u.s. expat tax guide – brazil
How can US expats in Brazil minimize US taxes using Brazilian taxes?
If you are a US expat living and working in Brazil, you may be paying Brazilian income taxes. The Foreign Tax Credit (FTC) helps you use those Brazilian taxes to lower your US tax bill. By claiming the FTC on your US tax return, you can prevent being taxed twice on the same income.
Can you use the Foreign Earned Income Exclusion and the Foreign Tax Credit together?
Yes, combining the Foreign Earned Income Exclusion (FEIE) with the Foreign Tax Credit (FTC) can be very effective in reducing your tax liability. The FEIE lets you exclude up to US$126,500 of foreign-earned income from US taxes in 2024.
After applying the FEIE, you can still use the FTC on any leftover taxable income.
For example, if you earned US$150,000 in Brazil, the FEIE could exclude US$126,500. The remaining US$23,500 would still be subject to US taxes. The FTC can then be used to offset or potentially eliminate US taxes on that remaining amount by claiming a credit for Brazilian taxes paid.
What kinds of deductions can US expats in Brazil claim?
As a US expat living in Brazil, you can claim several deductions to lower your tax bill:
- Standard Deduction: This option is straightforward and doesn’t require extra paperwork. For 2024, the standard deduction is:
- Single: US$14,600
- Married Filing Jointly: US$29,200
- Itemized Deductions: If your expenses are significant, itemizing might be more beneficial. Some common deductions are:
- Medical and Dental Expenses: If these costs exceed a certain percentage of your income.
- Mortgage Interest: On your main or second home.
- Charitable Donations: Gifts to eligible organizations.
- Foreign Housing Exclusion: If you use the FEIE, you may also qualify to exclude certain housing expenses like rent and utilities.
Can you combine different deductions and exclusions?
Yes, you can use multiple deductions and exclusions together.
For instance, if you earn US$100,000 a year in Brazil, you could exclude the entire amount with the FEIE. Additionally, if you paid US$10,000 in Brazilian income taxes, you could claim the FTC to further reduce your US tax bill.
What deductions are most popular for US expats in Brazil?
Here are some commonly used deductions for US expats in Brazil:
- Traditional IRA Contributions: You may be able to deduct contributions to a traditional IRA.
- Student Loan Interest: Deduct up to US$2,500 in interest paid on student loans.
- Self-Employment Taxes: If you’re self-employed, you can deduct part of your taxes.
- Health Savings Account (HSA) Contributions: Contributions to an HSA can be deducted and used for medical expenses.
- Moving Expenses: In certain cases, moving costs for work abroad may be deductible.
- Charitable Donations: Donations to US-based charities can be deducted if you itemize.
- Mortgage Interest: Interest paid on your home’s mortgage may also be deductible.
Are there limits on tax deductions for expats?
Yes, there are several limits that apply to tax deductions for US expats:
- Foreign Tax Credit Limit: The FTC can only offset US taxes up to the amount of tax owed on your foreign income. If you owe US$10,000 in US taxes but paid US$12,000 in Brazilian taxes, you can only claim US$10,000 as a credit.
- Limits for FEIE and Foreign Housing Exclusion: The FEIE allows up to US$126,500 to be excluded in 2024. Income above that will still be taxed. The Foreign Housing Exclusion has limits based on where you live and your actual housing expenses.
- Itemized Deduction Phaseouts: For higher earners, some itemized deductions may be reduced.
- Cap on State and Local Tax Deductions: You can deduct up to US$10,000 for state and local taxes.
- Limits on Retirement Contributions: Contributions to retirement accounts like IRAs have annual limits.
How does capital loss carryforward help expats save on taxes?
If you sell an investment at a loss, you can use capital loss carryforward to reduce your taxes in future years. If your losses exceed your gains, you can carry over the extra loss to offset future gains.
Can contributing to retirement accounts reduce your US taxes?
Yes, contributing to retirement accounts like a Traditional IRA or 401(k) can reduce your US tax liability.
Contributions to a traditional IRA can be deducted, which lowers your taxable income. However, income limits apply, so check if you qualify based on your income level.
What are some common tax mistakes made by US expats?
- Not Filing US Taxes: Some expats incorrectly assume that they don’t need to file US taxes while living abroad. However, all US citizens must file, regardless of where they live.
- Ignoring FBAR Requirements: If you have foreign bank accounts with a total value over US$10,000 at any time during the year, you must file a Foreign Bank Account Report (FBAR) to disclose these accounts to the US Treasury.
- Errors with FEIE or FTC: Mistakes in applying the FEIE or FTC can result in either overpaying or underpaying taxes.
- Double Counting Income: Expats sometimes mistakenly count the same income twice if they’re unclear about how to coordinate US and Brazilian tax filings.
What should US expats in Brazil know about filing deadlines?
The regular deadline for filing US taxes is April 15, but expats automatically get an extension to June 15.
If more time is needed, you can request an extension until October 15. Remember that any taxes owed must still be paid by April 15 to avoid interest charges.
