The one thing you can’t run from when you move abroad: is your taxes. As a US Citizen OR even a Green Card Holder, you will still need to file your US taxes every year, even if you are a full-time resident in Italy. This can get a little confusing with trying to understand what taxes you have to claim where especially if you are in Italy as a freelancer or under a work contract. But in the end, it can be a little simpler than you think, let’s have a closer look at Expat taxes in Italy and what you should know.
Expat Taxes in Italy: The US-Italy Agreement
The good news is that the US-Italy Taxation Treaty exists, and you will not be subject to double taxation on income tax, corporation tax, or capital gains. Where it is not covered, you will never have to pay more than the highest tax of the two countries (there is a limit!).
Where tax must be paid depends entirely on where the income is generated, not where it comes from. If you are a full-time resident in Italy and freelancing, you must have a Partita IVA and pay taxes to Italy, even if your clients are from the US.
To avoid double taxation, you can claim the Foreign Earned Tax Credit against US income taxes paid. To do this, file form 1116 when completing your federal tax return. In this form, state how much you made abroad, that you paid taxes to Italy, and are a resident. After this, it is unlikely you will have to pay anything to the US.
If you want to know more about how to fill out this form, have a look at this article. But if you are like most of us, chances are you are filing through online software, and they will walk you through it anyway!
Filing Your US Taxes as an Expat in Italy
If you’re an American living in Italy, it’s important to know how to file your US taxes. The good news is that you won’t have to pay double taxes on income, corporation tax, or capital gains thanks to the US-Italy Taxation Treaty. Where it isn’t covered, you won’t have to pay more than the highest tax of the two countries (there is a limit!).
However, if you’re a full-time resident in Italy and freelancing, you must have a Partita IVA and pay taxes to Italy, even if your clients are from the US. To avoid double taxation, you can claim the Foreign Earned Tax Credit against US income taxes paid. To do this, you need to file form 1116 when completing your federal tax return. In the form, you should state how much you made abroad, that you paid taxes to Italy, and that you’re a resident. After this, it’s unlikely you’ll have to pay anything to the US.
Now, the next question you might have is when do you need to file? The standard deadline to file your taxes is April 18th, but ex-pats get a little extension and can file anytime before June 15th. So, you still have some time to get your taxes done!
When it comes to filing your taxes, there are two options: the old-school method of printing out your forms, filling them out, and mailing them in, or the digital method. If you’re like most people, you probably prefer the digital method. You can use any of your preferred tax software, but keep in mind that they tend to charge you once you indicate that you’re living abroad. Prices range from €25 to a few hundred depending on the software and how much assistance is included.
Programs to File Your Taxes Abroad
In the past, there used to be free file programs available, but unfortunately, they now charge. If you do know of any free programs, please comment below and share them with everyone!
In the past I used TaxAct, which was a bit cheaper, only costing about €50 however, I did run into some confusing parts. And unfortunately, the only way to get in touch with their offered assistance is to provide a US phone number, and due to a few system errors, I ended up having to print and mail my taxes. So while it was cheaper, it was a bit of a hassle.
However, another popular option is MyExpatTaxes, which allows you to do it yourself or follow along with a professional for extra help. Their do-it-yourself e-filing system, plus customer support costs €149, while if you need more professional review, and year-round coverage you may opt for their Professional package (€269). Find out more here.
Filing your US taxes as an ex-pat in Italy can seem overwhelming, but with the right information and tools, it can be done easily and efficiently. Remember to take advantage of the US-Italy Taxation Treaty and the Foreign Earned Tax Credit, and choose the filing method that works best for you.
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