U.S. TAX GUIDE IN BRAZIL
Can you use Brazilian income tax to offset US taxes?
Yes, you can.
If you’re a US expat working in Brazil and paying income tax there, you can use the Foreign Tax Credit (FTC) to offset your US taxes. This means you won’t have to pay taxes twice on the same income.
When you file your US tax return, you’ll report the amount of income tax you paid in Brazil. The FTC will then reduce your US tax liability by the amount you paid in Brazil. This way, you avoid being double-taxed on the same income.
Table of Contents
Can you combine the Foreign Earned Income Exclusion with the Foreign Tax Credit?
Yes, in some scenarios.
Combining the Foreign Earned Income Exclusion (FEIE) with the Foreign Tax Credit (FTC) is possible. If you qualify for the FEIE, you can exclude up to a certain amount of your foreign-earned income from US taxation (up to US$126,500 for 2023).
After applying the FEIE, you can still use the FTC to offset any remaining US tax liability on income that wasn’t excluded.
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.
Additionally, you could use the FTC to reduce or eliminate the US taxes owed on that US$23,500 by claiming a credit for the Brazilian taxes you paid on that income.
What deductions can you claim on your US tax return as an expat in Brazil?
Standard Deduction
The standard deduction is the easiest to claim because it’s automatic and doesn’t require you to provide receipts or proof of expenses.
However, the amount varies depending on your filing status:
- Single: US$14,600 (2024)
- Married Filing Jointly: US$29,200 (2024)
- Itemized Deductions
If you have significant expenses, consider itemizing your deductions instead of taking the standard deduction.
Common itemized deductions include:
- Medical and Dental Expenses: If they exceed a certain percentage of your income.
- Mortgage Interest: On your primary and second home.
- Charitable Contributions: Donations to qualified organizations.
- Foreign Housing Exclusion
If you qualify for the Foreign Earned Income Exclusion, you might also be eligible for the Foreign Housing Exclusion.
This allows you to deduct certain housing expenses, like rent and utilities, from your income. The exclusion amount depends on where you live in Brazil, with specific limits set by the IRS.
Can I combine my deductions?
Yes, it’s possible to combine some deductions and exclusions.
Let’s say you’re a single US citizen living in Brazil, earning US$100,000 a year. You qualify for the FEIE, so you exclude US$100,000 from your US tax return.
You also pay US$10,000 in Brazilian income tax. With the FEIE and FTC, you may end up paying little to no US tax on your income.
What are the most common deductions?
Here are common tax deductions US expats can use, besides the big ones like the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC):
- Contributions to a Traditional IRA: If you qualify, you can deduct the money you put into a Traditional IRA from your taxable income.
- Student Loan Interest: You can deduct up to US$2,500 of the interest you paid on student loans.
- Self-Employment Taxes: If you’re self-employed, you can deduct the part of your taxes that your employer would normally pay.
- Health Savings Account (HSA) Contributions: You can deduct money you put into an HSA, which can be used for medical expenses.
- Moving Expenses: While limited, some expats can still deduct moving costs related to a job abroad.
- Charitable Donations: You can deduct donations to US charities if you itemize your deductions.
- Mortgage Interest: If you own a home and pay mortgage interest, you can deduct this from your taxable income.
Are there limits on tax deductions?
Yes, there are limits on how much you can deduct, especially if you have a high income or claim 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. So, 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 FHE Limits: The Foreign Earned Income Exclusion lets you exclude up to US$126,500 of your foreign income in 2024. If you make more than that, the extra income is taxed by the US.
The Foreign Housing Exclusion also has limits based on your housing expenses and where you live.
- Itemized Deduction Phase-Out: If you make a lot of money, some of your itemized deductions might be reduced.
- State and Local Tax Deduction Cap: You can only deduct up to US$10,000 per year for state and local taxes paid.
- Retirement Account Contribution Limits: There’s a limit on how much you can put into retirement accounts like IRAs each year.
What is Capital Loss carryforward?
If you sell an investment for less than you paid, you can use that loss to offset any gains from other investments.
This means if your losses are bigger than your gains in a given year, you can “carry forward” the leftover loss to reduce your taxable income in the future. the road.
