If you are a U.S citizen who either travels a lot or is a U.S expat in the United Kingdom, then it’s an obvious thing that you need to pay your taxes. The United States has entered into individual tax treaties with several countries and the UK is no different. This means you are automatically exempt from double taxation but there are other ways in which you can narrow down your taxes to a bare minimum. Some of them have been listed below for your knowledge.
Buy Some Time By Applying For A Filing Extension
The first thing to know is that usually, the last filing date is April 15th which can be extended to April 18th due to unexpected circumstances. If you are a U.S expat, then you can get an extension to file for taxes till October. Expats are automatically granted this extension which enables them to file their taxes properly without having to face any interest on late filings. However, let it be known that this extension applies for late filing only and not the paying of late taxes.
Avoid Paying Federal Taxes Using the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC)
If you are a U.S citizen who has been living out of the country for a larger part of the year then you are automatically at an advantage of getting a tax-filing extension according to the law. Moreover, you can also claim credit for the taxes you have paid a foreign government through a Foreign Tax Credit (Form 1116). This is a great opportunity for U.S expats and if you find the process complicated, you can always get help from an expat tax CPA. If you have paid more foreign tax than the U.S tax, your CPA would advise you on using the FTC and if need be you can also use the FEIE method. In order to get your taxes legally reduced, you need to consult your expat tax CPA.
You Can Avoid Taxes By Changing Your State Of Residence
If you are able to establish your state residence in a state that does not impose state income tax. Several states have tax laws that mirror the federal exclusions, this allows people to opt for either the FEIE or FTC for state tax purposes. While other countries have what they usually call the “Safe Harbor” laws. This states that you will be taxed as a non-resident even if you lit your main residence in that state. However, for this, you have to be among the category of people who have been out of the state for a specific number of days in a year. If you fall under this category, it is important for you to keep track of where you were and on what dates all year along.
These are some of the ways in which you can cleverly reduce your taxes to a bare minimum and that too legally. However, it would be better if you hire an expat tax CPA for the job so that you can get further guidance on the matter.