If you are a U.S. citizen or resident alien and live or own a business outside the United States, you must report your foreign income on your tax return unless it is legally exempt. This is also true regardless of whether you live inside or outside the United States.
This article will serve as a guide explaining everything you need to know about foreign interest income reporting.
What is foreign-earned income?
Foreign earned income is any earned income like wages and tips as well as unearned income like interests, dividends, capital gains, pensions, rents, and royalties you receive during the tax year. If you own a business or live outside the United States, you may be able to exclude part of your entire foreign-earned income.
Tax on foreign-earned income
If you are a U.S. citizen or resident alien, you must pay a tax on any foreign income you make. However, if you paid any tax on foreign income in your respective country, you may qualify for a tax benefit from the U.S. government. But there is also a limit of exclusion for any foreign income you earn and pay taxes on.
Reporting your foreign-earned income
If you are a U.S. citizen and live or own a business abroad, you will likely have foreign income that you must report on your tax return. The main types of foreign income concepts (which we’ll cover below) are:
- The Foreign Tax Credit
- The Foreign Earned Income Exclusion
- Reporting Foreign Financial Assets and Accounts
The Foreign Tax Credit
Foreign income is taxed by both the U.S. and the foreign country where you live, or your business operates, which is why there’s a Foreign Tax Credit. It helps ensure you are only taxed once on the foreign source income but at the higher foreign or U.S. income tax rates.
The Foreign Earned Income Exclusion
If you meet specific requirements related to the length and nature of your stay in a foreign country, you may qualify for the foreign-earned income exclusion. This allows you to exclude some of your foreign-earned income from your tax return. You may also be able to exclude or deduct some of your reimbursed housing costs. However, you cannot exclude or deduct more than your foreign-earned income for the year.
Reporting Foreign Financial Assets and Accounts
The foreign bank and financial accounts report has been a requirement for many years when reporting foreign income. You must report any foreign financial assets or accounts that meet certain thresholds. Generally, a report on foreign accounts is required if you hold more than $10,000.
What are the reporting thresholds for taxpayers living abroad?
If you are filing single, your total value of foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year. And if you are filing a joint return, the value of your specified foreign assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
Contact Accountants Without Borders today to get help filing your taxes internationally!
Our financial experts at Accountants Without Borders can assist you from your company’s inception to filing for your first fiscal year. If you’re a US citizen running a business internationally or vice versa, reach out to our dedicated team at Accountants Without Borders today.