For many U.S. Citizens, working in a foreign country can be an exciting opportunity to be exposed in a new environment.  Yet with new opportunities, however, also comes with new risks, as many expats do not recognize that they have U.S. tax filing obligations.  There are many nuances and complexities for U.S. tax laws, of which failure to stay compliant will prove to be costly from heavy penalties.

Here are some common mistakes that US taxpayers living abroad should avoid:

  1. Failing to understand the need to file a tax return when living abroad. Many US taxpayers living abroad have an impression of not being required to file a tax return when earning a Non-US sourced income.
  2. Unaware of their increased compliance requirements when living abroad such as disclosing information about foreign bank accounts, foreign assets, and foreign business ownership to the IRS.
  3. Failure to claim deductions that are available to US taxpayers living abroad. Such deductions could include foreign earned income exclusion, foreign tax credits and foreign housing exclusion or deduction.
  4. Many taxpayers have been involved in virtual currency transactions and failure to report such can result in more penalties for taxpayers.
  5. Failure in understanding the reporting requirements of their complex foreign pay structures and benefits.
  6. Failure in calculating their reportable income accurately due to different tax years between the US and the foreign country.
  7. Unable to take advantage of tax treaty (if any) between the foreign country and the US due to their complex language.
  8. Failure to understand, determine and comply with their state tax filing obligations while working and living abroad.
  9. Failure to calculate and pay estimated taxes due (if any) resulting in increased penalties later.

To avoid making these common mistakes, it is crucial to consult with a tax professional.   Filing a tax return is important especially when you are a US citizen or resident alien living abroad as it requires increased compliance with US tax law of which the burden is placed on the shoulders of a taxpayer. A tax professional can help determine complex tax issues and reduce the chances of misinterpretation of U.S. Law. It is never too late to seek professional tax help and plan your tax finances accordingly.

To determine filing requirement, one may use the online tool from IRS: https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return

 

Disclaimer: This information has been prepared for informational purposes only, and is not

intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors or consult us regarding your own personal tax situation as this article was intended to be general in nature.