I am an American citizen who has lived in Mexico for 20 years. An accountant told me that if I spend only 30 days out of the US a year, I don’t have to pay federal income tax. Is this true? If it is, then do I have to file a tax return every year?
Tabitha Paddock of Greenback Tax Services answered this question.
You are required to file a US tax return if you earned above the minimum amount required to file (which varies depending on your filing status). Generally speaking, if you are self-employed and earned $400 you must file, if you are single and earn above $10,000 you need to file, and if you are married and filing together this increases to $20,000. As a US citizen you are required to report your income to the US every year, even if you are living abroad and paying taxes to your host country.
However, there is an upside. The US has certain exclusions, deductions and credits in place to limit dual taxation. The biggest credit is the Foreign Earned Income Exclusion, which allows you to exclude over $100,000 of your earned income from your US taxes (so long as you are outside the USA for 330 days in a 365-day period). If you fall under this limit, you probably will not owe the US any tax – however, even if you won’t owe anything you still need to file.
You may also have been required to report your foreign bank accounts. If you had $10,000 or more in foreign bank accounts at any point during the year, a report of foreign bank accounts (FBAR) was required. If you are above these thresholds, you may need professional help with tax filing.