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U.S. EXPAT TAX GUIDE โ€“ BRAZIL

How can US expats use Brazilian income taxes to reduce US taxes?

If you’re a US expat working in Brazil and paying income tax there, you can use the Foreign Tax Credit (FTC) to reduce your US tax bill.

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This means you wonโ€™t have to pay taxes twice on the same income. When you file your US tax return, you report the income tax you paid to Brazil, and the FTC helps lower your US tax liability by that amount, avoiding double taxation.

Can US expats combine the Foreign Earned Income Exclusion and Foreign Tax Credit?

Yes, in some situations, you can combine the Foreign Earned Income Exclusion (FEIE) with the Foreign Tax Credit (FTC).ย 

If you qualify for the FEIE, you can exclude up to US$126,500 of your foreign income from US taxes in 2024. After using the FEIE, you can still apply the FTC to any remaining taxable income.

For example, if you earned US$150,000 in Brazil, you could use the FEIE to exclude US$126,500. The remaining US$23,500 would still be subject to US taxes.ย 

You could then use the FTC to offset or eliminate US taxes on that US$23,500 by claiming a credit for the Brazilian taxes you paid on that amount.

What types of deductions can US expats in Brazil claim on their US tax return?

  • Standard Deduction: This is the simplest option because it doesnโ€™t require any documentation or proof of expenses. The standard deduction for 2024 is:
    • Single: US$14,600
    • Married Filing Jointly: US$29,200
  • Itemized Deductions: If you have significant expenses, you may prefer to itemize your deductions. Common itemized deductions include:
    • Medical and Dental Expenses: If they exceed a certain percentage of your income.
    • Mortgage Interest: On your primary and secondary homes.
    • Charitable Contributions: Donations to qualified organizations.
  • Foreign Housing Exclusion: If you qualify for the FEIE, you may also be eligible for the Foreign Housing Exclusion. This lets you deduct housing expenses like rent and utilities. The amount you can exclude depends on where you live in Brazil, as the IRS sets specific limits.

Is it possible to combine deductions and exclusions?

Yes, you can combine certain deductions and exclusions. For instance, if youโ€™re a single US citizen living in Brazil earning US$100,000 a year, you could use the FEIE to exclude US$100,000 from your US tax return.ย 

In addition, if you paid US$10,000 in Brazilian income tax, you could use the FTC to reduce your US tax liability even further.

What are the most common deductions US expats in Brazil use?

Beyond the FEIE and FTC, there are several common deductions that US expats might benefit from:

  • Traditional IRA Contributions: You can deduct contributions made to a Traditional IRA if you qualify.
  • Student Loan Interest: You can deduct up to US$2,500 in interest paid on student loans.
  • Self-Employment Taxes: If you’re self-employed, you can deduct the part of your taxes that an employer would normally cover.
  • Health Savings Account (HSA) Contributions: Contributions to an HSA can be deducted, and the funds can be used for medical expenses.
  • Moving Expenses: In some cases, expats may deduct moving costs related to work abroad.
  • Charitable Donations: Donations to US-based charities can be deducted if you itemize.
  • Mortgage Interest: Interest paid on a mortgage for your home can also be deducted.

Are there limits on the tax deductions US expats can claim?

Yes, there are limits on how much you can deduct, particularly if you have a high income or are using certain exclusions or credits:

  • Foreign Tax Credit Limit: You can only claim a credit up to the amount of US tax owed on your foreign income. For example, if you owe US$10,000 in US taxes on foreign income but paid US$12,000 in Brazilian taxes, you can only claim US$10,000 as a credit.
  • FEIE and Foreign Housing Exclusion Limits: The FEIE allows you to exclude up to US$126,500 of your foreign income in 2024. Any income above this amount will be taxed by the US. The Foreign Housing Exclusion also has specific limits based on your housing costs and where you live.
  • Itemized Deduction Reduction: If your income is very high, some itemized deductions may be reduced.
  • State and Local Tax Deduction Cap: You can only deduct up to US$10,000 per year for state and local taxes.
  • Retirement Account Contribution Limits: There are annual limits on how much you can contribute to retirement accounts like IRAs.

How does capital loss carryforward work for expats?

Capital loss carryforward is a way to use investment losses to reduce your taxes in future years. If you sell an investment for less than you paid for it, you can use that loss to offset gains in the same year. If your losses are greater than your gains, you can carry the leftover loss forward to offset gains in future tax years.

This can be beneficial for expats who have investments, as it provides a way to minimize tax liability over several years.

Can US expats in Brazil reduce their tax liability with retirement contributions?

Yes, making contributions to retirement accounts like a Traditional IRA or a 401(k) can help reduce your US tax liability.ย 

If you qualify, you can deduct contributions to a Traditional IRA, which lowers your taxable income.ย 

However, there are income limits that determine eligibility for these deductions, so itโ€™s important to check whether you qualify based on your earnings.

What are some common mistakes expats make when filing US taxes?

  • Not Filing at All: Some expats mistakenly believe they don’t need to file US taxes if they live abroad, but US citizens must file regardless of where they live.
  • Missing the Foreign Bank Account Report (FBAR): If you have foreign bank accounts with a total value of more than US$10,000 at any point during the year, you need to file an FBAR to report those accounts to the US Treasury.
  • Incorrectly Claiming FEIE or FTC: Applying the FEIE or FTC incorrectly can lead to issues, such as overpaying or underpaying taxes.
  • Double Counting Income: Some expats might accidentally count the same income twice if theyโ€™re unsure how to coordinate their Brazilian and US tax filings.

Why partner with a specialist Expat accountant?

Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.

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