As the new year approaches, US expats and green card holders must stay informed about the latest IRS updates and tax changes. The Internal Revenue Service (IRS) has announced numerous significant adjustments for the 2024 tax year, impacting the financial planning and reporting requirements of American citizens living abroad and those holding permanent resident status in the United States. These updates include an increase in the Foreign Earned Income Exclusion (FEIE), adjustments to standard deductions and tax brackets, and important deadlines for various tax filings
Understanding these changes is essential for expats to remain compliant, take advantage of available benefits, and minimize tax liability. The IRS has introduced new tax credits and deductions that may provide additional financial relief for eligible taxpayers. Let us explore the fundamental changes, important deadlines, and available resources for US expats and green card holders. By staying informed and proactive in tax planning, expats can better manage their worldwide income, avoid penalties, and maximize their tax savings. Whether you’re a long-term expat or a recent green card holder, this guide will provide the necessary information to make informed decisions regarding your 2024 tax obligations.
Fundamental Tax Changes for 2024
1. Increased Foreign Earned Income Exclusion (FEIE)
One of the most significant changes for 2024 is the increase in the Foreign Earned Income Exclusion (FEIE). The FEIE allows eligible US citizens and resident immigrants living abroad to exclude a portion of their foreign-earned income from US taxation. For the 2024 tax year, the FEIE limit has been set at $126,500, up from $120,000 in 2023. This increase is particularly beneficial for expats who earn a portion of their income from foreign sources.
By excluding a significant portion of their earnings, expats can minimize their overall tax liability and keep more of their hard-earned money. It’s important to note that the FEIE has specific requirements and limitations: the physical presence test or the bona fide residence test. Expats should carefully review their eligibility and consider consulting with a Tax Professional such as KK Associates to ensure they maximize the FEIE benefits.
2. Adjustments in Standard Deductions
- The IRS has also adjusted the standard deduction amounts for the 2024 tax year. The standard deduction is a fixed amount that minimizes the portion of income subject to taxation and varies based on filing status. For the 2024 tax year, the standard deduction amounts are as follows: Single or Married Filing Separately: $13,850
- Married Filing Jointly or Qualifying Surviving Spouse: $27,700
- Head of Household: $20,800
These adjustments are intended to account for inflation and provide some relief to taxpayers. Expats must note that the standard deduction primarily applies to passive and unearned income, such as interest, dividends, and capital gains. Active foreign-earned income may still be subject to taxation, even within the FEIE limits.
3. Changes to Tax Brackets
In addition to the standard deduction adjustments, the IRS has also announced changes to the income tax brackets for the 2024 tax year. These changes prevent taxpayers from being pushed into higher tax brackets due to inflation. The new tax brackets are as follows:
- 10% bracket: Single filers with taxable income up to $11,000; Married filing jointly with taxable income up to $22,000
- 12% bracket: Single filers with taxable income over $11,000 but not over $44,725; Married filing jointly with taxable income over $22,000 but not over $89,450
- 22% bracket: Single filers with taxable income over $44,725 but not over $95,375; Married filing jointly with taxable income over $89,450 but not over $190,750
- 24% bracket: Single filers with taxable income over $95,375 but not over $182,100; Married filing jointly with taxable income over $190,750 but not over $364,200
- 32% bracket: Single filers with taxable income over $182,100 but not over $228,900; Married filing jointly with taxable income over $364,200 but not over $457,800
- 35% bracket: Single filers with taxable income over $228,900 but not over $574,925; Married filing jointly with taxable income over $457,800 but not over $686,950
- 37% bracket: Single filers with taxable income over $574,925; Married filing jointly with taxable income over $686,950
These adjustments may result in some expats moving into lower tax brackets, potentially reducing their overall tax liability. It’s crucial for expats to carefully review their specific circumstances and consult with a tax professional to determine the impact of these changes on their tax situation.
Important Deadlines for 2024
1. Standard Tax Filing Deadlines
The primary tax payment deadline for the 2024 tax year is April 15, 2024. US expats are automatically granted a two-month extension to June 17, 2024, to file their tax returns. This extension is automatic and requires no additional paperwork or filing fees. It’s important to note that while the filing deadline is extended, any tax payments owed to the IRS should still be made by the original April 15 deadline to avoid potential penalties and interest charges. Expats who need additional time beyond the automatic extension can request a further extension until October 15, 2024, by filing Form 4868.
2. FBAR and FATCA Reporting Deadlines
In addition to the standard tax filing deadlines, expats must be aware of the deadlines for reporting foreign bank accounts and assets. The Foreign Bank Account Report (FBAR) should be filed yearly once by April 15 for the previous tax year. Expats are granted an automatic extension to October 15 to file their FBAR. The Foreign Account Tax Compliance Act (FATCA) requires expats to report their foreign financial assets on Form 8938, filed with their tax return.
The FATCA filing deadline follows the same timeline as the standard tax filing deadlines, with the automatic extension for expats to June 17, 2024. Compliance with FBAR and FATCA reporting is crucial for expats to avoid potential penalties and maintain good standing with the IRS. Failure to report foreign accounts or assets can cause significant fines and even criminal charges in some cases.
3. Estimated Taxes for Expats
Expats with significant income from sources other than employment, such as self-employment or investments, may need to make quarterly estimated tax payments throughout the year. These payments are due April 15, June 15, September 15, and January 15 of the following year. Failing to perform timely estimated tax payments can result in underpayment penalties and interest charges. Expats should carefully calculate their expected tax liability for the year and make the necessary estimated payments to avoid these penalties and stay compliant with IRS regulations.
Additional Benefits and Compliance Options
1. Stimulus Payments and Compliance Programs
The IRS has announced that expats who missed out on claiming their stimulus payments from previous years may still be eligible to do so. Expats who did not receive their Economic Impact Payments (EIPs) or the Recovery Rebate Credit (RRC) can claim these payments by filing their 2020, 2021, or 2022 tax returns. The IRS offers various compliance programs for expats who may be behind on their tax filings or have unreported foreign assets.
These programs, such as the Streamlined Filing Compliance Procedures and the Delinquent FBAR Submission Procedures, allow expats to catch up on their filings and potentially avoid penalties if they meet specific criteria. Expats unsure about their compliance status or have questions about claiming missed stimulus payments should consult with a tax professional such as KK Associates or the IRS directly to explore their options and ensure they meet their tax obligations.
2. New Tax Credits and Deductions
The IRS has introduced several new tax credits and deductions for the 2024 tax year that may be relevant to expats.
- One notable addition is the Child Tax Credit, which offers a credit of up to $2,000 per qualifying child. Expats with children may be eligible for this credit, subject to certain income limitations and residency requirements.
- Another new credit is the Clean Vehicle Credit, which offers a maximum tax credit of $7,500 for buying a new electric or plug-in hybrid vehicle. While this credit is primarily aimed at domestic taxpayers, expats who purchase qualifying vehicles and meet the eligibility criteria may also be able to claim it.
Expats should carefully review the eligibility requirements for these new credits and consult with a tax professional to determine if they qualify and how to correctly claim them on their tax returns.
Resources and Tools for Expats
1. IRS Free File and E-filing Options
Starting January 12, 2024, the IRS will offer Free File, a service that provides free online tax preparation and filing options for eligible taxpayers. This service is available to individuals with an adjusted gross income (AGI) of $73,000 or less. Expats who meet the income requirements can use this service to prepare and file their tax returns at no cost. The IRS encourages taxpayers to e-file their returns, allowing faster processing and refunds. E-filing is available through various tax preparation software and online platforms, including the IRS Free File program.
2. Tax Preparation Tips for Expats
To ensure a smooth tax filing process, expats should gather their necessary documents and prepare for tax season well in advance. This includes collecting W-2s, 1099s, and other relevant income statements and keeping track of foreign bank account information and asset values for FBAR and FATCA reporting. Expats should also consider consulting with a tax professional such as KK Associates who specializes in expat taxes and is familiar with the unique challenges and requirements faced by Americans living abroad. These professionals can provide:
- Valuable guidance on maximizing deductions.
- Understanding the latest tax changes.
- Ensuring compliance with IRS regulations.
Conclusion
The IRS updates for 2024 bring several significant changes that will impact the tax planning and reporting requirements of US expats and green card holders. From the increased Foreign Earned Income Exclusion to adjustments in standard deductions and tax brackets, expats must remain informed and proactive in managing their tax obligations. By understanding the fundamental changes, important deadlines, and available resources, expats can better navigate the complexities of the US tax system and potentially minimize their tax liability.
Consulting with a tax professional and taking advantage of e-filing options and compliance programs can further streamline the tax filing process and ensure ex-pats remain in good standing with the IRS. Expats must prioritize their tax planning as the new year approaches and stay up-to-date with the latest IRS updates. Doing so lets you focus on your personal and professional goals while maintaining financial security and compliance with US tax laws.
We at KK Associate provide superior Tax Preparation Services to handle IRS Updates at the best prices. Call us now! – +91 20 25511024, +91 9823149491