Introduction:
The TV shows Ted Lasso and Emily in Paris have captured the hearts of audiences worldwide with their engaging storylines and relatable characters. These shows entertain us but also provide a glimpse into the experiences of individuals who choose to work abroad. From the comedic adventures of an American football coach turned soccer coach in England to the cultural exploration of a young American woman navigating life in the City of Love. These shows shed light on the challenges and opportunities that come with working in a foreign country and becoming an expatriate(expat).
In this article, we will delve into the theme of working abroad. Specifically, we will explore the financial aspects and tax implications faced by US citizens who leave their home to pursue their careers oversea. By examining the experiences of these characters, we can gain insights into the real-world complexities of working abroad and the financial considerations that come with it.
We will explore topics such as residency status, foreign earned income exclusion, foreign tax credits, tax treaties, and specific tax deductions and incentives available to individuals working abroad. By understanding these tax implications, we can gain a deeper appreciation for the financial realities behind the captivating storytelling of Ted Lasso and Emily in Paris.
The Financial Realities of Working Abroad
Working abroad offers exciting opportunities for personal and professional growth, but it also comes with financial considerations that characters in Ted Lasso and Emily in Paris must navigate. The financial realities of working abroad require careful planning and understanding of tax laws, currency exchange rates, and cost-of-living differences. Making informed financial decisions to ensure they can sustain their lifestyles and meet their financial goals while working in a foreign country is something they must consider.
Currency Exchange and Cost of Living:
Individuals working abroad often encounter differences in currency exchange rates and the cost of living compared to their home country. These factors can significantly impact their financial situation, affecting everything from housing and transportation expenses to daily necessities and leisure activities. Individuals must adapt to these financial changes and manage their budgets accordingly. Even things as simple as buying pasties in pounds or baguettes in Euros, you will immediately find the difference in smaller denominations being in coins versus bills.
Tax Residency and Double Taxation:
When individuals move from the USA and work in another country, they may become subject to the tax laws of both their home country and the host country. Determining tax residency status is crucial, as it determines which country has the right to tax their income. You may face the risk of double taxation, where they are taxed on the same income by both countries. Tax treaties between countries can help mitigate this issue by providing guidelines for determining tax residency and avoiding double taxation.
Foreign Earned Income Exclusion (FEIE):
The Foreign Earned Income Exclusion is a provision in the US tax code that allows qualifying individuals to exclude a certain amount of their foreign earned income from US taxation. Individuals working abroad may be eligible for this exclusion, which can help reduce their US tax liability. However, they must meet specific requirements, such as passing either the physical presence test or the bona fide residence test, to qualify for the FEIE.
The Housing Allowance Deduction:
A tax benefit available to individuals working abroad, including characters in shows like Ted Lasso and Emily in Paris. This deduction allows eligible individuals to reduce their taxable income by deducting a portion of their housing expenses incurred while living and working in a foreign country. The specific rules and limitations for the housing allowance deduction can vary depending on the tax laws of the individual’s home country and any applicable tax treaties. It’s important for characters and real-life individuals alike to keep detailed records of their housing expenses, such as rent, utilities, and maintenance costs, to substantiate their eligibility for the deduction.
Foreign Tax Credits:
Individuals may also be eligible for foreign tax credits, which allow them to offset their US tax liability by the amount of foreign taxes paid. This prevents you from being taxed twice on the same income. By properly documenting and reporting foreign taxes paid, individuals can claim these credits and reduce their overall tax burden.
Tax Implications and Financial Considerations
Individuals working abroad must comply with reporting requirements in both their home country and the host country. This includes filing tax returns, reporting foreign income, and disclosing foreign financial accounts if applicable. Failure to meet these reporting obligations can result in penalties and legal consequences. You must navigate these tax implications to ensure compliance with tax laws and optimize your financial situation. Seeking guidance from tax professionals who specialize in international taxation is crucial to understanding the specific tax rules and obligations in each jurisdiction. As professionals we can provide personalized advice, help with tax planning, and ensure accurate reporting of income and deductions. Working abroad offers unique opportunities for personal and professional growth, but it also introduces you to a complex web of tax considerations. By understanding the tax implications and seeking expert advice, individuals can navigate the intricacies of international taxation and make informed financial decisions.
When Ted Lasso, the protagonist of the TV show Ted Lasso, returns home to the USA after working abroad, it can have implications for his Foreign Earned Income Exclusion (FEIE). The FEIE allows qualifying individuals to exclude a certain amount of their foreign earned income from US taxation. However, there are specific rules and considerations to keep in mind when it comes to the FEIE and returning home:
Physical Presence Test: One of the requirements to qualify for the FEIE is the Physical Presence Test. This test requires individuals to be physically present in a foreign country for at least 330 full days during a 12-month period. If Ted returns home before meeting this requirement, he may not be eligible for the FEIE for the tax year in which he returns.
The 330-day requirement for the Physical Presence Test is determined by counting the number of full days an individual spends in a foreign country during a 12-month period. However, it’s important to note that you cannot simply pick any dates to meet this requirement. Here are a few key considerations:
Consecutive or Non-consecutive: The 330 days do not need to be consecutive. They can be accumulated over the course of a 12-month period, as long as the total number of days spent in the foreign country reaches 330.
24-Hour Period: A full day is considered a 24-hour period starting at midnight. Even if you spend only a few minutes in a foreign country during a particular day, it counts as a full day towards the 330-day requirement.
Crossing International Borders: When crossing international borders, it’s important to keep track of the dates and times accurately. The day of departure from the USA and the day of arrival back in the USA are generally not counted as days spent in the foreign country.
Temporary Presence in the USA: Temporary trips or presence in the USA, such as for vacation or business purposes, do not interrupt the 12-month period for the Physical Presence Test. However, those days spent in the USA are not counted towards the 330-day requirement.
It’s crucial to maintain accurate records of travel dates, including passport stamps, boarding passes, and other supporting documentation, to substantiate the number of days spent in the foreign country. This documentation is essential in case of any future inquiries or audits by tax authorities.
We can help ensure accurate calculation and compliance with the specific requirements of the Physical Presence Test based on your individual circumstances.
Bona Fide Residence Test: Another way to qualify for the FEIE is through the Bona Fide Residence Test. This test considers an individual’s intent to establish a bona fide residence in a foreign country. If Ted returns home and no longer intends to establish a bona fide residence abroad, he may not meet the requirements for the FEIE.
Partial Year Qualification: If Ted returns home before meeting the requirements for either the Physical Presence Test or the Bona Fide Residence Test, he may still be eligible for a partial year of the FEIE. In this case, the exclusion amount would be prorated based on the number of qualifying days spent abroad.
It’s important to note that the specifics of Ted’s situation, including the duration of his stay abroad and his intent to establish a bona fide residence, would determine the exact impact on his FEIE.
In summary, returning home to the USA after working abroad can affect Ted’s eligibility for the Foreign Earned Income Exclusion. The specific impact would depend on meeting the requirements of the Physical Presence Test or the Bona Fide Residence Test.
Below you will find a copy of the reporting form 2555 that expats need to have filled out for the foreign exclusion. Though it is intimidating and we recommended it to be filed by an expert in international taxation like us.
Other Reporting Requirements
As fictional characters, they do not have real-world financial obligations or reporting requirements. However, in real-life situations, if you work or reside abroad you do have foreign bank reporting requirements.
For example, United States citizens or residents are required to report their foreign financial accounts if the aggregate value of those accounts exceeds certain thresholds. This reporting is done through the Foreign Bank Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA) requirements. Failure to comply with these reporting obligations can result in penalties.
The FBAR (Foreign Bank Account Report) threshold refers to the minimum aggregate value of foreign financial accounts that triggers the reporting requirement for United States citizens or residents. As of January 2024, the FBAR threshold is set at $10,000. If the total value of an individual’s foreign financial accounts exceeds $10,000 at any point during the calendar year, then you are required to file an FBAR with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.
Though FinCEN may have an intense title the filing is to ensure compliance and prevent money laundering or tax evasion. If you have not filed in many years or feel as if you are not in compliance rest assured we can work with you and if needed our international tax attorney partners to get you back on track!
It’s important to note that FBAR reporting requirements can be subject to change, and it’s advisable to consult the most up-to-date information from the IRS or a qualified tax professional to ensure compliance with the current regulations.
Please remember that the information provided here is general in nature and not intended as legal or financial advice. We are more than happy to discuss your specific situation to ensure that you are compliant.
