Taxes for Travelers Abroad: 5 Things You Need To Know


Individuals positive like to journey. Over 45 million Individuals traveled overseas in 2019 – a few of them for enterprise, others for pleasure. And whereas the pandemic has dampened these numbers, the necessity to expertise the sights and sounds of the world stays.

Whether or not you’re touring for enterprise or pleasure, right here’s a fast tax information to get you began.



Can I work remotely from one other nation?

Sure! A couple of have even determined to profit from the continuing state of affairs to journey the world. 

In an effort to spice up flagging customer numbers, some international locations corresponding to Estonia and Bermuda have supplied particular visas for Individuals who wish to briefly work overseas. Since many corporations have allowed their workers to make money working from home for the foreseeable future, the thought is to draw individuals who would possibly wish to proceed working in an unique vacation spot.

It appears like the right resolution for individuals who don’t wish to spend their time cooped up of their houses or residences. They get to reside abroad whereas holding their previous jobs. However touring and dealing overseas comes with duties, chief of which is your taxes.


What’s my tax state of affairs?

Your tax state of affairs will depend on the place you keep, and the size of time you spend overseas. It’s estimated that over 10 million Individuals reside overseas long-term. A few of them keep in a single place, whereas others bounce from nation to nation.

However what does this imply for you?

When you spend a complete of 330 days overseas throughout a 12-month interval, you meet the Physical Presence Test. Assembly this take a look at is essential if you wish to avail your self of the numerous tax advantages accessible to American expats and vacationers.

It’s vital that you simply hold monitor of your time spent overseas. Even arising a day wanting the 330-day requirement means you forfeit any expat tax advantages that can enable you to cut back your tax legal responsibility.

Your size of keep may additionally decide your tax residency in that nation. Because of this you’d be topic to that nation’s tax legal guidelines. It’s vital that you simply do your analysis forward of time earlier than making any massive choices.


Do I pay U.S. taxes if I work abroad?

Sure. The US is likely one of the few international locations on the earth to undertake a citizenship-based tax system. Because of this Americans and everlasting residents (often known as Inexperienced Card holders) must pay U.S. taxes and file a federal tax return, even when they’re primarily based abroad.

Your worldwide revenue can also be taxed by the IRS. Let’s say you determined to open a small facet enterprise throughout your keep overseas, whereas nonetheless holding your day job for a U.S.-based firm. Even for those who don’t reside in the USA and the enterprise relies abroad, each sources of revenue are topic to U.S. tax legal guidelines.


How do I cut back my tax legal responsibility?

Dwelling and dealing overseas, whereas thrilling, additionally comes with a number of challenges. It’s important to navigate two completely different tax techniques, which may result in double taxation. It’s vital that you simply perceive all the advantages accessible to you if you wish to reduce your tax legal responsibility. 

Overseas Earned Earnings Exclusion

One of many greatest tax advantages accessible to expats is the Foreign Earned Income Exclusion (FEIE).

The FEIE permits expat taxpayers to exclude a certain quantity of overseas earnings from federal revenue tax. For the tax yr 2021, the FEIE threshold is $108,700. You continue to have to file a federal tax return even when your revenue doesn’t exceed the edge and you don’t have any tax liabilities.

To say the FEIE, the taxpayer should meet the Bodily Presence Take a look at.

Overseas Tax Credit score

One other tax profit you have to know is the foreign tax credit. Expats who’ve paid revenue tax to a overseas authorities can declare a dollar-for-dollar credit score to scale back their U.S. tax invoice. 

Let’s say you’ve paid $1,000 of revenue tax to a overseas authorities. You may take a tax credit score to scale back your U.S. tax invoice by the identical quantity.

After you have claimed the FEIE, you can not take a tax credit score for taxes on excluded revenue. You may, nevertheless, take a tax credit score on foreign-earned revenue that exceeds the FEIE threshold.


Tips on how to file an expat tax return?

It’s vital that you simply straighten out your funds earlier than deciding to maneuver overseas. Transferring to a overseas nation with no correct plan can result in points along with your tax return. You may all the time speak to tax specialists, corresponding to these at TFX, for those who need assistance clarifying your tax state of affairs.

This publish was written by Veronica Rhodes of TFX. TFX is a women-owned tax agency that gives all U.S. tax companies — for each Americans and non-citizens with U.S. tax submitting necessities. From easy expat tax preparation to complicated instances involving a number of elements — we’ve dealt with all of it for over 25 years.


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