Accountant for US Expat Federal Tax Return Preparation
Paying your taxes can be a difficult process. Paying your taxes while living in another country and earning income there is even more difficult. As an expatriate, you are required to pay taxes on your income, just like someone living within the United States (the United States taxes based on citizenship rather than residency, making it unlike almost every other country in the world).
There is a lot to consider when paying taxes while living abroad, such as whether you are eligible for exemptions and if it is a good idea to renounce your citizenship from the United States so that you do not have to pay taxes to two countries. Luckily, there is help available as you prepare your taxes. Ted Kleinman, a licensed CPA at U.S. Tax Help, has decades of experience helping people like you, citizens who have moved abroad and are faced with the challenge of preparing their taxes as expatriates.
Paying Taxes on Income While Living Outside of the United States
All United States citizens living and earning income abroad will need to file and pay taxes, just as if they were still living domestically. International taxpayers are granted an automatic two-month extension on April 15, making their final deadline June 15. Taxes paid to the United States while living abroad can be paid in the same way that they are while living in the United States — via mail, commercial tax preparation software, or a free filing program.
Foreign Bank Account Report (FBAR)
Taxpayers should be aware that a prerequisite to paying taxes is filing a Foreign Bank Account Report (FBAR). An FBAR must be filed for all accounts held by United States citizens living in foreign countries, as long as they are the signing authority over the account and the total of all of the accounts is more than $10,000 at any time during the year for which the FBAR is filed. FBARs can be filed through the BSA E-Filer, which can be found online through the Financial Crimes Enforcement Network’s (FinCEN’s) website.
Foreign Earned Income Exclusion
Some expatriate taxpayers may be eligible for an exemption from paying much or all of the taxes on their foreign-earned income if they qualify for the Foreign Earned Income Exclusion (FEIE). Qualification for the FEIE excludes taxpayers from paying taxes on income up to $105,900 for the 2019 tax year; any income that exceeds $105,900 will be taxed on the difference.
International taxpayers qualify for an exemption through the FEIE if they pass one of two tests. The first is the physical presence test, which they can pass if a person is physically in another country for at least 330 full days (not necessarily consecutively) within a 12-month period. The second test is the bona fide residence test, which can be passed by residing in a country for at least one entire tax year, lasting from January 1 until December 31.
If you happen to lapse on filing your taxes for a few years while abroad, don’t worry. The IRS has a tax amnesty program called the Streamlined Foreign Offshore Procedures. This program allows United States citizens living abroad to pay, without penalty, previously delinquent taxes. They are eligible for this program if they are a citizen or green card holder of the United States who has not maintained a home in the United States at any point during the three most recent years and have not been physically present in the country for at least 330 complete days, or if they neither a citizen nor a green card holder who has failed the physical presence test.
Is It a Good Idea to Renounce Citizenship?
Some expats may want to renounce their United States citizenship so that they do not have to pay taxes in two countries. (Note that the renunciation of citizenship is different from relinquishment of citizenship, which happens when a citizen does an act that expatriates them, which may be something like joining another country’s army.) While this may seem like a desirable prospect, it may not be worth it.
Firstly, it is difficult to qualify for expatriation. In order to qualify for expatriation from the United States, an individual must:
- Have an average annual net income tax liability for the five years preceding renunciation exceeding $165,000
- A net worth of at least $2 million on the day of your renunciation
- A lapse in tax filing for the five years preceding your renunciation
If you do qualify for citizen renunciation, you are not completely discharged from the responsibility of paying taxes. You will still be required to pay previous tax obligations, as well as an expatriation tax. Additionally, you will be required to pay an exit tax before your citizenship can be fully renounced. Individuals interested in renouncing their citizenship from the United States should be aware of the fact that, in most cases, the renunciation is irreversible — they will never be able to be a United States citizen again.
How to File Your Expat Federal Tax Returns
When you file your United States tax returns from overseas, you will need to provide more documents to supplement your return than you do when you file while living in the U.S. The documents you will need to file tax returns while living abroad are:
- W-2s and 1099s
- Foreign wage statements
- Brokerage statements
- K-1 schedules
- A copy of the preceding year’s tax return
- A copy of the foreign country’s tax return
- A list of your travel dates to the United States and any foreign country
- Maximum values for all financial and foreign bank accounts from that year
Please note that the amounts reported on your United States tax returns must be expressed in United States currency. Any payments you receive in a foreign currency must translate it into United States dollars. It is recommended that you use the yearly average exchange rate to report income made in a foreign country.
Taxpayers should also be aware that their tax refund, if they get one, cannot be deposited into a bank account based in another country. Tax refunds for expatriates can only be deposited into bank accounts based in the United States or mailed to the address at which the expatriate resides. Also, some states may require expats to pay state income taxes; the stipulations vary between each state, so look up your state for more information about whether you will be required to pay.
U.S. Tax Help Can Assist Expats with Their Federal Taxes
Don’t let the process of paying your United States taxes while living abroad overwhelm you. There are CPAs at U.S. Tax Help available to help you throughout the entire process. Contact Ted Kleinman and his team for answers to any questions you may have about the process of filing your United States taxes while living abroad. Visit the U.S. Tax Help website to learn more, or call us at (541) 923-0903.