If you were born in the US but live abroad, you may have questions about your U.S. tax obligations. Dual citizenship, possibly acquired through a parent, raises tax questions in the US. To clarify these issues, we have compiled brief answers to frequently asked questions about dual citizenship tax obligations. It is important to note that many dual citizens face different tax situations. Our guidance simplifies these complexities for you.

Defining Dual Citizenship

Being a citizen of two countries is dual citizenship. This status requires compliance with both countries' tax laws. Understanding that citizenship requirements vary by country is crucial. For instance, US citizens are born in the US regardless of their parents' nationalities. This policy can grant dual citizenship to people with foreign ancestry in the US.

Taxes for Dual Citizenship in the US

Dual citizens often wonder if they must pay taxes in both countries, especially if they live outside the US. The outcome is plausible. U.S. tax laws require citizens and resident aliens with income over a certain threshold to file tax returns. Dual citizens must comply, regardless of their tax obligations or residence outside the US.

Citizenship-based taxation is unique to the US, one of two nations. Thus, American citizens must file tax returns regardless of residence or income. This regulation emphasizes the importance of dual citizens understanding their tax responsibilities in both countries. Many countries allow dual citizenship US, each with its own taxation rules for dual citizens.

Avoiding Double Taxation Being A Dual Citizen

Many Americans with dual citizenship US and overseas residences worry about paying taxes on the same income twice. However, the IRS has taken several steps to fix this. Due to these provisions, most dual citizens will not be taxed twice.

Dual citizens are often exempt from US dual citizenship taxes, which is greatly beneficial. This approach ensures equal treatment for dual citizens by complying with the list of countries that recognize dual citizenship in the US.

Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) is essential for expats to avoid double taxation. You can deduct up to $112,000 in 2023, adjusted for inflation. The Foreign Earned Income Exclusion (FEIE) allows you to remove your entire $80,000 annual salary as a web developer in Germany from your US taxes. Dual citizens, including US citizens, benefit from this provision. This reduces their taxes.

Physical Presence Test

The Physical Presence Test for the FEIE requires 330 full days outside the US in any 365 days. The IRS defines a full day as midnight to midnight. If a French resident visits Spain at noon on a certain date, the full day outside the US dual citizenship will not count. Meeting IRS requirements is crucial for dual US citizens.

Bona Fide Residence Test

Passing the Bona Fide Residence Test is an additional requirement for FEIE eligibility. To pass this exam, you must show strong economic and social ties to your home country. Permanent residency cards, utility bills, and local tax payments are acceptable identification. Dual citizens should take this test to prove they live outside the US. For US dual citizenship countries list, this is essential for maintaining legal status abroad.

Foreign Tax Credit

The Foreign Tax Credit is a major benefit for Americans working abroad. You can reduce your US tax liability by paying income tax abroad. For instance, the FTC can reduce a Chilean dental surgeon's US tax liability to $500 if they have paid $9,500 in Chilean income taxes but owe ten thousand dollars.

This is especially useful when doing business in countries with higher taxes than the US, like Finland. Such circumstances may exempt you from US taxes. Dual citizens in the US or considering dual citizenship US in a country on the US list should be noted. A practical FTC financial solution is preventing double taxation on identical income.

Foreign Housing Exclusion

For US expats earning more than the Foreign Earned Income Exclusion (FEIE), the Foreign Housing Exclusion is another important tax provision. Allocating part of your qualified living expenses lowers your taxable income as a US taxpayer. Rent, utilities, property insurance, and furniture are eligible.

The Physical Presence Test or Bona Fide Residence Test must be passed to claim this deduction—file for the FHE and FEIE on Form 2555 to reduce your taxable income significantly. Citizens of the US and other countries can maximize their earnings in both countries. American expats can stay financially stable by monitoring these deductions.

Accidental Americans' US Tax Obligations

US tax law puts "accidental Americans" in a unique situation. Individuals who are US citizens by birth, parentage, or expired green card must file tax returns with the US government. This requirement often seems unfair, especially to foreigners who may not feel connected to the US. Failure to file carries heavy financial penalties.

One can renounce the dual citizenship countries list or get a green card to avoid these taxes. These routes have bureaucratic hurdles and financial penalties like exit taxes. Renouncing US citizenship or residency may also complicate travel or reentry.

Requirements for Tax Filing by "Accidental Americans"

"Accidental Americans" must report their global income annually on IRS Form 1040. For those with financial interests in foreign banks, disclosing these accounts becomes mandatory if their cumulative balance exceeds $10,000. This is done through the FBAR.

The IRS's Streamlined Filing Compliance Procedures help people who recently realized they must file US taxes. Taxpayers can revise their tax returns without late fees or penalties under this program. You must meet these requirements to qualify:

• Have a valid Tax Identification Number (TIN) or Social Security number.
• Please confirm that your failure to file was unintentional and caused by a tax misunderstanding.
• Spend 330 days at most outside of the US in a specific tax year and did not maintain a US residence.
• The IRS has not previously investigated them for tax issues.

If you meet these criteria, the process involves:

• Filing tax returns for the past three years using Form 1040 and other relevant forms (such as Forms 8938, 3520, or 5471).
• Submitting an FBAR for the past six years.
• Completing Form 14653 to certify and explain your tax filing delay.