What Expats Need to Know About US Taxes

Written by Ines Zemelman - founder of Taxes for Expats

As technology advances, the world gets smaller. More and more people are choosing to take the leap of leaving their country and expanding their view of the world. Living abroad gives a person a different view that allows them to grow and realize their full potential. But, even while living abroad American expats must think about the taxes they owe to the US. This article will introduce you to a few of the things expats must think about before filing their US taxes.

You get an automatic extension

Although most Americans must file their taxes by April 15th, expats get an automatic extension until June 15th. American expats can request a further extension until October 15th.

FATCA and FBAR are additional requirements

Any expat with more than USD 10,000 located in foreign banks or investments must report this according to FBAR (Foreign Bank Account Reporting) rules. This also applies to any person who has signatory authority on the accounts. Taxpayers with over USD 200,000 of foreign assets must also file Form 8938.

You can still submit late returns

The IRS realized that many US expats did not know about the filing requirements, so they began a program called Streamlined Procedure. This allows taxpayers to submit their old tax returns with no fear of penalty. Expats earning abroad are allowed to file up to three years of past returns and up to six years of FBAR reports if they declare that failing to file was not willful.

If the tax returns show back taxes or interest is due, it must still be paid. With the number of exemptions available the taxes owed are usually minimal. Keep in mind that the FATCA rules are being enforced aggressively by the IRS, and the IRS will quickly find instances of non-compliance. If a taxpayer receives an IRS notice before they file their overdue returns, the option of claiming exemptions on these returns is not available.

Exemptions

There are several possible exemptions, but the two most popular are the Foreign Tax Credit, or FTC and the Foreign Earned Income Exclusion, or FEIE. By filing Form 2555, taxpayers can claim exemption from taxes on the first USD 100,000 in foreign earned income. Claiming the Foreign Earned Income Exclusion (FEIE) requires the taxpayer to prove their residency abroad.

If an expat pays tax in their country of residence, they can use Form 1116 to claim a tax credit for that foreign tax paid. Taxpayers are allowed to carry any excess credits forward to future years.

There is also a Foreign Housing Credit that can be used.

State taxes are probably still due

Most expats must still file their state tax returns. Unless you have moved permanently abroad and no longer have any family or financial relationships in the last state in which you lived, you most likely are required to file a state tax return.

In Summary

Taxes for American expats are complicated. Your best line of defense is to enlist the help of the tax professionals at Taxes for Expats to ensure you comply with all of the tax laws.

This article has been sponsored by TFX (Taxes for Expats).