Do I still have US tax obligations after moving to Australia?
Published on February 28, 2024
by Johenzon Febb Borje
Febb Borje, a tax professional with 10 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.
Table of Contents
Moving to Australia introduces significant changes to your lifestyle and potentially your tax obligations as a US citizen or green card holder. Despite the change in your residence, the US government requires you to pay taxes on worldwide income, making your international move an important factor in your tax planning.
What impact does dual tax residency have on my taxes?
Being considered a tax resident in both the US and Australia means your global income could be subject to taxation by both countries. However, the existence of a tax treaty between the US and Australia provides mechanisms to prevent double taxation, allowing you to claim credits on your US tax return for taxes paid in Australia. This can significantly reduce your US tax liability.
I want to know more about US taxes abroad
Is filing US taxes required after relocating to Australia?
Yes, US citizens and green card holders are obligated to file US tax returns annually, regardless of their country of residence. This requirement means you must report your worldwide income, including any earnings from Australia, to the IRS.
US expatriates benefit from an automatic two-month extension beyond the standard April 15 filing deadline, pushing the date to June 17 for the 2023 tax year. Should you need additional time, filing Form 4868 can extend your filing deadline to October 15. However, it’s crucial to note that this extension does not apply to any taxes owed, which are due by April 15 to avoid accruing interest and penalties.
How can I lower my US tax liability as an Expat?
Expatriates have the opportunity to lower their US tax liability through two key methods: the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). For 2023, the FEIE permits expats to exclude up to USD$120,000 of foreign-earned income from US taxes, provided they have established a tax home abroad and meet the criteria of the bona fide residence test or the physical presence test.
The FTC offers another avenue to reduce your US tax bill by crediting you for income taxes paid to foreign governments, effectively reducing your US tax obligations on a dollar-for-dollar basis. This is especially advantageous for those paying taxes in countries with higher rates than those of the US.
Can I claim a credit for Australian taxes on my US tax return?
Yes, Australian taxes paid can be credited against your US tax obligations. The US tax system includes provisions for claiming credits for taxes paid to foreign countries, including Australia, which can lead to a reduction in your US tax liability.
Given the unique circumstances of each taxpayer, it’s critical to consult with a tax professional. They can offer tailored advice to ensure you fully benefit from tax credits and exclusions, optimizing your tax situation.
What are the reporting obligations for FBAR and FATCA?
The IRS mandates specific reporting requirements for foreign financial accounts through FBAR (Foreign Bank and Financial Accounts Reporting) and FATCA (Foreign Account Tax Compliance Act):
- FBAR Reporting: US persons must file an FBAR if they have a financial interest in or signature authority over foreign financial accounts exceeding USD$10,000 at any point during the calendar year.
- FATCA Reporting: US taxpayers with foreign financial assets exceeding certain thresholds must report these assets on Form 8938, which is filed alongside their annual tax return.
Failure to comply with these requirements can result in significant penalties:
- Non-Willful Violations: Penalties can reach up to USD$10,000 (adjusted for inflation) for each unintentional violation.
- Willful Violations: For deliberate non-compliance, penalties can escalate to $100,000 (adjusted for inflation) or 50% of the account’s value at the time of the violation, per violation.
Criminal charges, including fines and imprisonment, may apply for willful violations, highlighting the importance of adhering to these reporting standards. Given the potential for severe financial consequences, engaging with a tax professional to navigate these complex requirements is advisable.
How do I manage my retirement savings as a US expat?
For US expatriates, effectively managing retirement savings requires a nuanced understanding of both US and Australian tax regulations. Contributions to American retirement accounts, such as IRAs and 401(k)s, can still offer tax advantages, despite living abroad. However, eligibility to contribute to these plans may be subject to specific conditions due to your expatriate status.
The taxation of investments in both the US and Australia can significantly impact your retirement planning. This highlights the importance of comprehending the tax treaty between the US and Australia and its application to your individual circumstances. Seeking advice from a tax professional is crucial. They can assist in reporting retirement savings and clarifying your tax responsibilities in both nations.
Will my estate be taxed in the US or Australia?
For US citizens or resident aliens, your estate will be taxed by the US government, reflecting its policy of taxing the worldwide estates of its citizens and residents. In contrast, Australia does not levy an inheritance tax on estates based solely on inheritance. However, income generated by your estate within Australia may be subject to Australian taxation.
