Expat US Tax Blogs

What should I do if I owe more taxes?

If your amended return shows you owe additional taxes, pay the amount immediately to avoid interest and penalties.

The IRS provides online payment options, or you can set up an installment plan if needed.

Why is it important to keep records of corrections?

The IRS may request clarification or conduct an audit, and having organized records makes the process easier.

Can I use an amendment to claim missed benefits?

Yes, an amended return lets you claim deductions or credits you overlooked, such as:

Earned Income Tax Credit (EITC): For low- or moderate-income taxpayers.
Child Tax Credit (CTC): For families with qualifying dependents.
Education Credits: Like the American Opportunity Credit or Lifetime Learning Credit.

What should I include to support these claims?

Provide all required documentation, like receipts, proof of eligibility, or education expense statements.

What happens if my amendment is rejected?

If the IRS rejects your amended return, it’s likely due to incomplete information, missing documents, or filing outside the allowed time frame.

Fix the Issue: Correct the error and resubmit.
Respond to IRS Notices: Follow the instructions in the rejection notice for next steps.
Seek Help: If needed, consult a tax professional to resolve the issue.

Do I need to amend my state taxes too?

If the federal changes affect your state taxes, you must amend your state return.

Each state has different requirements, so check with your state tax agency for specific instructions.

Can I amend a jointly filed return?

Yes, you can amend a joint return, but both spouses must agree to and sign the amended return.

If there’s a disagreement about the changes, consulting a tax professional can help clarify the situation.

Will fixing my tax return cause an audit?

Amending a return doesn’t automatically trigger an audit, but significant changes, like correcting income or claiming large deductions, may draw attention.

What if I need to fix mistakes on multiple returns?

Each tax year requires its own Form 1040-X. Clearly label the amendment with the appropriate tax year and attach all supporting documents.

If mailing, send each amendment in a separate envelope to prevent processing delays.

What are the most common mistakes to avoid when filing an amended tax return?

Filing an amended tax return can help correct mistakes, but making errors in the process could lead to delays or rejection by the IRS.

To avoid unnecessary problems, make sure you only file when needed and follow the right steps.

Mistakes to avoid when amending your tax return:

Filing too soon – If the IRS is already processing your original return or making adjustments, wait for their notice before submitting an amendment. Filing too early can cause delays or confusion.
Fixing math mistakes that don’t need fixing – The IRS automatically corrects simple math errors, so there’s no need to amend your return for minor calculation mistakes.
Choosing the wrong filing status – You cannot change from married filing jointly to married filing separately after the tax deadline has passed. Make sure your filing status is correct before submitting an amendment.
Forgetting to report all income – If you are amending your return because you forgot to include some income (such as a W-2 or 1099 form), make sure you include all missing income sources, so you don’t have to amend again later.
Incorrectly claiming tax credits or deductions – If you are adding or adjusting a credit or deduction, double-check that you actually qualify for it to avoid IRS rejection.
Not attaching required forms – Some amendments require additional forms or schedules. If you’re changing your tax credits, deductions, or income, be sure to include the necessary documents.
Forgetting to sign the form – Just like an original return, an amended return must be signed to be processed by the IRS.

Before submitting an amendment, try to review IRS guidelines and make sure the change is necessary. If you’re unsure, a tax professional can help ensure everything is done correctly.

How does filing an amendment help avoid problems?

Correcting errors with an amended return ensures your taxes are accurate and reduces the risk of penalties or disputes with the IRS. The amended tax return takes the place of the original filed return for the year.

By filing promptly and providing proper documentation, you demonstrate good faith and compliance with tax laws.

Have a different question? Get in touch with a professional tax accountant today.

February 3 2025

How Many Americans Live in Australia

Published by

Emmanuel Remigio, EA, CPA

Reviewed By

Jonathan Rose, EA

Emmanuel, an IRS Enrolled Agent and CPA with 14 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working abroad. *Schedule a consultation with Emmanuel today.

Book your private consultation with Emmanuel

*30-minutes US$347.

How many Americans are living in Australia?

As of 2024-2025, the American expat population in Australia is estimated to be more than 100,000. This includes people with permanent residency, temporary visas, and dual citizenship who have chosen to live in Australia for various reasons.

Why do Americans move to Australia?

It depends on personal or professional reasons; some Americans might move to Australia for better job opportunities, access to quality education, and a different lifestyle.

Australia’s strong economy and demand for skilled workers make it a popular choice for professionals in fields like technology, healthcare, and education.

The country’s universities attract US students looking for international education, and many Americans also move to Australia for family reasons or through spouse sponsorships.

There are multiple visa options available, including skilled worker visas, student visas, and family-sponsored visas.

Where do most Americans live in Australia?

Most Americans in Australia live in major cities like Sydney, Melbourne, and Brisbane. These cities offer strong job markets, world-class universities, and communities that attract US expats.

Sydney is a finance, technology, and business hub, making it ideal for professionals.

Melbourne is known for its arts and education sectors, particularly popular among students and creatives.

Brisbane stands out for its warm climate, growing job market, and more affordable housing options compared to Sydney and Melbourne.

However, some Americans also choose smaller towns or regional areas where the cost of living is lower and the pace of life is slower. These areas often appeal to retirees or families looking for a quieter lifestyle.

What are the US-Australia cultural ties?

The US and Australia share a close relationship based on shared history, values, and cooperation. Both countries work together on trade agreements, military alliances, and education programs.

Cultural exchanges between the two nations are frequent.

American movies, music, and fashion are widely popular in Australia, while Australian films and artists often find success in the US Programs such as student exchange initiatives and collaborative research projects.

Sports also play a role, with Australians enjoying American basketball and football while Americans gain interest in Australian sports like rugby and cricket.

Planning to move to Australia?
Ensure a seamless transition while staying compliant with US tax obligations.

What types of jobs do Americans hold in Australia?

Americans in Australia work in many different industries, depending on their skills and experience. Popular fields include technology, finance, healthcare, and education, where American qualifications and expertise are highly valued.

For example, tech workers often find jobs in Sydney’s growing technology sector.

Teachers and professors are needed in schools and universities, while healthcare workers fill important roles in hospitals and clinics.

Some Americans run their own businesses or work remotely for US companies. Others find jobs in Australia’s mining and engineering industries, especially in places like Western Australia.

To get a job in Australia, you may need to meet visa requirements, such as proving your qualifications or finding an employer to sponsor you.

Is it easy for Americans to adapt to life in Australia?

It will be different for everybody, but most Americans find it easy to adapt to life in Australia because of the shared language and similar culture. However, there are still a few things to get used to.

One of the main differences is Australia’s healthcare system, which combines public and private services. They also have local customs and holidays, like Australia Day and ANZAC Day.

Joining expat groups or attending cultural events can help you meet people and settle in more quickly.

What do I need to do to move to Australia?

To move to Australia, you’ll need to meet certain requirements and follow specific steps. The process usually starts with determining the purpose of your move, such as work, study, or family.

Steps to move to Australia:

Choose the right visa: Depending on your situation, you may need a skilled worker visa, student visa, or family-sponsored visa. Each has specific requirements.
Meet qualification requirements: For work visas, you may need to prove your skills and have your qualifications assessed by an Australian authority.
Secure sponsorship if needed: Some visas require an employer or family member in Australia to sponsor you.
Prepare your documents: Make sure your passport, educational certificates, and other important records are updated and ready.
Arrange health insurance: You may need private health insurance to meet visa conditions.
Understand Australian tax laws/Get a tax professional: Learn how your US tax obligations interact with Australian tax rules to avoid surprises.
Plan your housing: Research cities or towns and arrange temporary or permanent housing before arrival.

Do Americans living in Australia have to file US taxes?

Yes, Americans living in Australia are required to file US taxes on their worldwide income, even if they don’t earn money in the United States. This includes income from Australian employment, investments, or other sources.

To avoid paying taxes twice on the same income, Americans can use benefits like the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit. The FEIE lets you exclude a set amount of your foreign income from US taxes, while the Foreign Tax Credit gives you a credit for taxes you’ve already paid to Australia.

If you have foreign bank accounts with more than US$10,000 combined, you also need to file an FBAR (Foreign Bank Account Report). Working with a tax expert familiar with both systems can make the process easier and help you maximize tax benefits.

Have a different question? Get in touch with a professional tax accountant today.

January 28 2025

American Income Tax Brackets

Published by:

Aya Takriti, EA

Reviewed By

Clark Stott

Aya Takriti, an IRS Enrolled Agent with 11 years of expat tax experience, specializes in US tax preparation, tax planning and tax advice for US citizens and Green Card holders living and working in the Middle East. *Schedule a consultation with Aya today.

Book your private consultation with Aya

*30-minutes US$247.

How is the American income tax bracket structured?

The American income tax bracket system determines how much tax you owe based on your income level. It uses a progressive structure, meaning higher portions of income are taxed at higher rates.

What are income tax brackets?

Income tax brackets are part of the US tax system and determine the rate at which your income is taxed. They are structured progressively, meaning that as your income increases, portions of it are taxed at higher rates.

Each bracket applies to a specific range of income, and only the income within that range is taxed at that bracket’s rate. For example, if part of your income falls into a higher bracket, only that portion is taxed at the higher rate, not your entire income.

What are the current US federal income tax brackets (2024-2025)?

Filing Status	10% Bracket	12% Bracket	22% Bracket	24% Bracket	32% Bracket	35% Bracket	37% Bracket
Single Filers	Up to US$11,600	US$11,601 to US$47,150	US$47,151 to US$100,525	US$100,526 to US$191,950	US$191,951 to US$416,700	US$416,701 to US$609,350	Over US$609,350
Married Filing Jointly	Up to US$23,200	US$23,201 to US$94,300	US$94,301 to US$201,050	US$201,051 to US$383,900	US$383,901 to US$770,800	US$770,801 to US$731,200	Over US$731,200
Heads of Household	Up to US$17,000	US$17,001 to US$68,000	US$68,001 to US$100,525	US$100,526 to US$191,950	US$191,951 to US$416,700	US$416,701 to US$609,350	Over US$609,350

How are state taxes related to federal tax brackets?

State taxes are separate from federal tax brackets. States can set their own tax rules, which might include flat rates, progressive brackets, or no income tax at all.

For instance, California has a progressive state tax system like the federal one, while states like Texas and Florida don’t tax income at all. US expats may also need to check their state’s residency rules to see if they still owe state taxes.

How do tax brackets affect American expats?

Tax brackets determine how much income is taxed, but expats can use deductions and credits to lower what they owe.

For example, the Foreign Earned Income Exclusion (FEIE) lets expats exclude a set amount of their foreign income from US taxes. The Foreign Tax Credit allows them to reduce US taxes by the amount they’ve paid in another country.

How often do income tax brackets change?

Income tax brackets are usually adjusted every year for inflation.

However, there may be larger changes to tax brackets happen when new laws are passed. For example, the Tax Cuts and Jobs Act (TCJA) of 2017 made big changes to the tax brackets.

Are capital gains taxed using the same brackets as regular income?

No, capital gains are taxed differently from regular income. They are categorized as either short-term or long-term:

Short-term capital gains: These apply to investments held for one year or less and are taxed at the same rates as your regular income.
Long-term capital gains: These apply to investments held for more than one year and are taxed at lower rates of 0%, 15%, or 20%, depending on your income.

What happens if my income falls into two brackets?

If your income spans multiple brackets, each portion of your income is taxed at the corresponding bracket’s rate. This is the basis of the progressive tax system.

For instance, if you earn US$50,000 as a single filer, part of your income will be taxed at 10%, another portion at 12%, and the rest at 22%. Only the income within each bracket is taxed at its specific rate.

How can I lower my taxable income to stay in a lower tax bracket?

Here are some ways to reduce your taxable income and potentially stay in a lower bracket:

Contribute to retirement accounts: Contributions to traditional IRAs or 401(k)s lower your taxable income.
Use deductions: Claim deductions like mortgage interest, student loan interest, or charitable donations.
Apply tax credits: Tax credits, such as the Child Tax Credit, reduce the actual taxes you owe.
Use the Foreign Earned Income Exclusion (FEIE): If you’re an expat, exclude a portion of your foreign income from US taxes.

Start reducing your taxable income today.
We’ll help you maximize your tax benefits.

Does the US have a flat tax system?

No, the US uses a progressive tax system, where higher income levels are taxed at higher rates. In a flat tax system, everyone pays the same rate regardless of income. The US system ensures higher earners contribute more in taxes, while lower earners benefit from reduced rates.

What is the Alternative Minimum Tax?

The Alternative Minimum Tax (AMT) ensures high earners pay a minimum amount of tax, even if they claim many deductions or credits.
To calculate AMT, you start with your income, add back certain deductions (like state and local taxes), and apply AMT rates after subtracting the AMT exemption. If the AMT is higher than your regular tax, you pay the AMT instead.

Marginal vs. Effective tax rates

Your marginal tax rate is the rate on your last dollar of income, while your effective tax rate is the average rate on all your taxable income.

For instance, if your marginal rate is 22%, only income within that bracket is taxed at 22%. Your effective rate, however, includes lower rates from earlier brackets, making it lower overall.

What are some tips for tax filing?

Here are easy ways to simplify tax filing:

Stay organized: Keep receipts, pay stubs, and relevant documents.
File early: Avoid last-minute stress and penalties.
Get professional help: A tax expert can ensure you’re compliant and maximize savings.
Double-check everything: Verify forms for accuracy to avoid delays or audits.

Have a different question? Get in touch with a professional tax accountant today.

December 19 2024

How to Protect Superannuation From US Taxes?

Published on December 19, 2024

Seth Hertz, a tax professional with 35 years of experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia. *Schedule a consultation with Seth today.

*30-minutes US$437.

How can US citizens in Australia protect their superannuation from US taxes?

While there’s no single solution that eliminates US tax exposure, there are strategies that can help minimize your liability.

Is there a simple way to avoid US taxes on superannuation?

No, there isn’t a one-size-fits-all solution.

The best strategy is staying compliant with US tax reporting requirements. That means reporting your superannuation contributions to the IRS every year, even if it’s a hassle. Doing so will make things smoother when you start withdrawing from your super during retirement.

Let’s find the best strategy for your Superannuation. Contact us today.

How can I reduce your US tax liability?

One key way to reduce tax liability is timing.

Working with a tax advisor can help you figure out the best time to make withdrawals or rollovers from your superannuation account. Sometimes, adjusting the timing of these transactions can lower the amount of tax you owe in the US.

Also, planning ahead gives you more flexibility. For example, if you know you’ll stop working and start withdrawing from your super in 10 years, you can structure your finances to minimize tax hits at that time.

Should I report my superannuation to the IRS?

Yes, it’s recommended.

While you may not like the idea of the IRS knowing about your super, it’s better to be transparent. Reporting your super every year helps you avoid future problems, like penalties or surprise tax bills. If your contributions are reported and taxed properly, it’s possible you won’t owe much, if any, tax when you eventually start withdrawing.

There’s no easy fix, but by staying compliant with IRS reporting rules, timing your withdrawals wisely, and utilizing foreign tax credits, you can greatly reduce the chances of being hit with a large US tax bill during your retirement.

Have a different question? Get in touch with a professional tax accountant today.

December 18 2024

Do you pay tax or just report when withdrawing Superannuation?

Published on December 18, 2024

*30-minutes US$437.

Do I pay tax or just report when withdrawing superannuation?

It depends. If you’ve been reporting your super contributions and any growth on your US tax returns over the years, you likely won’t owe tax when you withdraw the money. You’ll still need to report it to the IRS, but as long as the funds were taxed previously, there won’t be additional taxes to pay.

This is the ideal situation. In Australia, once you reach retirement age, withdrawals from your super are tax-free. If you’ve reported everything correctly on the US side, you get a similar benefit and won’t have to worry about being double-taxed.

What if I haven’t reported everything?

If you haven’t declared your super contributions or growth on your US tax returns, then some of the money you withdraw could be subject to US tax.

The IRS will want to know how much of your withdrawal has already been taxed and how much hasn’t. The part that hasn’t been taxed will be included in your taxable income.

The good news is that if you’re retired and not earning as much, you might fall into a lower tax bracket, meaning you won’t owe as much as you would have during your working years.

Need help with your Superannuation? Our tax experts are here to help.

Could I avoid paying tax altogether?

It’s possible, especially if your withdrawals are small or you have unused foreign tax credits.

If you’ve paid taxes in Australia, you can claim foreign tax credits on your US return, which might cancel out what you owe to the IRS. Foreign tax credits can be carried forward for up to 10 years, so any credits you’ve accumulated over the years can help reduce your US tax liability.

Have a different question? Get in touch with a professional tax accountant today.

December 17 2024

Foreign Grantor Trust

Published on December 17, 2024

*30-minutes US$437.

Why should US citizens care about foreign grantor trusts?

When a super fund is labeled a foreign grantor trust, it adds significant complexity to your US tax return.

You’ll need to file Form 3520 and Form 3520-A each year to report the trust.

On top of that, most superannuation accounts invest in things like managed funds or ETFs, which the IRS considers Passive Foreign Investment Companies (PFICs). This means you’ll also need to file Form 8621 for each investment.

How does the IRS categorize superannuation funds?

The IRS views Australian superannuation as a trust, not a typical retirement plan like a 401(k). There are two types of trusts to consider:

Employee Benefit Trust: This is when your employer contributes to your super account. In this case, the IRS typically won’t treat the trust as “transparent,” meaning fewer complicated filings are required.
Foreign Grantor Trust: If you’re the one contributing more than your employer, the IRS may classify it as a foreign grantor trust. This comes with a whole bunch of extra paperwork and reporting requirements.

Why does this matter?

While being classified as a foreign grantor trust may not result in more tax, the extra reporting means higher tax preparation costs and more complexity.

Let’s find the best strategy for your Superannuation. Contact us today.

What happens when I roll over my superannuation to a new account?

As explained previously, if you move your superannuation from one account to another, the IRS doesn’t just see it as a simple transfer.

What seems like a simple transfer in Australia can turn into a complex tax issue with the IRS.

They don’t just see it as “super fund to super fund”; from the IRS’ viewpoint, there are two transactions happening.

First, you’re taking money out of one super account and then you’re putting that money into a new super account.

Why does the IRS treat it like a personal contribution?

For the IRS, superannuation isn’t treated like the retirement accounts you might be used to in the US, such as a 401(k). Instead, it’s seen as a foreign trust. So, when you move your money into a new super fund, the IRS classifies that as your personal contribution.

This is frustrating for many expats because they just see super funds as super funds.

But the IRS looks at it differently: there’s a transfer from super fund to you (as if you’re withdrawing the money), and then from you to the new super fund (as if you’re making a new investment).

This creates a situation where the new superannuation account becomes a foreign grantor trust.

Can this situation change over time?

Some tax professionals argue that once a super is a grantor trust, it stays that way. But others take a more lenient approach, saying that if your employer eventually contributes more than you did into the new super fund, the account could stop being treated as a foreign grantor trust.

However, this doesn’t happen overnight, and you can’t just top it up with voluntary contributions—it has to be employer contributions, like the mandatory superannuation guarantee.

This can be a useful strategy, but it’s important to be cautious. If you arrange for extra contributions from your employer to “catch up” on the balance, the IRS could still classify those as personal contributions, which would make things even worse.

Have a different question? Get in touch with a professional tax accountant today.

December 11 2024

US Citizen and The Self Managed Superfund

Published on December 11, 2024

*30-minutes US$437.

How are self-managed super funds (SMSFs) taxed for US citizens in Australia?

The SMSF differs from a standard retail super fund (often set up by employers) as an SMSF is managed directly by the individual (acting as a trustee).

In most cases, a retail super fund is easier to handle from a tax perspective because you don’t have direct control over the funds and an employer often makes most of the contributions.

With these employer-sponsored funds, if you’re reporting your salary to the IRS and paying Australian tax on it, the higher tax rates in Australia usually mean there’s enough foreign tax credit to offset any US tax liability on the additional income from the employer superannuation contributions.

On the other hand, an SMSF has more complicated US reporting rules because it’s nearly always considered a “foreign grantor trust” by the IRS.

Why?

Mainly because typically you control the contributions and the management of the fund, meaning it’s essentially your own assets in a trust. That ownership triggers specific reporting rules that usually include filing US trust forms, reporting fund income, and listing the assets each year.

What if I haven’t been reporting my super for years?

This is a common scenario.

Many people don’t realize they need to report their super to the IRS, especially if they’ve been in Australia for years and only recently learned about US reporting rules for expats. If you’ve gone years without reporting your super, catching up can be a bit difficult, particularly if you consider back-filing multiple years of tax returns.

Some people choose to only report from the current year onward, though this can come with risks. The IRS could question why earlier years weren’t reported, especially if there were significant contributions or rollovers in those years.

It’s a balancing act, as catching up on multiple years of filings can be expensive and expose you to additional inquiries, but it’s often easier to manage ongoing compliance if you report from year to year.

Let’s find the best strategy for your Superannuation. Contact us today.

What happens if I roll over an SMSF and don’t report it?

Let’s say you rolled over a retail superannuation fund into your SMSF in 2023. The IRS sees this differently than Australia does.

While it might seem like a simple transfer, the IRS likely would interpret it as if you’ve taken a distribution out of the retail fund and then recontributed it. This can cause unintended tax consequences.

If you weren’t reporting your super to the IRS up until that point, a rollover can result in the unreported income being treated as a taxable distribution in the US.

Not to mention, the penalties for late filings on trust forms can be steep—starting at US$10,000 or more.

What’s the “Ideal Scenario” when reporting my super?

In an ideal situation, you’re reporting your SMSF each year to the IRS, even if there’s no extra US tax owed because of Australian taxes you’re already paying. If you report contributions and fund earnings annually, it can make a big difference.

When both contributions and earnings from your SMSF are included on your US return each year, you’re creating a record that makes it easier to avoid tax surprises when you start making withdrawals during your retirement.

Have a different question? Get in touch with a professional tax accountant today.

December 3 2024

Superannuation for US Citizens in Australia

Published on December 03, 2024

*30-minutes US$437.

How does superannuation affect US citizens in Australia?

Superannuation, often referred to simply as “super,” can be a tricky area for US citizens living in Australia, particularly when it comes to US taxes.

If you’re a US expat, you probably already know the IRS taxes US citizens on their worldwide income.

However, things get a bit complicated because the IRS does not treat superannuation the same way as the Australian tax system.

Why is rolling over a super account a problem for US taxes?

Rolling over one super account into another—something many people do when they switch jobs or get financial advice—can cause unexpected tax issues for US citizens.

The reason?

The US doesn’t recognize Australian superannuation as a “qualified retirement plan” like it does with certain other foreign pension plans. This means the IRS doesn’t automatically give you the same tax benefits on super contributions, growth, or rollovers.

The IRS looks at two things when you roll over a super account:

How much of the rollover has already been taxed in the US?
What happens to the new superannuation fund you’re moving into?

If your super contributions have already been taxed on your US tax return, then rolling over the account may not result in more taxes. However, if those contributions weren’t reported, the IRS may consider the untaxed portion of the rollover as taxable income in the year it occurs.

Does it become a tax issue for US citizens?

Technically, yes.

Because Australian super funds aren’t considered “qualified plans” by the IRS, a rollover isn’t just a transfer. Instead, it’s treated as a two-step process: first, as a distribution, and second, as a new contribution to the new super account.

This creates the potential for some or all of the rolled-over amount to be taxable in the US.

What happens if my super contributions aren’t reported?

If you haven’t been reporting your super contributions to the IRS, the IRS could tax a portion of the funds when you roll them over into a new account.

The amount that wasn’t previously taxed could be treated as taxable income, leading to an unexpected tax bill. If you’ve been consistently reporting the contributions, however, the IRS won’t double-tax the amount that’s already been accounted for.

Why isn’t super treated like a 401(k) in the US?

Unlike retirement accounts like 401(k)s in the US, superannuation doesn’t get special tax treatment from the IRS because it’s not considered a “qualified” retirement plan.

While Australia and the US have discussed the idea of treating super as a qualified plan, no formal agreement has been reached yet. This means that, unlike qualified retirement accounts, superannuation contributions and growth can be taxable for US expats, even though they’re tax-deferred or tax-free under Australian law.

Let’s find the best strategy for your Superannuation. Contact us today.

How can I avoid tax issues with superannuation?

The best way to avoid tax issues with your superannuation is to ensure you’re reporting everything correctly from the start.

If you haven’t been doing this, or if you’re unsure about your reporting, it’s a good idea to get professional tax help—especially if you’re thinking of rolling over your super account. The last thing you want is an unexpected tax bill from the IRS just because you moved funds between accounts.

What happens if not all the funds were previously taxed?

The main point is whether or not the IRS has already been informed about the funds that were originally contributed to the super account.

If the money has been previously taxed in the US (meaning the contributions were reported and taxed as income), you likely won’t face additional US tax on the rollover.

However, if contributions weren’t properly reported, the portion of the rollover that hasn’t been taxed could be counted as taxable income.

In short: if your super contributions haven’t been taxed by the US yet, rolling them over can create taxable income when you do it.

How can you avoid the tax hit?

If you know about the tax implications ahead of time, there are ways to mitigate the damage. One approach might be to leave your existing super fund alone and open a new one without rolling over the balance.

But the most important thing is this: get advice before making any moves. US citizens in Australia should always consult a tax advisor familiar with both Australian and US tax laws before rolling over their superannuation.

What can I do if I’ve already done a rollover?

If the rollover has already taken place and wasn’t reported properly, there are still options. One possibility is filing amended tax returns in the US to report the contributions and any related income.

Depending on how long you’ve had your superannuation, it might be possible to clean up the issue.

Have a different question? Get in touch with a professional tax accountant today.

November 27 2024

Standard vs Itemized Deduction

Published on April 12, 2024

Andrew Landin, EA, Tax Lawyer

Andrew Landin, an IRS Enrolled Agent and Tax Lawyer with 22 years of experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in the UK and Australia. *Schedule a consultation with Andrew today.

Book your private consultation with Andrew

*30-minutes US$497.

How do I choose between the Standard Deductions and Itemized Deductions?

The choice between taking the Standard Deduction and Itemized Deductions depends on your specific expenses. Whichever option lowers your taxable income the most is generally the best choice.

What’s the difference between Standard Deductions and Itemized Deductions?

The Standard Deduction is a flat amount that the IRS allows everyone to subtract from their income. For 2025, it’s US$15,000 for single filers and US$29,200 for married couples filing jointly. This deduction doesn’t require listing individual expenses.

Itemized Deductions, however, involve listing specific expenses you had during the year, such as mortgage interest, state taxes, and charitable contributions.

Choosing to itemize may take longer and requires receipts or records but could result in a higher deduction if you had many qualifying expenses.

When is it better to choose Itemized Deductions?

If your deductible expenses are minimal, the Standard Deduction is often the simplest choice. However, if you’ve had high medical bills, significant mortgage interest, or made large charitable donations, itemizing may save you more on taxes.

Here are some expenses that can be included in itemized deductions:

Mortgage Interest: Interest paid on a home mortgage, including loans for a primary or second home.
Property Taxes: State and local property taxes, capped at a combined US$10,000 for all state and local taxes, including income or sales taxes.
Charitable Contributions: Donations to qualified charities, with receipts required for higher amounts.
Medical and Dental Expenses: These can be deducted if they exceed 7.5% of your adjusted gross income (AGI) and cover necessary treatments, prescriptions, and doctor visits.
State and Local Taxes: You can choose either state income taxes or sales taxes but not both.
Casualty and Theft Losses: Only applicable if you suffered losses due to federally declared disasters.
Investment Interest: Interest on loans for investments in taxable assets can also be deducted.

Keep in mind that some deductions, like charitable contributions, have income limits, and others, such as casualty losses, apply only under specific conditions.

Who is more likely to benefit from itemizing?

People with considerable deductible expenses tend to benefit more from itemizing. Here are some common examples:

Homeowners: Mortgage interest and property taxes often result in higher itemized deductions than the Standard Deduction.
Higher-Income Filers: Those with higher incomes may benefit from state and local tax deductions (SALT), which can sometimes exceed the Standard Deduction, even with the SALT limit.
Individuals with High Medical Bills: If your medical costs exceed 7.5% of your AGI, itemizing could save you more.
Charitable Donors: Those who donate large sums to charities can deduct these contributions by itemizing.

Note: The Tax Cuts and Jobs Act (TCJA) raised the standard deduction amount significantly, which means fewer people are choosing to itemize deductions. This change, effective since 2018, has made itemizing beneficial only if your deductible expenses are large enough to exceed the standard amount.

Those with high medical expenses, mortgage interest, or substantial charitable donations might still save more by itemizing.

Let’s check whether standard or itemized deductions are the best choice for your situation.

What are the Standard Deduction amounts for 2025?

The IRS sets standard deduction amounts each year based on filing status. Here’s what you can expect for 2024:

Single or Married Filing Separately: US$15,000
Married Filing Jointly or Qualifying Widow(er): US$30,000
Head of Household: US$22,500

Extra deductions apply for taxpayers who are 65 or older or legally blind:

Single or Head of Household: Add US$1,950
Married (filing jointly or separately): Add US$1,500 per person

These amounts reduce your taxable income automatically, so there’s no need to track specific expenses, as you would with itemized deductions.

Can I switch between Standard and Itemized Deductions?

Yes, each year you can choose either the standard deduction or itemized deductions, based on whichever lowers your tax bill the most.

This flexibility allows you to review your deductions annually and select the method that gives the best tax advantage:

You can decide on a year-by-year basis.
There’s no penalty or restriction on switching methods each tax year.

If you decide to itemize, you’ll need records of each deduction to satisfy IRS requirements if asked for verification.

Can medical expenses be deducted if I take the Standard Deduction?

No, you can only deduct medical expenses if you itemize your deductions.

For itemized deductions, only the portion of medical expenses exceeding 7.5% of your adjusted gross income (AGI) is deductible. Choosing to itemize, however, only makes sense if these and other deductible expenses add up to more than the standard deduction amount for your filing status.

What if my Itemized Deductions doesn’t exceed the Standard Deduction?

If your total itemized deductions are less than the standard deduction amount, it’s more beneficial to take the standard deduction.

The IRS allows you to use whichever option provides the larger deduction. So, you don’t need to itemize unless your itemized expenses exceed the standard deduction available to you.

What documentation do I need to itemize deductions?

If you itemize, keeping receipts and records for deductible expenses is necessary.

Documentation for medical costs, mortgage interest, charitable donations, and other allowable expenses serves as proof in case the IRS requests verification. It’s best to save these records for at least three years after filing.

Can I use the Standard Deduction if I have mortgage interest?

Yes, you can claim the standard deduction even if you paid mortgage interest. However, if the mortgage interest and other deductible expenses (like medical bills or donations) exceed the standard deduction, itemizing may save you more on taxes.

Have a different question? Get in touch with a professional tax accountant today.

November 19 2024

The Problem for US Citizens Managing their Self-Managed Super Funds

Published on November 19, 2024

Nick Wee

Nick Wee, an IRS Enrolled Agent with 18 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia. *Schedule a consultation with Nick today.

Book your private consultation with Nick

*30-minutes US$437.

US citizens managing self-managed super funds (SMSFs) in Australia face significant challenges because US tax laws treat SMSFs differently from Australian authorities.

Where does the complexity come from for US citizens with SMSFs?

The complexity comes from the differences between US and Australian tax systems.

In Australia, SMSFs are designed to be tax-advantaged structures to help people save for retirement. However, the US Internal Revenue Service (IRS) views a SMSF as a type of foreign trust, which means US citizens have additional reporting requirements and taxes that make managing an SMSF more complicated.

How are retail funds and SMSFs different for US tax purposes?

Retail super funds are usually treated as employee benefits trusts, where employers contribute money for the purpose of retirement. When you roll over funds from a retail fund to an SMSF or set up a new SMSF, it becomes classified as a “grantor trust” by the IRS.

A grantor trust means that if you, as an individual, put money into a trust that you control and benefit from, you need to report everything on your US tax return. This includes the SMSF’s balance sheet, income, and earnings as if you held these investments in your own name.

Why does the IRS consider an SMSF a grantor trust?

The IRS considers SMSFs grantor trusts because you control the investments, benefit from their growth, and eventually receive the money in retirement.

Since you have direct control over the assets, the IRS wants to tax any income as they are earned, rather than allowing you to defer the tax until retirement, as is possible under Australian rules.

What are the risks of double taxation?

In Australia, earnings within a SMSF, whether from income, capital gains, or other sources, are taxed at rates of 15% or 30%, depending on the owner’s level of income. However, the IRS may also tax these earnings at US rates, which can be as high as 40.8%.

Since the IRS considers SMSF assets to be held directly in your name, you need to report any income, dividends, or capital gains on your US tax return.

For example, if Australia taxes this income at 15% and the US taxes it at 30%, you may have to pay the difference, leading to a higher overall tax burden.

Let’s find the best strategy for your Self-managed super fund. Contact us today.

Why don’t Foreign Tax Credits always help with SMSFs?

Foreign Tax Credits (FTCs) are usually used to avoid double taxation, but they don’t always work well for SMSF income.

This is because the IRS places SMSF income into the “l passive earnings basket,” instead of treating it like regular salary or wages. While retail super fund income is treated like employment benefits for foreign tax credit purposes, SMSFs are not, which means you might not be able to use foreign tax credits to fully offset the US tax owed given the lower Australia tax rate applied to SMSF earnings.

What are the penalties for late filing or non-compliance?

If you fail to file the required forms, like Form 3520 or Form 3520-A, you could face automatic penalties of up to US$10,000 per missed form.

On top of that, the IRS can add penalties of up to 5% of the entire value of the SMSF if you don’t provide the right information on time.

Should US expats avoid SMSFs entirely?

It depends on your individual situation.

SMSFs offer a lot of control and investment flexibility, but the complexities of US tax compliance make them risky for many expats. If you have been away from the US for a long time or are an “accidental American” who didn’t realize the tax implications, you may not see these risks until it’s too late.

For most people, sticking with a retail super fund might be easier and safer, as it simplifies tax filing and reduces the risk of penalties. Retail super funds are treated as employee benefits trusts and don’t usually require the complicated filings that SMSFs have.

Are there scenarios where an SMSF might work for a US expat?

There are some scenarios where an SMSF could work for a US expat. If your investments are focused on high capital growth and you are willing to handle the risk of double taxation, an SMSF might make sense or if you have significant passive foreign tax credits.

Additionally, if you’re considering renouncing your US citizenship, managing a SMSF may become simpler after renunciation, as you would no longer be subject to US tax laws.

If the SMSF investments are straightforward and you have a flexible plan, you might be able to navigate the complexities with the help of a good tax advisor. However, for most people, the compliance requirements are too burdensome and the risks are too high to justify the benefits of an SMSF.

What is the best approach if you are considering an SMSF?

If you’re a US citizen or green card holder thinking about an SMSF, getting professional tax advice is crucial.

A tax advisor who understands both US and Australian tax laws can help you identify potential issues and determine if an SMSF is right for your financial situation. Careful planning can help you avoid unexpected penalties and tax burdens.

For most US expats, taking a cautious approach—like sticking to retail super funds or getting professional advice upfront—is the safest way to manage retirement savings while minimizing the risk of double taxation and IRS penalties.

Have a different question? Get in touch with a professional tax accountant today.