4 Financial Mistakes US Expats Should Avoid

4 Financial Mistakes US Expats Should Avoid

Germany is one of the top destinations for Americans looking to set up home in a foreign location. You’ll get access to higher education at economical costs, excellent healthcare, and a lower cost of living. Added to that is plenty of employment opportunities, and you have lots of US citizens moving abroad. If you’ve made the decision to relocate, take the time to understand all the tax ramifications, and plan your finances accordingly. Here are some of the most common financial mistakes US expats make and how to avoid them.

1. Failing to File Taxes with the IRS

Possibly, the most important factor to keep in mind is that US expats must continue to file tax returns with the IRS as long as they are US citizens or Green Card holders. Your tax consultant will provide detailed information about everything you need to know about filing taxes as a US expat in Germany. “Unlimited liability” taxation laws in Germany also require you to declare income from worldwide sources if you’re a permanent resident in the country. However, this liability also changes each year according to the updated income slabs set down by the German administration.

1. Failing to Take Advantage of Tax Credits

Since the US and Germany have a Double Tax Treaty, you can claim credits for any taxes you pay in Germany in the returns you file with the IRS, back home. Depending on your total annual income, the IRS permits you to deduct the taxes you paid in Germany from the applicable taxes in the US by way of the Foreign Earned Income Exclusion. Since this limit changes each year, you’ll want to check with an expert tax consultant about updated information.

1. Failing to Understand How the Fiscal Year Works

The fiscal year for taxation purposes in Germany and the US are similar, which means that you’ll pay taxes on income from January 1st to December 31st. Regardless of whether you move in the middle of the year, you must declare income from worldwide sources within the fiscal year. And that includes any income you might have earned in the US prior to relocating to Germany.

1. Missing Tax Return Deadlines

German residents eligible for paying taxes receive a notice from the German Ministry of Finance. Having received intimation, you’re expected to clear your tax dues within 30 days. Not only will you incur late filing penalties of up to 10% of the assessed taxes, but you’ll also pay interest on the owed amount. Expect to pay a late fee of 1% for every month of outstanding taxes. The IRS permits US expats an additional 60 days for filing their returns. Accordingly, you can clear your tax dues by June 15th. If you do need an extension, you can file Form 4868 and file by October 15th.

Filing US expat taxes can be complicated for the layperson. Rely on an expert to assist and guide you.