Many US expats are often confused about filing taxes when living abroad especially in Australia since there is a double taxation treaty between the US and Australia.
This treaty basically states (my words not theirs) that if you pay tax in Australia on your earnings, you will not also have to pay tax on those same earnings to the United States. Here is the link to that tax treaty: US tax treaty with Australia.
Obviously, if you are working in Sydney you will be paying Australian taxes as tax will be deducted from your monthly paycheck.
You still have to file US taxes when living abroad!
That’s right. Even if you do NOT owe any US tax, you still have to file each year you live abroad. It is very important that you keep up with your US tax record as it will catch up with you when you move back to the States and the consequence can be costly.
If you do have a source of income in the States while living abroad in Australia then your taxes might be more complicated as you will have to claim that income and pay tax on it. For example, renting out your house back in the US while living in Sydney is income and needs to be reported. Or if you have earned any significant interest from investments or from a bank account you will need to report that.
The good news is any US tax paying citizen (and resident alien) is automatically allowed a 2-month extension to file your return and pay any federal income tax that is due.
Be sure to read all the info on the Foreign Tax Credit, Form 1116 and to look over the FAQs, they are often easier to understand than the manuals or form instructions.
We use Turbo Tax, the paid version not the free version, as it keeps a record if you ever need it sometime in the future. It also does a nice job of walking you through each step and doesn’t take that long to complete. Our taxes are very simple since we do not own property in the States or Australia, or have other complications.