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What Arab-American Citizens Must Know About US Taxes in Saudi Arabia

posted on: Jul 9, 2024

Living abroad as a dual citizen offers exciting opportunities, but it also involves navigating complex tax obligations. Arab-American citizens and resident aliens in Saudi Arabia must still file US taxes, including the 1040 tax return and other important documents. Here’s what you need to know about filing US tax in Saudi Arabia to stay compliant.

Why Do Arab-American Citizens in Saudi Arabia Need to File US Taxes?

The United States requires all citizens and resident aliens, including those living abroad, to file an annual tax return with the IRS. This includes reporting global income, such as earnings in Saudi Arabia. Failing to file can lead to severe penalties. Filing US tax in Saudi Arabia is essential to avoid these consequences.

Key Deadlines for Arab-American Citizens

Arab-American citizens are granted an automatic two-month extension to file their returns, making the due date June 15 instead of April 15. However, any taxes owed must still be paid by April 15 to avoid interest charges. Additionally, Arab-American citizens can request further extensions until October 15 if needed.

What is a 1040 Tax Return?

Form 1040 is the standard IRS form that US citizens and resident aliens use to file their annual income tax returns. For expats, this form is crucial as it reports all global income and calculates any taxes owed or refunds due.

How Do I File a 1040 Tax Return from Saudi Arabia?

Filing a 1040 tax return while residing in Saudi Arabia involves several steps:

  1. Gather Necessary Documents: Collect all your income statements, including W-2s, 1099s, and any foreign income documentation.
  2. Calculate Your Income: Include all income sources, both domestic and foreign.
  3. Utilize Foreign Earned Income Exclusion (FEIE): If you qualify, you can exclude up to a certain amount of foreign earned income from your taxable income.
  4. Claim Foreign Tax Credits: If you pay taxes in Saudi Arabia, you may be eligible for foreign tax credits, which can reduce your US tax liability.
  5. Submit Your Return: You can file your tax return electronically through the IRS e-file system or mail it to the appropriate IRS office.

Key Considerations for Arab-American Citizens

What is the Foreign Earned Income Exclusion (FEIE)?

The FEIE allows expats to exclude a certain amount of foreign earned income from their US taxable income. For the tax year 2023, this amount is $112,000. To qualify, you must meet the bona fide residence test or the physical presence test.

What is the Foreign Tax Credit (FTC)?

The FTC allows expats to offset their US tax liability with the amount of income tax paid to a foreign country. This credit helps prevent double taxation, ensuring you are not taxed twice on the same income.

Do I Need to Report Foreign Bank Accounts?

If your foreign financial accounts go over $10,000 at any time in the year, file a Foreign Bank Account Report (FBAR) using FinCEN Form 114. It’s separate from your tax return, due electronically by April 15, with an extension to October 15.

What Are Common Mistakes Expats Make When Filing US Taxes?

  • Failing to File: Some expats wrongly assume they don’t need to file US taxes if abroad, risking severe penalties. For instance, not filing an FBAR can incur up to $10,000 per violation.
  • Ignoring Deadlines: Missing extended deadlines leads to penalties and interest. Late tax returns can result in a penalty of 5% of unpaid taxes per month, up to 25% total.
  • Overlooking Foreign Income: All global income must be reported, even if excluded from US tax. Not reporting can trigger audits and penalties.
  • Not Filing FBAR: Failure to report foreign accounts can lead to hefty penalties. Willful non-filing can result in a penalty of $100,000 or 50% of the account balance.

How Can Expats Ensure Compliance?

  • Stay Informed: Stay updated on US tax laws and regulations, which may change. The IRS website offers valuable information and updates on tax laws affecting expatriates.
  • Seek Professional Help: Consider hiring a tax professional specializing in expat taxes for accurate and timely filing. They can navigate complex tax situations, maximize eligible deductions and credits, and provide peace of mind.
  • Use Tax Software: Tax software programs for expats, like TopTax.AI, simplify filing with step-by-step guidance, calculations for foreign earned income exclusions, and accurate form completion.

By understanding your tax obligations, utilizing available exclusions and credits, and avoiding common pitfalls, you can manage your US tax responsibilities efficiently while living in Saudi Arabia.