U.S. TAX GUIDE IN CHILE
What can I deduct from my tax as a US expat in Chile?
The two main options you’re looking at are the standard deductions and itemized deductions.
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In 2024, the standard deduction amounts are:
- Single: US$14,600
- Married Filing Jointly: US$29,200
- Married Filing Separately: US$14,600
- Head of Household: US$21,300
So, if you file as a single individual and earned US$50,000 in 2024, you could subtract the US$14,600 standard deduction, leaving US$35,400 as your taxable income.
What are itemized deductions?
If you’ve had certain large expenses during the year, you might benefit from itemizing your deductions instead. This involves listing specific costs like medical bills, mortgage interest, and charitable donations to see if they add up to more than the standard deduction.
However, many US expats living in Chile find it’s hard to meet the threshold for itemizing.
Here’s a few of the major expenses you can itemize:
- Medical and Dental Expenses: You can deduct medical expenses that are more than 7.5% of your adjusted gross income (AGI). This means if your income is US$100,000, you can only deduct medical costs that exceed US$7,500.
- Mortgage Interest: If you own property in Chile and pay mortgage interest, you might be able to deduct it.
- Charitable Donations: Donations to qualifying US charities can also be deducted, up to 60% of your AGI.
- State and Local Taxes: Since you live abroad, you might not have US state or local taxes to pay, but if you do, these can be deducted too.
Can expats in Chile actually benefit from itemizing?
It really depends. For most expats, the standard deduction is more beneficial. Itemizing often doesn’t add up to a higher deduction unless you have significant medical bills or other major expenses.
For example, let’s say you had US$5,000 in medical expenses, US$2,000 in charitable donations, and US$1,000 in mortgage interest. That adds up to US$8,000, which is far less than the standard deduction for someone filing as single (US$14,600). In this case, taking the standard deduction is the better option.
Can I use the FEIE and FTC with the standard deduction?
Yes. The standard deduction can be claimed alongside the FEIE or FTC. This means you can reduce your taxable income even further.
- FEIE: If you qualify, you can exclude up to US$126,500 of foreign-earned income from US taxation (in 2024). This is especially useful if you earn under this limit while living in Chile.
- FTC: If you pay income tax to Chile, you can claim a credit for those taxes to offset your US tax liability. This is particularly helpful for high-income earners.
Here’s an example:
Let’s say you’re a US expat in Chile filing as single. You earn US$90,000, and you qualify for the FEIE. You can exclude the first US$90,000 of your income, leaving US$0 taxable income.
The standard deduction still applies, even if you owe no taxes. This makes filing easy and keeps you from needing to itemize.