How to avoid double taxation as a US expat living in Germany

Navigating the tax landscape as an American expat in Germany can be challenging. US citizens residing in Germany need to understand how to effectively manage both their US and German tax obligations to avoid double taxation.

Expats Overseas offer expert services to help you understand what your tax obligations may be.

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Annual tax filing in the US and Germany is mandatory

As a US citizen or Green Card holder living in Germany, you are obligated to file tax returns in the US every year, regardless of your country of residence. The US's citizenship-based tax system means that your worldwide income is taxable. Consequently, you may have to file tax returns in both Germany and the US.

Reducing additional tax liability

Often, you will owe little to no additional taxes to the US if the rules are correctly applied. The taxes paid in Germany can usually be offset against your US tax obligations (form 1116). Several mechanisms facilitate this, such as the tax treaty between the US and Germany, and the Foreign Earned Income Exclusion (form 2555), which exempts the first 120.000 USD of foreign income from US tax (adjusted annually).

US tax filing deadlines and extensions

US expats living abroad are granted an automatic two-month extension for filing US taxes, typically extending the deadline to June 15 (if the day falls on a holiday or the weekend, it shifts).

Further extensions

If you would like to request a further extension on your tax-filing deadline, you can fill out Form 4868. This could potentially prolong the deadline to October 15 or, in some cases, December 15.

Foreign Bank Account Reporting (FBAR) deadline

Remember that the deadline for FBAR (Foreign Bank Account Reporting) is April 15. If you miss this date, however, you are permitted an automatic extension until October 15.

The importance of the FBAR for US expats in Germany

The FBAR asks you to report the highest balances of your foreign bank accounts annually. Your German bank accounts and other non-US accounts are considered foreign in this context.

FBAR filing requirement

If you have a foreign financial interest - or at least one financial account - with a combined value exceeding 10.000 USD, then you are obligated to file an FBAR (Foreign Bank Account Reporting).

Although FBAR filings don't lead to direct taxation, failure to comply can attract substantial penalties.

Filing US tax returns from previous years

If you're behind on your US tax returns from previous years, or you weren't aware of your filing requirements while living in Germany, don't panic. The IRS's Streamlined Procedure allows you to update your filings without penalties. The procedure requires you to submit the last three years of tax returns and the six years of FBARs.

Keeping a US bank account

Maintaining an active US bank account is advisable for receiving potential government benefits like refunds. It also ensures smooth financial transactions, which is particularly crucial for retirees in Germany.

Hiring a US tax advisor

It is strongly advised to consult with tax professionals who are experienced in US and German tax regulations. This is because incorrect filings can lead to double taxation, fines, and / or other legal complications which are often costly to solve.

Expats Overseas: Experts in US taxes for expats

Do you need help understanding your tax obligations as a US expat living in Germany? Expats Overseas, founded by American expats, has a deep understanding of how to accurately apply the USA-Germany Tax Treaty and tax credits.

They offer an easy-to-use tax organiser which helps you to submit your information in just one go. You can also benefit from competitive pricing and a fast turnaround time of just four weeks, once you have sent all the required information and documents.

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