U.S. EXPAT TAX GUIDE – INDIA

Can US expats in India use standard or itemized deductions for their taxes?

Yes, US expats living in India have the choice to use either the standard deduction or itemize their deductions, but they can’t do both at the same time.

Many US citizens and Green Card holders prefer the standard deduction because it’s straightforward, while others with larger deductible expenses may benefit more from itemizing.

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What are standard and itemized deductions, and how are they different?

The standard deduction is a fixed amount that reduces your taxable income automatically without needing to list individual expenses. For the 2025 tax year, the standard deduction amounts are:

Single: US$15,000
Married Filing Jointly: US$30,000
Head of Household: US$22,500

Taxpayers aged 65 or older are also eligible for an additional deduction.

Itemized deductions require listing specific eligible expenses you paid during the tax year. You should itemize if these expenses add up to more than the standard deduction.

Here are some common itemized deductions:

Mortgage Interest: Interest paid on a home mortgage.
State and Local Taxes (SALT): State, local income, sales, and property taxes, up to a limit of US$10,000.
Medical and Dental Expenses: Medical costs exceeding 7.5% of your adjusted gross income (AGI).
Charitable Donations: Contributions to qualified charities, including both money and goods.
Property Taxes: Property taxes you pay on your home, within the SALT cap.
Investment Interest Expense: Interest paid on money borrowed for investments.
Gambling Losses: Losses from gambling, but only up to the amount of your winnings.
Casualty and Theft Losses: Losses due to federally declared disasters.
Unreimbursed Employee Expenses: Some work-related expenses that your employer didn’t reimburse, subject to strict limitations.

How often can US expats choose between standard and itemized deductions?

US expats can decide between the standard deduction and itemized deductions each year when they file their taxes. You can only choose one option each year, so it’s important to reassess your expenses annually to determine which approach will save you the most money.

When is it better for US expats to itemize deductions?

Although many expats choose the standard deduction for simplicity, there are cases when itemizing makes more sense. If you have high medical costs, significant mortgage interest payments, or make large charitable contributions, itemizing may give you a bigger deduction.

For example, US expats in India who have high out-of-pocket medical expenses or a large mortgage could find that itemizing deductions reduces their taxable income more effectively than the standard deduction, lowering their total tax bill.

Is it possible for US expats to claim the standard deduction while living in India?

Yes, US citizens and Green Card holders living abroad can use the standard deduction. Whether you’re living in India or elsewhere, you’re eligible for the standard deduction, which helps reduce your taxable income without needing to detail specific expenses.

Are there extra deductions available for older expats?

Yes, taxpayers who are 65 or older can claim an additional deduction. In 2024, the extra deduction amounts are:

US$1,850 for Single or Head of Household filers.
US$1,500 per spouse for Married Filing Jointly.

Why is it helpful for expats to work with a tax professional when choosing deductions?

Choosing between the standard deduction and itemizing can be challenging, especially for expats with unique financial situations. A tax professional can help you understand your best option by evaluating your income and expenses.

For US expats living in India, working with a tax expert who understands both Indian and US tax systems can help you identify deductions and credits that might otherwise be missed, ensuring you get the maximum tax benefits available.

How do deductions interact with the Foreign Tax Credit (FTC)?

Your choice of deductions—standard or itemized—can also affect other tax strategies, such as the Foreign Tax Credit (FTC). If you’ve paid taxes to the Indian government, the FTC can reduce your US tax bill and help prevent double taxation.

Sometimes itemizing can make it easier to align your expenses with other credits, such as the FTC, depending on the kinds of deductions you claim.

What common mistakes should US expats avoid when choosing deductions?

One common mistake is not reassessing your deduction choice each year. Your financial circumstances can change, meaning the deduction method that saved you money last year may not be the best option this year.

Another mistake is not keeping adequate documentation for itemized deductions. If you decide to itemize, you need to keep detailed records of all your deductible expenses. Without proper documentation, the IRS might reject your deductions, which could increase your tax liability.

Finally, some expats wrongly think they cannot claim deductions if they use other tax exclusions, like the Foreign Earned Income Exclusion (FEIE). In fact, you can still claim the standard or itemized deductions along with exclusions like the FEIE, as long as the deductions and exclusions apply to different types of income.

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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