How to File Your US Taxes from Taiwan
If you have moved abroad to start a business or teach English then you might be tempted to forget about all the bureaucracy in the US and not file your taxes. While this probably won’t matter much in the short term, in the long term your unfiled taxes could come back to haunt you.
Filing keeps Uncle Sam happy and you should still file even if you don’t make or owe any money. Another benefit is that if you select direct deposit for your refund, then you will get your refund AND stimulus checks fast. I didn’t even know the latest House Bill had completely passed and I already had the $600.00 stimulus check automatically deposited into my bank account.
How to File Taxes as an Employee or English Teacher in Taiwan
If you are working in Taiwan as an employee of a company or an English teacher then your employer should take care of your Taiwan taxes for you. You will also be paying some tax in Taiwan depending on how much you make and how many days you stay in the country so you will not owe any US taxes on this amount (unless you make more than $107,600 USD/year).
This is due to the Foreign Earned Income Exclusion which allows your to “exclude” up to $107,600 USD in income from your taxes (updated for 2020).
How to File Taxes for Freelancers or Business Owners in Taiwan
Things get a little bit more complicated when you are not an employee and you are living abroad but don’t lose hope yet! If you are in this situation then it is even more important that you file your taxes and declare all of your income (and in some cases your bank accounts). This is because self-employed people generally need to self report their taxes and are sometimes held under greater scrutiny by the IRS because it is easier to under report your taxes if you are self employed.
The first thing to make sure of is that you qualify for the Foreign Earned Income Exclusion,
You can do this through either the Bona Fide Residence Test OR the Physical Presence Test.
Bona-Fine Residence Test: This basically means that you are a resident (not citizen) of the foreign country you are staying in. So in Taiwan this means that you will have an ARC (Alien Resident Certificate). If you are running a business and living in Taiwan, then opening a Branch Office (Representative’s Office) in Taiwan is the easiest and cost effective way to do this. I’ve been doing this for 4 years and it has helped me save on both my US taxes Taiwan taxes and has given me access to Taiwan’s National Health Insurance, contact me here to learn more.
Physical Presence Test: This means that you have been physically present in a foreign country or foreign countries (other than the US) for at least 330 full days during a 12 consecutive month period. The 330 days do not have to be consecutive but time spent traveling (flying between countries) does not count so you really need to double check your travel itinerary and make sure that you don’t spend too many days back in the US.
Remember, you only need to qualify for 1 of these tests. So if you are a Bona Fide Resident, you don’t need to qualify for the Physical Presence Test and you have some more leeway with your travel plans and time spent back in the US.
If you don’t qualify this year then just file your taxes as a regular US Citizen.
Because as far as the IRS is concerned, you are still living there and need to file taxes.
If you do qualify for the Foreign Earned Income Exclusion then you will need to make sure that you fill out Form 2555 so that you can declare your foreign earned income.
You will be able to deduct up to $107,600 USD of foreign earned income for this years taxes (2020) and it usually goes up by a few thousand dollars a year to keep up with inflation.
There are two common mistakes people make when filing the Foreign Earned Income Exclusion:
The first is forgetting about the “earned” part. This means that you need to be doing work to “earn” your wages. You can still do this as a business owner but it cannot be through passive investments.
The second is not paying self-employment tax. If you are an English teacher or employee of a Taiwanese company who derives all of their income from their employer, then you shouldn’t have to worry to about this. But if you are a business owner then you will most likely need to pay self employment taxes.
Filing Your Taxes from Taiwan
No matter if you are a digital nomad with no income or a business owner running a seven figure FBA business, filing your taxes will keep the IRS happy, helps you get your stimulus checks faster and can benifit you if you ever decide to move back to the US. Filing can also be done for free and if you’re an employee then it should be pretty quick and relatively straight forward.
Owning your own business will make your taxes a little more complicated but you can still file for free or enlist the help of a CPA.
I have paid accountants in the past but have filed my own taxes with E-file the past couple of years. E-file is authorized by the IRS and free for the basic option.
I am not a certified public accountant and the opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific tax strategies. It is only intended to provide education so always do your own research and consult with a certified public accountant.