Tax Treaties and How They Can Help You Save Big

American citizens residing and living abroad should always look out on how to save the most money on their taxes. There are many ways available for you to save money as a US expat, but the one we will go over in this post are tax treaties. Depending on your circumstance it may be highly effective or it may not. Therefore, it is important to understand completely what tax treaties are.

Tax Treaties 

The United States has income tax treaties with several foreign countries. Tax Treaties are a bilateral agreement made by two countries to protect residents from double taxation of passive and active income. In many cases, for your benefits to apply you will need to set up a permanent residence in a foreign country. Take a look on the IRS website to see which countries the United States has a tax treaty with.

If there is no treaty between the United States and the country in which the expat resides in then it is required to pay tax on income the same way as shown on Form 1040NR, U.S. Nonresident Alien Income Tax Return.

You Can Still Be Taxed

Tax Treaties are on of many ways in which you can save money on your taxes. However, this option can be limited due to a “Saving Clause”. This ‘clause’ preserves the right of each country to tax its own citizens and treaty residents as if no tax treaty existed. Most tax treaties have this clause built in. This means that the United States has the ability to tax its residents and citizens on their worldwide income regardless of a tax treaty that is in place.

There are exceptions to this clause. Teachers, students, researches and trainees will find that a tax treaty will exempt you from owing taxes from your home country.

Other Ways To Save

In the event that a tax treaty does not apply to you there are other ways you can still save on your United States Tax return.


Here are just some other ways you can save:

  • Foreign Earned Income Exclusion – This allows you to decrease your taxable income on your 2021 expat taxes by the first $108,700 ($112,000 for 2022).
  • Foreign Tax Credit – On top of the FEIE excluded amount, you can lower your tax bill on any remaining income by certain amounts paid to a foreign government
  • Foreign Housing Exclusion – This exclusion allows for additional breaks from amounts paid towards household expenses that have occurred when living abroad.

These are just some ways you can save so it is highly encouraged that you research the tax rules and regulations between the foreign country you currently reside in and the United States. Knowing the in’s and out’s will help you prepare to file your next US expat tax return and save as much as you can.

Get Help Today

At Americas Tax Firm we are dedicated towards helping you in your tax situation. Seek help today from a licensed professional to guide you through your next tax return so you don’t have to worry.