Tax filing can be a daunting task for an expatriate, but with the right support, you can fulfil your obligations with confidence. Below, we answer some of the most frequently asked questions about filing taxes while living abroad.

Q: If I live abroad, do I still have to file U.S. taxes?

A: U.S. citizens and green card holders must file federal taxes no matter where they live. Because the U.S. taxes its citizens on worldwide income, you must report all income earned in the U.S. and overseas if your income levels meet the thresholds.

Q: What is the Foreign Earned Income Exclusion (FEIE)?

A: The FEIE allows you to exclude a specified amount of foreign-earned income from U.S. taxation, which is annually indexed for inflation. For 2024 and 2025 tax year, the exclusion is as high as $126,500 and $130,000 respectively. You must satisfy either the Bona Fide Residence Test or the Physical Presence Test to qualify.

Q: How can I avoid being taxed twice?

A: The U.S. has agreements in place with numerous nations to prevent or reduce double taxation:

  • Foreign Tax Credit (FTC): You can claim a credit on foreign taxes you paid or accrued to reduce your U.S. tax liability.
  • Tax Treaties: See if there is a tax treaty between the U.S. and the country where you are living. Treaties often cover special tax issues like pensions, self-employment or investment income.

Q: What forms should I file?

A: Some of the key forms include:

  • Form 1040: The standard U.S. individual tax return.
  • Form 2555: For the FEIE.
  • Form 1116: for the Foreign Tax Credit.
  • FBAR (FinCEN Form 114): If the total value of your foreign accounts is more than $10,000 at any point during the year.
  • Form 8938: For certain foreign financial assets if certain thresholds are reached.

Q: When are taxes due for expats?

A: The deadline for filing normally is April 15th. But taxpayers living abroad get an automatic two-month grace period, until June 15th. If you need more time, you can file Form 4868 to push your deadline to October 15th. Note that extension to file is not an extension for payment, and all payments should be made on April 15th or before to avoid additional interests and penalties.

Q: What if I don’t file?

A: If you don’t file your tax return, you will face a failure to file penalty of 5% for each month on any unpaid taxes, capping at 25%. For serious delinquencies, the IRS can take enforcement actions, including passport restrictions or criminal prosecution.

Q: Are there any tools to make expat tax filing easier?

A: Definitely!

  • Seek Help: Get a tax advisor who specializes in expat taxes.
  • Online Tax Software: There are expat-specific platforms like TurboTax and H&R Block.
  • IRS Resources: The IRS publishes resources such as Publication 54, for U.S. citizens overseas.

Q: Any updates on expat tax rules?

A: Check IRS announcements or consult a tax professional to stay up to date, as the reporting thresholds for the FBAR and Form 8938 have changed over the years.

Q: What is the best way to get caught up if I missed tax filing?

A: You may contact your employer or payer of income to obtain wage and income information or fill out Form 4506-T to request transcript for previous year tax return information to help prepare a past due return. In addition, you may be eligible for the IRS streamlined filing compliance procedures and the IRS voluntary disclosure program if certain conditions are met. A professional U.S. tax advisor can help you to find the best solution.

 

 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.