Many expats we help simply don’t realize the amount of deductions they can claim.
There are so many IRS exclusions and deductions you can claim when you are a US expat, living and working abroad. The common ones that new expats aren’t aware of are the itemized deductions such as State income taxes, mortgage interest, property taxes, charity contributions, legal fees, business and travel expenses. There are deductions here that too many expats aren’t claiming!
When you are living and working overseas you are still entitled to file all your itemized deductions. That includes all the things you are often familiar with when you are based in the US. Things like;
- state income taxes
- mortgage interests on a principal residence or on a holiday home
- property tax on your principal residence
- charitable contributions to US charities
- Unreimbursed employee business expenses above 2% of adjusted gross income.
If you have investment related expenses or legal fees or other things that relate to earning income, those items are also generally considered a miscellaneous itemized deduction subject to the 2% threshold.
In addition to that, you may have a variety of other things. You may have a rental property back in the US on which you may have a lot of deductions for; so it’s important to consider what those deductions are and maximize the recording and the deducting of all those items over the year, staying organized is the key for many people.
There is an issue when there is a net loss after all expenses are taken into consideration. Depending on your income level you may be able to deduct that net loss against some other income that you have. Be careful here, if your income is too high we can’t deduct that net loss currently, but we can carry it forward to future years. Just knowing facts that this can save thousands in IRS taxes!
If you have partnership losses, if you have a business or your spouse may have a business on Schedule C, consider the various expenses which you can claim as deductions, and quite frequently, we can then claim the net loss on the business against other income too. If there is a partnership flowing through with a net loss, it’s normal to receive a K1 and we would collect any of those deductions against other income too.
Don’t forget about capital losses on the sale of stock! With capital losses, you can offset those against capital gains, and you can potentially claim up to $3000 each year of a capital loss against other income and then carry any capital loss forward to offset against any capital gains in the future. Bringing forward losses is something too many expats don’t consider!
You could also have moving expenses, usually in the year of the move, and in futher years you could have storage expenses, and those can be claimed throughout your time overseas.
Expats commonly ask about education expenses for family members that are going to university. Usually, you can claim a deduction or a credit in regard to those education expenses.
Last but not least, remember your retirement plan contributions. You may have contributions to a traditional IRA and in most cases we are able to claim deductions for those too.
As you can see, there are many deductions and exclusions to consider. It may sound like a lot and it probably sounds complicated but don’t think you have to go and spend thousands of dollars with a specialist expat accountant, we have an excellent expat tax team and we complete IRS return including both Federal and State returns from $298.