Are you a little confused about the US taxes in Ecuador you will need to pay? I've had many questions myself. Well there's a great resource where you can get all the answers you're looking for.
TaxesforExpats.com is full of great information to answer the questions you may have. Plus if you need help filing your US taxes in Ecuador you can get assistance through their website.
None of us want to get an unexpected audit or worse because we don't understand tax laws that apply to all US expats.
The basic truth is US citizens and permanent residents are obligated to pay US taxes. And you must include your foreign income when reporting total income. Sounds a bit harsh, but there is a tax law that keeps some of your foreign income from being taxed.
Read our "guest blog" post below by TaxesforExpats.com to learn more.
By I.J. Zemelman, EA, Taxes for Expats
The practice of the United States taxing its citizens no matter where in the world they decide to live and work is not a popular one among most US expats. The fact remains, however, that the IRS offers a number of exclusions and deductions to expatriates which minimize the burden of taxes imposed upon them. Sadly, not all US expats are aware of such exclusions and wind up paying the IRS a considerably higher amount every year than they are actually required to pay.
The goal of this article is to inform US citizens who live and work in foreign countries of the many tax benefits offered by the IRS which can significantly reduce – and in many cases completely eliminate – your total tax liability to the United States IRS.
The first and most beneficial exclusion offered to US expats by the IRS is the Foreign Earned Income Exclusion (FEIE). With the FEIE, international taxpayers are able to exclude a significant portion of their income from their total taxable income. The income amounts that qualifying US expats are able to exclude from their US taxable income for 2011 are as follows:
You may have noticed the keyword ‘qualifying’ in the previous paragraph. This is an important word, because only qualifying expatriates are entitled to claim the FEIE; and to qualify you must meet certain conditions which have been established by the IRS. So what conditions must a US expat meet for claiming the Foreign Earned Income Exclusion? There is 1 of 2 conditions which must be met by a US citizen living abroad, and they are referred to by the IRS as tests. They are:
To claim the FEIE, complete Form 2555 and attach it to your Form 1040. If you need help figuring out whether or not you qualify for either test, feel free to contact us for expert tax guidance.
In addition to the FEIE, there are a couple other tax benefits offered to US expats to minimize or eliminate the total amount of tax liability due to the IRS. These available tax breaks are outlined below.
Foreign Tax Credit
The Foreign Tax Credit (FTC) is a measure taken by the IRS to prevent double taxation on income. With the FTC, taxpayers are able to deduct every dollar from their US taxes that they were required to pay to their host country. It’s important to understand that the FTC is not automatically issued to you by the IRS. Like all exclusions, deductions, and credits, the FTC must be claimed and attached to Form 1040. You may claim the Foreign Tax Credit by completing Form 1116.
Foreign Housing Allowance
Relocating overseas inevitably incurs cost to the taxpayer - whether or not his/her employer is helping with some or all of the expenses. Aside from the cost of relocating is the consideration of the adjusted cost of living in certain parts of the world. In order to help US expats recover from some of the extra expenditure they’re sure to face the IRS offers certain allowances on US expat income taxes. The Foreign Housing Allowance can be calculated 1 of 2 ways:
The Foreign Housing Allowance is claimed on Form 2225 with the FEIE.
If you are unsure about whether you qualify for any of these tax benefits or you have questions about how to file, don’t guess! We have a team of qualified professionals available to help you get the most out of your US expat tax return.
I.J. Zemelman, EA is the founder of Taxes for Expats
She may be reached at: +1-646-397-2887
Web site: www.taxesforexpats.com
Thanks to TaxesforExpats.com for that blog post. Please contact them for further help with your US taxes in Ecuador.
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