u.s. expat tax guide – chile
What tax deductions can US expats in Chile claim?
US citizens living in Chile may be able to lower their US tax bill by claiming deductions on their tax return. These deductions help reduce taxable income, allowing expats to legally minimize their tax burden.
How does the standard deduction work for US expats?
The standard deduction is a fixed amount that lowers taxable income without requiring proof of expenses. The 2024 standard deduction amounts are:
- Single: US$14,600
- Married Filing Jointly: US$29,200
- Married Filing Separately: US$14,600
- Head of Household: US$21,300
If a single filer earns US$55,000, the standard deduction reduces their taxable income to US$40,400.
When should expats itemize their deductions?
Itemizing deductions allows expats to deduct specific expenses instead of taking the standard deduction. This is useful if total deductions exceed the standard deduction amount.
Some common itemized deductions include:
- Medical Expenses: Can be deducted if they exceed 7.5% of adjusted gross income (AGI).
- Mortgage Interest: Interest on home loans in Chile may qualify.
- Charitable Donations: Contributions to US-based charities may be deductible.
- State and Local Taxes (SALT): If applicable, US state income taxes may be deductible.
Should expats itemize deductions or take the standard deduction?
Most expats use the standard deduction unless their itemized deductions exceed the standard deduction amount.
What should I know about the Child Tax Credit?
US expats in Chile may qualify for the Child Tax Credit (CTC), which helps reduce their US tax liability for each eligible child under age 17. This credit is designed to provide financial relief to families and, in some cases, can result in a refund.
- The child must be a US citizen or Green Card holder with a valid Social Security number.
- The child must be claimed as a dependent on the tax return.
- The expat must have earned income to qualify for the Additional Child Tax Credit (ACTC).
Income Limits:
- Full credit: Adjusted Gross Income (AGI) below US$200,000 (single) or US$400,000 (married filing jointly).
- Credit phases out beyond these limits.
Expats can claim the Refundable Child Tax Credit if they meet specific filing requirements, providing a refund of up to US$1,600 per child in 2024. Filing Form 1040 and, if applicable, Schedule 8812 is required.
Can expats claim other tax benefits along with deductions?
Yes, expats can claim deductions alongside other tax benefits such as:
- Foreign Earned Income Exclusion (FEIE): Excludes up to US$126,500 of foreign-earned income (2024).
- Foreign Tax Credit (FTC): Provides a credit for income taxes paid in Chile, reducing US tax liability.
If an expat earns US$95,000 in Chile and qualifies for the FEIE, they can exclude this income while still using the standard deduction.
What is the Foreign Housing Exclusion?
The Foreign Housing Exclusion allows qualifying expats to deduct certain housing expenses, such as:
- Rent
- Utilities (except phone bills)
- Some fees related to housing
Expats living in high-cost cities may be eligible for a higher exclusion amount. Self-employed individuals claim this benefit as a Foreign Housing Deduction instead.
How can expats deduct medical expenses?
Medical expenses that exceed 7.5% of AGI can be deducted. Eligible costs include:
- Doctor visits and hospital stays
- Prescription medication
- Health insurance premiums (if not reimbursed)
- Transportation for medical care
If an expat’s AGI is US$70,000 and they spend US$9,000 on medical care, they can deduct US$3,750 (amount exceeding US$5,250, which is 7.5% of AGI).
How do tax treaties and totalization agreements help?
- US-Chile Tax Treaty: Helps prevent double taxation, though the US still taxes its citizens on worldwide income.
- Totalization Agreement: Ensures that Social Security contributions are only required in one country.
Can Chilean taxes reduce US tax obligations?
Yes, the Foreign Tax Credit allows expats to claim a credit for Chilean taxes paid, reducing their US tax bill.
Are donations to charity deductible?
Yes, contributions to US-based charities are deductible, up to 60% of AGI for cash donations. Non-cash donations have different limits. Proper documentation, such as receipts, is required.
Is mortgage interest on Chilean property deductible?
Yes, mortgage interest paid on a primary or secondary home in Chile may be deductible, provided it meets IRS requirements. Expats should keep records of loan statements and interest payments.
What tax forms must expats in Chile file?
- Form 1040: Required US tax return
- Form 1116: To claim the Foreign Tax Credit
- Form 2555: For the Foreign Earned Income Exclusion
- FBAR (FinCEN Form 114): Required if foreign account balances exceed US$10,000
- Form 8938: Reports foreign financial assets if exceeding US reporting thresholds
What if an expat has missed past tax filings?
The Streamlined Filing Compliance Procedures help expats catch up without major penalties if their failure to file was non-willful.
What happens if deductions are incorrect?
Errors in tax deductions can lead to overpayment or an IRS audit. Expats should ensure accuracy or consult a tax professional to maximize benefits and remain compliant.
What are the FBAR requirements for expats in Chile?
Expats must file an FBAR if their total foreign account balances exceed US$10,000 at any time during the year. Not filing can lead to penalties starting at US$10,000 per violation.
How does FBAR differ from Form 8938?
FBAR reports foreign bank accounts, while Form 8938 reports foreign financial assets and has higher reporting thresholds.
Do self-employed expats pay US social security?
US citizens who are self-employed in Chile must consider social security tax obligations in both countries.
Normally, self-employed individuals pay US self-employment tax to fund Social Security and Medicare.
However, the US-Chile Totalization Agreement prevents double taxation by ensuring expats contribute to only one country’s social security system.
Key Considerations:
- Expats who contribute to Chilean social security are generally exempt from US self-employment tax.
- Income earned in Chile is subject to Chilean tax laws, including complementary tax and Chilean social security taxes.
- Expats must report worldwide income on Form 1040 and may use the Foreign Tax Credit (FTC) to offset US tax liability.
How can expats reduce their US tax bill?
- Use the FEIE and FTC to avoid double taxation
- Keep receipts and records for deductible expenses
- Consult a tax professional for proper compliance and maximum tax savings
