When relocating to Ecuador, you might still have to worry about paying taxes back in the United States. Meanwhile, you might also have tax obligations in Ecuador. Balancing both can be difficult, and you should seek help.
Even if you leave the United States, you might still be legally obligated to file taxes if you retain your U.S. citizenship. Even people living abroad in places like Ecuador cannot escape their U.S. tax obligations. While living in Ecuador, you should check if you are considered a legal tax resident. If you are, you may be required to pay Ecuadorian taxes, even if you are not a full-fledged citizen. Paying taxes in two countries can become very expensive very quickly. To reduce your tax obligations, talk to our team about possible tax credits, exclusions, or other breaks that might help you save money. For example, income earned from foreign sources may be excluded from your U.S. taxes, and you might receive credits or deductions for certain expenses you incur abroad.
Contact our team at US Tax Help by calling (541) 362-9127 to get assistance filing your taxes.
How to Pay Taxes While Living Abroad in Ecuador
Moving to a new country like Ecuador can be exciting. The prospect of a new life in a new country might be a dream come true for some. While you are busy planning your big move, you should take the time to consider the tax implications of living in Ecuador as a U.S. expat.
Paying Taxes in the United States
Moving to another country does not relieve you of your tax obligations in the United States. The U.S. government taxes its people based on their worldwide income. This means that even if you are living and working in another country, your income may still be taxed in the United States. People who perhaps live and work in Ecuador while retaining their U.S. citizenship must remember to pay their U.S. taxes.
Even if you became a citizen of Ecuador and renounced your U.S. citizenship in the process, you might still owe U.S. taxes. You might have to file taxes for the last year you were a U.S. citizen. Our team at US Tax Help can help you file your taxes in the United States while checking to see if you have future tax obligations (i.e. if you are still a U.S. citizen) or if you no longer have tax obligations in the U.S. (i.e., you renounced your citizenship).
Paying Taxes in Ecuador
You might not necessarily be a citizen of Ecuador after moving there from the United States. Even if your ultimate plan is to become an Ecuadorian citizen and renounce your U.S. citizenship, this process takes time. You might have tax obligations in the United States and Ecuador, at least for a while.
The first issue to tackle is your tax residency status in Ecuador. In short, a person deemed a legal tax resident of a particular country is obligated to pay taxes in that country. Each country makes its own rules regarding tax residency. As such, you must follow Ecuadorian law to determine if you meet the criteria for a legal tax resident.
According to the Organization for Economic Cooperation and Development (OECD), a person may be considered a tax resident of Ecuador under the following circumstances:
You have stayed in Ecuador for at least 183 calendar days during the same fiscal period. These days need not be consecutive.
You have stayed in Ecuador for at least 183 calendar days, consecutive or not, during a 12-month period across 2 fiscal years. You may negate Ecuadorian tax residency here if you can show you had a fiscal residence in another country during this time.
Your main nucleus of economic interests and activities is in Ecuador. In short, if the majority of your business holdings, financial interests, and income come from Ecuador, you might be deemed a tax resident.
Finally, you might be a tax resident of Ecuador if you live there and have not stayed in another country for more than 183 days during a fiscal year and your family ties keep you in Ecuador.
Talk to our team if you are unsure of your tax residency status. We can review your income, where you live, family and community ties, and any other details that might make you a tax resident.
Taking Steps to Minimize Tax Obligations as a U.S. Expat Living in Ecuador
Expats might have a few legal options to help them minimize their tax obligations in the United States. Talk to our team about which of these might work for you. Alternatively, there might be tax options worth looking into.
Foreign Tax Credit
If you are a tax resident of Ecuador, you might have already paid Ecuadorian taxes. If so, you may claim a foreign tax credit on your U.S. taxes. Essentially, a foreign tax credit allows you to deduct the money you paid in taxes to a foreign government. For example, if you owed the Ecuadorian government $3,000 in taxes, you may deduct this sum from your U.S. taxable income.
You may claim the foreign tax credit on Form 1116 when filing your U.S. taxes. If you take the tax credit, other options, like the foreign-earned income exclusion, might be unavailable.
Foreign Housing Deduction or Exclusion
Living abroad means paying for various daily living expenses. Under certain circumstances, you may deduct some of these expenses from your U.S. taxable income. Perhaps one of the biggest expenses is related to housing. As such, you may claim a foreign housing exclusion or deduction.
How this works depends on how you pay for certain housing expenses. If an employer provides you with housing, the value of which is considered taxable income, you may take this as an exclusion from your U.S. taxes. If you pay for housing with self-employment earnings, you may take it as a deduction.
Foreign-Earned Income Exclusion
Living in Ecuador might also mean working there. If your income is derived from Ecuadorian sources, you may claim the foreign-earned income exclusion. Remember, the United States taxes you based on your worldwide income. However, income from foreign sources may be excluded up to a certain amount. For 2024, this amount is $126,500. If you earned under this amount, your entire income from Ecuador may be excluded from your U.S. taxes.
Contact US Tax Help for Assistance Today
Contact our team at US Tax Help by calling (541) 362-9127 to get assistance filing your taxes.