El Salvador is on the cusp of becoming a major US expat destination. It is estimated there are already 20,000 American expats in El Salvador. What do you need to know about US tax obligations?
All US citizens and green card holders anywhere in the world are required to file a US federal tax return to the IRS, regardless of where in the world they live or work.
The good news is if you are paying income tax in El Salvador, there are various exclusions and exemptions available to prevent you from paying double tax on the same income.
In the US, the income tax return is also called a form 1040. If you earned more than US$12,550 (in 2021, or $400 of self-employment income), you are required to file Form 1040.
While any US taxes due are still due by April 15, Americans who are living abroad get an automatic postponement of 2 months until June 15, which can be extended further on request until October 15.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
The US and Salvadoran governments share taxpayer info, and Salvadoran banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The IRS is very harsh in assessing penalties for failure to file FBARs or for incorrect FBAR filings.
If you’re a US citizen, green card holder, or US Salvadoran dual citizen, and you have been living in El Salvador but you didn’t know you had to file a US tax return: there’s a program called the Streamlined Procedure that allows you to catch up on your filing without paying any IRS penalties.
President of El Salvador Nayib Bukele, made bitcoin legal tender in 2021. And, in contrast to US tax law, exchanges in Bitcoin made in El Salvador will not be subject to capital gains tax, ‘just like any legal tender’, states the law.
However, under US tax law there’s no similar treatment for Bitcoin at the moment because it’s not a foreign currency. As a result, when you spend your Bitcoin, say to buy a car, you pay capital gains tax—up to 37%—on the difference between how much you paid for the Bitcoin and how much you cashed it out. Almost every Bitcoin transaction may be taxable and should be reported.
American Overseas offers expat tax service for American expats in El Salvador, US persons living and working abroad, and green cardholders.
International taxation is a quite complex and specialized area. Americans Overseas offers a large independent network of US tax accountants and financial planners, specialized for Americans living abroad. Avoid double taxation and choose affordable advice.
Americans Overseas refers you free of any obligation and free of costs. Whether you’re employed or have a small business, we’ll make your life easier with a good, affordable tax advisor for your specific financial situation.
Contact us for more information