Whether you are living in Berlin, Hamgurg, Munich, or anywhere else in Germany, if you are a US citizen or US green card holder, you are required to file a US tax return every year. While you are required to file a tax return, most of our clients living in Germany owe little or no taxes to the IRS. The IRS provides many tools to help reduce the actual tax liability of US citizens living abroad, including the Foreign Tax Credit and the Foreign Earned Income Exclusion. While these tools can greatly reduce an expat’s tax liability, they can be quite complex. We recommend using a tax professional to ensure that these tools are used correctly. In addition, the US has a tax treaty and Totalization agreement with Germany which can also help reduce the an expat’s tax liability.
US/Germany Tax Treaty
The US/Germany Tax Treaty can help reduce the amount of taxes that an Expat living abroad owes, and it can help clarify grey areas in the tax code for those residents living abroad. It is important to make sure that your tax professionals are familiar with the tax treaty, especially in the area of German pension accounts. For more information on tax treaties see our blog – http://universaltaxprofessionals.com/2016/01/26/what-is-a-us-tax-treaty/.
US/Germany Totalization Agreement
The US/Germany Totalization agreement may also help prevent double taxation for an expat living in Germany. This agreement can be especially helpful for a expat who is self employed. If you are self employed in Germany or concerned about paying social security tax while living abroad, see our blog at –http://universaltaxprofessionals.com/2016/01/20/what-is-a-social-security-totalization-agreement/.
FBAR and FACTA
If you are an expat and you have over $10,000 in aggregate in foreign financial accounts, then you need to file an FBAR. FACTA law may require you to sign a W4 form with your foreign bank which informs the US that you are the owner of foreign financial accounts. This allows the IRS to ensure that you have correctly filed your FBAR. The penalties for failure to file an FBAR are great, so it important to file correctly and on time. In addition, you may be required to file FACTA forms along with your tax return. If you are unsure about how to file the FBAR or FACTA, it is best to talk with your tax professional.
If you have any question about how to file you tax return while living abroad, or you would like us to prepare your tax return, send us an email at tax email@example.com.