How to File Taxes as a US Expat

How to File Taxes as a US Expat

US law requires all Americans - including expats - to file US taxes, reporting their worldwide income.

The US is almost the only country to tax expats on their global income. Furthermore, many Americans abroad have other US reporting requirements too, such as reporting their foreign bank and investment accounts, and their foreign registered business interests.

Avoiding double taxation

American expats who earn over $12,000 (in 2018) or just $400 self-employment income globally are required to file a US federal tax return. They may also have to file a state return, depending on the rules in the state where they last lived and on whether they’ll be returning there, or still have ties there.

The IRS assumes that they owe US tax on their worldwide income, even if they’ve paid tax in another country or if there’s a tax treaty in place between the US and the country where they live.

Expats can avoid double taxation however by claiming either the Foreign Earned Income Exclusion or the Foreign Tax Credit when they file. (It’s occasionally possible to claim both).

The Foreign Tax Credit, claimed on Form 1116, allows expats to claim US tax credits up to the value of foreign income taxes that they’ve already paid abroad.

The Foreign Earned Income Exclusion, claimed on Form 2555, lets qualifying expats simply exclude the first around $100,000 of their earned income from US tax.

These provisions allow most expats not to pay US taxes, as long as they file.

Filing deadlines for expats

Expats often have to file a foreign tax return before filing their US return so that they can claim the US Foreign Tax Credit. As filing dates and processing times in different countries vary, expats get an automatic filing extension until June 15^th, with an additional extension until October 15^th available upon request, should they need extra time.

Reporting foreign accounts

Expats who have over $10,000 in total in foreign bank or investment accounts, whether in one account or spread across several, are required to report all their foreign accounts by filing a Foreign Bank Account Report, or FBAR.

FBARs are filed online to FinCEN, and are due by October 15th.

Penalties for inaccurate, incomplete, or non FBAR filing are very steep, starting at $10,000 a year if the error was unintentional.

Avoiding penalties

The best way to avoid penalties is to ensure that you file, including from abroad. In this age of online finance and international data exchange, the IRS is receiving information from multiple sources, including foreign governments and banks.

Expats who haven’t been filing because they didn’t know they have to can catch up without incurring penalties under an IRS amnesty program called the Streamlined Procedure, so long as they do so voluntarily, before the IRS contacts them.

Seek advice

Filing US taxes from abroad is complex, and expats should always seek advice from a US expat tax specialist.