Tax Filing For Dual Citizenship

June 28, 2020

Regardless of where they live in the world, U.S. citizens need to pay U.S. taxes. That’s true of expats, permanent residents, green card holders and dual citizens who have citizenship in the U.S. and another country.

Here’s everything you need to know about dual citizenship and avoiding double taxation.

Dual Citizen Tax Return: Advantages and Disadvantages

Dual citizens often obtain American status from American parents. Even if they don’t have a U.S. passport or Social Security number, they owe U.S. taxes. The IRS can penalize dual citizens for failure to meet their tax obligations — even if they were unaware they had a tax obligation.

Dual citizenship is beneficial, as it provides another homeland. Youth can attend school in either country and pay the local tuition rate. Dual citizens can vote, run for office or work in either country. Over a lifetime, this could help dual citizens save a significant amount of money by leveraging the different rates offered in each homeland.

Yet dual citizenship can be difficult, particularly when it comes to the issue of taxation. The U.S. taxes citizens on income earned anywhere in the world. This means dual citizens living elsewhere owe U.S. taxes on those earnings. Dual citizens must also pay taxes on foreign owned real estate, bank accounts and other assets.

Fortunately, there are numerous agreements and tax credits that reduce the amount of money you’ll need to pay. Totalization agreements exist between the U.S. and several nations, including Belgium, Sweden and Spain. Citizens of a nation with a totalization agreement are not taxed twice on Social Security.

Dual citizens can exclude a certain amount of foreign earned income ($107,600 for individuals as of 2020) and take a dollar-for-dollar foreign tax credit on money they’ve paid to their country. Separate treaties exist between the U.S. and other nations, including New Zealand, which negate double taxation.

Filing Taxes Correctly As an Expat Is Critical 

The foreign housing exclusion allows expats to deduct a certain amount of qualifying housing expenses — up to $32,280 for 2020. Expenses for rent, maintenance, repairs, parking, utilities, furniture rentals and property insurance all qualify for this deduction. Expats who are taking advantage of the foreign earned income exclusion can also claim the Foreign Housing Exclusion deduction without filing any extra paperwork. 

While these deductions and credits can greatly reduce your tax obligation, you must demonstrate proof of eligibility to qualify. Failure to do so can lead to penalties from the IRS. A CPA can help you gather relevant paperwork to prove your eligibility.

Dual citizens who want to stop paying U.S. taxes may be considering renouncing their American citizenship. Renunciation is an option but one to consider extensively, as it can’t be reversed if you change your mind. Those who have considered the matter carefully and are ready to give up their citizenship despite any legal, political or financial advantages of retaining it must pay a $2,000 exit fee to the U.S. and be current on taxes. 

Expat CPA Can Help

When you have complicated tax circumstances, such as dual citizenship, it’s important to get help from an expert firm that understands the tax laws that apply to your circumstances and can offer personalized tax advice. A CPA with experience with expat and dual citizen tax issues can help you file correctly, so you meet all your tax obligations, while taking advantage of all the deductions and credits for which you qualify.

CPAs keep up to date with the latest changes to tax laws. They provide personal assistance with filing and can explain any tax-related paperwork to help you understand your tax obligation, tax credits or deductions, and other tax issues. 

Expat CPA has experience serving the expat community with complicated issues including dual citizen tax return. Our CPAs are here to provide knowledgeable answers to all your questions. We take a comprehensive look at your tax liability and circumstances, and help you meet tax obligations with as little stress as possible.

To learn more about our services or to discuss your unique situation with a CPA, contact us today.

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