Levels of taxation in the US: What an expat needs to know?
The Taxation rules for Americans living abroad and earning from abroad are the same as for those earning in the USA. However, this may become complex sometimes and even confusing to the extent that it becomes extremely difficult for an individual to prepare his tax files. Not to miss, wrong filing of returns and any error in the reporting may lead to unbearable penalties, which obviously everybody wants to avoid. Hence, it is necessary to understand the levels of taxation in the USA so that an expat can easily pay his share of federal, state, and local taxes.
Levels of taxation
Since the USA follows a citizen-based taxation policy, any citizen of the country living and earning from abroad has to abide by all the tax laws, be it of federal or state level.
Federal level taxes:
Federal level taxes mainly include income tax of any form. Many expats of the USA earn from other countries through a job, by renting a property, etc. In any case, the expats have to reveal all their earnings in the returns. Besides income tax, customs duties or tariffs are also charged on the federal level. One should hire an international tax consultant in US to get a clear understanding of all these. There is also a federal wealth tax that is distributed to the States on the basis of their population.
State level taxes:
Just like the Federal level taxes, State level taxation also includes income tax. Additionally, States are also responsible for collecting sales taxes and its other derivatives.
Local level taxes:
Local level taxes generally include property tax, which again varies with different local jurisdictions. Also, several types of sales tax are also charged at the local level.
In addition to all these, a range of license fees, user fees, registrations fees, etc. are charged at different levels.
Points to remember for expats
Even if an expat does not owe any tax to the US government in general and governments of any level, he is still required to file a US tax return.
The IRS (Internal Revenue Service) of the US government offers a few options for the taxpayers (particularly expats) to avoid double taxation. There are multiple ways to do this- excluding earning from taxation with the Foreign Earned Income Exclusion (FEIE), applying for Foreign Tax Credit (FTC), etc.
All these may look easy to understand but the tax filing process is somehow difficult for the expats if they want to save taxes. The best thing would be to hire an expert. For example, if an expat is a resident of Texas, he can contact The Accounting and Tax company and get in touch with an international tax consultant in Texas for all his tax-related needs.
