a full calendar year (Jan 1 through December 31) abroad to qualify as a bona fide resident as far as the IRS is concerned.
There are additional options where you request an extension to file your 2017 return through December 31, 2018 – then you become a Bona Fide resident retroactively. If you meet the Physical Presence requirements for 2017 this option is unnecessary. You may switch to Bona Fide residence status when you file your 2018 tax return.
Ines Zemelman, EA is the founder and President of Taxes For Expats