Tips for Expats to Avoid Drawing Unneeded IRS Attention

Sep 28, 2017

In this post, the FBAR Wiz will help lay out some tips to avoid drawing unwanted scrutiny from the IRS. Claiming the foreign earned income exclusion can also affect your eligibility for other credits. For instance, you cannot claim a foreign tax credit on the same income that you have excluded. It is either one or the other. This credit reduces the double-tax burden that you would otherwise face when income earned abroad faces levies from the host country and the United States. Additionally, you cannot have both the additional child tax credit and the foreign income exclusion, as recently enacted legislation won't allow it. It is like eliminating the double benefit of the exclusion and the credit. Whether it makes sense to take one or the other will depend on your circumstances and the tax regime of the nation where you're living. Social Security, Foreign or U.S.? Large multinational employers may split their payroll so that a portion of your compensation is paid toward Social Security and Medicare throughout the year. If you are working with a foreign (i.e., non-U.S.) company, however, your wages are subject to local taxes and you may be paying into a social welfare system there. Some countries have an agreement with the U.S. to ensure that you are not taxed twice for Social Security. No Overseas Marriage Break Americans who meet and marry their spouse in their host country often think they can file a joint tax return, which you shouldn't. U.S. citizens who are married to nonresident aliens generally file separately, rather than jointly. This is going to have an effect on deductions, tax brackets and alternative minimum tax adjustments. It's a very complicated area, and individuals shouldn't take this task on by themselves. You should seek competent tax advice when going on a foreign assignment. To begin exploring your own offshore compliance obligations, check out the free FBAR Wiz app and learn what forms you need to file. To learn more about the foreign earned income exclusion, check out this related blog post.