Earning Foreign Income
Earning money abroad may require you to declare said income to the IRS as part of your tax filings. Generally, if you are a U.S. citizen or resident, you must report income from all sources within and outside of the U.S. The rules for filing income tax returns are basically the same whether you're living in the U.S. or abroad.
Here are five tips that you should know if you earn foreign income:
- Report Worldwide Income.
By law, U.S. citizens and resident aliens must report their worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.
- File Required Tax Forms.
You may need to file Schedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts.
- Consider the Automatic Extension.
If you're living abroad and can't file your return by the April 15 deadline, you may qualify for an automatic two-month filing extension. You'll then have until June 16, 2014 to file your U.S. income tax return. This extension also applies to those serving in the military outside the U.S. You'll need to attach a statement to your return to explain why you qualify for the extension.
- Review the Foreign Earned Income Exclusion.
If you live and work abroad, you may be able to claim the foreign earned income exclusion. If you qualify, you won't pay tax on up to $97,600 of your wages and other foreign earned income in 2013. See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, for more details.
- Don't Overlook Credits and Deductions.
You may be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce the amount of taxes you have to pay if both countries tax the same income.
For more information about how foreign income may affect your taxes, please contact one of our professionals today.