There are so many deductions you can claim when you are a US expat, living and working overseas. Just to name a few, you can claim itemized deductions such as State income taxes, mortgage interest, property taxes, charity contributions, legal fees, business and travel expenses. Which ones can you claim?
That’s an important question. For an American citizen or a green card holder there are many deductions.
When you are living and working outside of the US you are still entitled to file all your itemized deductions. So, that includes all the things you are often familiar with when you are living and working in the US. That includes things like state income taxes, mortgage interests on a principal residence or on a holiday home, also, property tax on your principal residence. You can also claim what we call charitable contributions to US charities. So, it’s important to keep track of all those through the year. There is an issue that if it’s a foreign charity it may not be deductible. It generally has to be on an authorized list of the IRS to be deductible on the US returns.
You would are also entitled to claim unreimbursed employee business expenses above 2% of adjusted gross income. So, it’s appropriate to keep track of those. If you have investment related expenses or legal fees or other things that relate to deriving income, those items are also generally considered a miscellaneous itemized deduction subject to the 2% threshold.
In addition to that, you may have a variety of other things. You may have a rental property back in the US on which you may have a lot of deductions; so that’s important to consider what those deductions are and maximize the recording and the deducting of all those items.
We have an issue when it’s the net loss after all expenses are taken into consideration. Depending on your income level you may be able to deduct
that net loss against other income. Although, if your income is too high we’re not allowed to deduct that net loss currently, but rather, we have to carry that forward to future years.
You may have partnership losses, you may have a business or your spouse may have a business on Schedule C, and that may have various expenses which we can claim as deductions, and often, we can then claim the net loss on the business against other income. If there is a partnership flowing through with a net loss, you often would receive a K1 and we would pick up any of those deductions against other income as well.
You may have capital losses on the sale of stock and to the extent that you have capital losses you can offset those against capital gains, and you can potentially claim up to $3000/year of a capital loss against other income and then carry any capital loss forward to offset against any capital gains in the future.
You could also have things like moving expenses – often are relevant, particularly in the year of the move, and also in later years you may have storage expenses, and those can be claimed throughout the foreign assignment.
And, you could have things like education expenses for family members that are going to university. Often, we can claim a deduction or a credit in regard to those education expenses.
You may have things like retirement plan contributions. You may have, say, contributions to a traditional IRA and we would, generally, be able to claim deductions for that as well.
So, there are many things to consider. We are happy to explain how it works, and make sure that people claim the maximum deductions that they are entitled to reduce their tax to the lowest possible amount.