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Australia is a popular place for American expats to build their life overseas. The warm climate and abundant opportunities give a chance at a great lifestyle. However, for all American expats, taxes are a complicated issue.
All US citizens and green card holders must pay federal taxes if their income exceeds the minimum limit set by IRS, even if they live in a foreign country. Besides paying the US taxes, American expats in Australia also have to pay the taxes of the residing country. There are some ways to gain leniency in the tax amount, such as Foreign tax credit and Foreign Earned Income.
If you are an American expat in Australia confused about the separate tax filings, keep reading to know all about expat taxes and some tips to save in the tax amount.
What You Need To Know About Filing The American Expat Taxes
If you earn more than the minimum threshold income in Australia, you must also file taxes in the US. The threshold may vary, but for the current year, it is $12,950 for single people and married couples filing separately. It is $25900 for married couples filing jointly. If your income exceeds this threshold, you must file Form 1040.
You also have to file Form 8938 if you have foreign assets of a certain amount in your name, excluding your home. The form must be filed if the foreign assets are worth over $200,000 at the end of the year or over $300000 at any point during the year for one person.
Another form you have to file is FinCEN form 114, which you have to file if you have more than $10000 in one or more foreign bank accounts at any point in the tax year. This is also known as the foreign bank account report or FBAR.
How Can American Expats Save In Taxes?
Certain strategies can be applied to your tax filing to lower the total tax amount you have to pay to the IRS. These are especially useful in saving you from paying taxes on your income twice.
Foreign Earned Income Exclusion
Foreign earned income exclusion is filed with the IRS to reduce or sometimes completely waive off the US tax amount on the foreign earned income. A married couple can also file for the FEIE. For this, you have to meet certain criteria and file form 2555. You can check the complete criteria for qualification here.
While the exact amount keeps varying each year, you can exclude the first $112,000 from being taxed in the US filings for the current year.
Foreign Tax Credit
The foreign tax credit is a policy that allows you to claim tax credit to make up for the taxes you have already paid to the Australian government. This is not automatic; you must file for and claim the Foreign tax credit.
Australian Taxes For American Expats
All people who are permanent residents in Australia also have to pay taxes in that country. You have to report your income earned in Australia and one you have earned from other global sources as well. The tax rate in Australia is higher than that in the US, which is why claiming a foreign tax credit from the US for the taxes already paid can be a huge benefit.
There is a US-Australia tax treaty to save American expats from double taxation. You can also save by paying double taxes on social security under the US-Australia totalization agreement.
You have to pay taxes on Australian income if you earn more than 18200 AUD per year. There are different types of Australian tax rates. You may be taxed differently depending on which category you fall under. So, make sure to check the details below.
Australian Resident Income Tax Rate: Residents and non-residents are taxed at different rates. Non-residents are usually taxed more than residents, but they don’t have to report their income from global sources.
Social Security taxes: You don’t have to pay double social security taxes due to the US-Australia agreement. Depending on your nature of employment, you will be paying social security taxes to one country only.
There are Foreign resident tax rates, corporate taxes, and Capital gains tax rates.
Superannuation is a pension plan in Australia. The employer deposits funds for the employee in a superannuation account, and they grow until the employee reaches retirement age. The funds in a superannuation account are tax-deductible but must be reported on the tax forms depending on the investment.
Stay Ahead Of The Taxes In US And Australia
The deadline for filing the US taxes is April 15, but it can be extended till June 15 for expat taxes. The American expats can further request an extension till October 15. You have to make sure to report all incomes from all worldwide sources. And don’t forget to claim the foreign tax credit.
If the process gets too overwhelming, you can hire tax experts to take the burden of double filing off your shoulders.