Tax Planning: U.S. Citizens and Resident Aliens Abroad

If you are a U.S. citizen or resident alien, the rules for filing income, estate, gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside. Some taxpayers may qualify to exclude a limited amount of their foreign earned income and either claim the housing exclusion or deduction or claim a foreign tax credit.

U.S. individual income tax return filing requirements. If you are a U.S. citizen or resident alien residing overseas, you must file a U.S. income tax return while working and living abroad unless you abandon your green card holder status. You must file a federal income tax return for any tax year in which your gross income is equal to or greater than your standard deduction amount based on your filing status.

U.S. individual income tax return deadline. The original due date is April 15th, and an automatic 2-month extension to file your return from the original deadline to June 15th is available. If more time is needed, an additional extension is available for 6-months from the original deadline to October 15th. This 6-month extension must be submitted and filed with the IRS, unlike the automatic 2-month extension.

Tax payment due date. Any tax owed on your U.S. income tax return must be paid by April 15th, the original due date. Additionally, any interest owed accrues from the original due date. Penalties for paying taxes late are assessed from the 2-month extended due date of June 15th, if you qualify for the automatic extension.

COVID-19 Travel Disruption Relief. The IRS has provided individuals and businesses with relief related to travel disruptions arising from the COVID-19 emergency. Under this relief,  of U.S. presence that are presumed to arise from travel disruptions caused by the COVID-19 emergency will not be counted for purposes of determining U.S. tax residency and for purposes of determining whether an individual qualifies for tax treaty benefits for income from personal services performed in the United States.

Exchange rates. You must report the amounts on your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or all your expenses in a foreign currency, you must translate the foreign currency into U.S. dollars. Taxpayers generally use the yearly average exchange rate to report foreign-earned income that was received regularly throughout the year. However, if you had foreign transactions on specific days, you may also use the exchange rates for those days.

Taxpayer identification number. Each taxpayer who files, or is claimed as a dependent on, a U.S. tax return will need a social security number (SSN) or individual taxpayer identification number (ITIN). You need an ITIN if you are not eligible to get a social security number but must provide a taxpayer identification number on a U.S. tax return or information return.

Nonresident alien spouse treated as a resident. In general, a joint return cannot be filed if either spouse is a nonresident alien at any time during the tax year. However, if one spouse is a citizen or resident of the United States, both spouses may file an election to treat the nonresident alien spouse as if he or she were a resident of the United States for the entire tax year, thereby permitting them to file a joint return. If you make the election, you and your spouse will be subject to tax on your worldwide income. If you and your spouse decide to make the election, you must attach a statement to your tax return. The election, once made, applies to all subsequent years until terminated by revocation, death, separation or divorce, or termination by the IRS for failure to keep adequate records. Once the election is terminated, it may not be made again by the couple.

Please contact the Crosslin tax team at (615) 320-5500 to discuss your situation and to review the U.S. individual income tax filing and reporting obligations for U.S. citizens and resident aliens living or working abroad. We are here to help!