Contrary to popular belief, the U.S. tax filing obligation does not end when you move to a new country.
The IRS taxes all Americans on their worldwide income, meaning your income in euros, yen, pounds, pesos, or whatever the currency your paycheck comes as all have to be reported on a tax return. Would there be an exception though? Yes, if you know the ins and outs of taxation.
One of the very few legal ways you, as an American, would not need to file U.S. taxes is when your income does not exceed the standard deduction amount. American individuals who make a very modest income would fall under the category.
Generally, university and graduate school students with a small side income from their TA or RA position would use this benefit. Take a look at the chart below as a guideline.
Tax Year 2018 Standard Deduction Table
|Filing Status||Standard Deduction|
|Head of Household||$18,000|
|Married Filing Separately||$24,000|
|Married Filing Jointly||$12,600|
If you are single and earned a combined income of less than $12,000 in 2018, your taxable income would be reduced to zero, lifting your federal or state tax obligation.
In the States, the government automatically withholds a certain amount of your income but will refund the entire amount after filing a tax return. As an expat, without any withheld income to claim, there seems to be no apparent reason to file for a return.
Benefits of filing taxes even when you don’t have to
There are very valid reasons why you should still file your taxes because the benefits will outweigh the hour or less you would use to file your tax return.
Additionally, it is essential to recognize that individuals considering “not filing” as an option would make for a straightforward tax filing case. If something that could be done in less than an hour could provide so many benefits, the task, all of a sudden, looks less daunting.
Benefit #1. Don’t miss out on refund opportunities
Refundable earned-income tax credit or refundable child tax credit are some of the tax refunds you could receive, but no tax return means no reimbursement.
Benefit #2. Lower the risk in case of an audit
The statute of limitations period for a tax audit is three years. That is if you file a return. Without filing a 2015 tax return, the statute of limitations increases to five years, giving the IRS more legal leverage to pry your personal tax situation by two more years for merely not filing a simple tax return.
Benefit #3. Capital loss? At least take what you can from it
If you had investment losses, the number of losses could offset otherwise taxable capital gains next year. However, you must file a 2018 return to earn the credit from a tax-saving capital loss that will carry over to 2019.
Benefit #4. Business owner and suffered a loss
The net operating loss (NOL) for 2018 from the business operations could be used to claim a refund- if you have suffered from multiple years of losses, you would be able to claim as far back as 2016 tax year. How to find out if you are eligible? Well, you have to first file for taxes.
Did any of the listed items interest you? You can certainly look into likely possibilities and determine if filing a return would be worth your time and effort. Locus Tax says yes, file your income tax. It’s worth it.