Tax time is a stressful period for pretty much everybody, but it can be doubly so for U.S. taxpayers living outside the United States. As though the process of filing your U.S. taxes wasn’t complicated enough, doing so from abroad likely means having to submit a greater number of forms to the IRS along with other government agencies.
Even when you know exactly what to file, however, ensuring that your submissions are free of mistakes and that they get to the right offices can be tough when you’re located half a world away, which is why it might be a good idea to retain the services of an international tax accountant with experience helping U.S. expats living abroad. This can allow you to ensure that you take advantage of exclusions and benefits catered to expatriates, such as the foreign earned income exclusion and the foreign tax credit.
To learn more about how to file your U.S. taxes from abroad and how a qualified professional can assist with that process, call the tax CPAs for American expatriates at US Tax Help at this link – get in touch.
Do You Have to File Your US Taxes from Abroad?
If you move overseas, you will likely still have a tax liability to the IRS. This means you must submit your annual tax returns and the necessary international information returns each year to remain in compliance with IRS filing requirements.
The United States operates within a citizenship-based taxation system. Because of this, expatriates still have to inform the IRS of their income annually. If you choose to officially reject your American citizenship, you will eliminate your tax liability to the IRS.
In addition to having to file an annual tax return, you might also have to submit information returns regarding your foreign financial assets and holdings.
If you retain property in the U.S. or have other ties to your previous state of residence, you might have to file state tax returns as well, even if you currently live abroad.
What Forms Do I Need to File My US Taxes from Abroad?
One of the first questions most expats have when it comes to filing their taxes is what forms they’ll need to fill out to fully comply with the expectations of the IRS. Many people don’t know this, but moving abroad does not exempt a U.S. citizen from having to file a tax return, even if they make 100% of their income in another country. This means that U.S. expats filing a tax return will need to turn in either IRS Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors. There are additional forms expatriates must file when living abroad.
IRS Form 1040
You’ll have to file the same tax return when living overseas. For most people, this is IRS Form 1040. If you’re a senior, you can file IRS Form 1040-SR. Not filing an annual tax return can lead to serious penalties for American expatriates.
FBAR
Because most expats have bank accounts in other countries, many have to meet certain reporting requirements in addition to the standard income tax return when filing their U.S. taxes from abroad. Reports of Foreign Bank and Financial Accounts (FBARs) are part of the requirements of the Foreign Account Tax Compliance Act (FATCA).
American expats with more than $10,000 in foreign bank accounts they own or control will have to file one of these reports, which they can do electronically using FinCEN Form 114. This form is available through the Financial Crimes Enforcement Network’s BSA E-Filing System.
The FBAR is due at the same time as your annual tax return, on Tax Day. Willful violations can carry a penalty of $100,000 or 50% of the balance of a foreign bank account, whichever amount is greater. Non-willful violations can carry a financial penalty of up to $10,000.
IRS Form 8938
The second information return that many expats must file, IRS Form 8938, is required for those taxpayers who have hundreds of thousands of dollars in foreign financial assets. Any expat filing individually who has more than $200,000 in foreign financial assets at the end of the year or more than $300,000 in assets at any point during the year must file this form. For married expats filing together, these thresholds are doubled. Filing Form 8938 does not eliminate your FBAR filing liability.
The penalties for failure to file Form 8938 begin at $10,000. Form 8938 is an information return and will not increase your tax liability while living abroad.
IRS Form 2555
By submitting Form 2555, you can alert the IRS to your eligibility for the foreign earned income exclusion and foreign housing exclusion. This will allow you to exclude some or all of your foreign earned income, possibly eliminating your tax liability to the IRS. Currently, the foreign earned income exclusion threshold is $120,000 per person. If you are filing jointly with your spouse and you both meet the bona fide residence or physical presence tests, you can exclude up to $240,000 of your foreign earned income from taxation. If you earn more than that from a foreign source, you will be taxed on any foreign earned income above the exclusion threshold. And, if you work for an American company while living abroad, you will be taxed on your domestic income.
IRS Form 1116
In addition to allowing expatriates to exclude a significant portion of their foreign earned income from taxation, the IRS allows expats to benefit from the foreign tax credit. By filing IRS Form 1116, you can inform the IRS of taxes you have paid to your current country of residence. Foreign taxes that qualify for the credit include income, war profits, and excess profits taxes. This can eliminate the risk of double taxation for American expatriates living abroad as they will not be taxed twice on the same income.
Specific Tax Schedules
Expats with supplemental income from sources like unemployment compensation or gambling winnings or who are claiming deductions for things like student loan interest or educator expenses must file Schedule 1 with Form 1040.
Those who owe non-standard taxes, such as self-employment taxes or taxes on retirement plans, must submit Schedule 2 with their tax return.
Expats who are claiming a credit other than those on Form 1040 – including the foreign tax credit – or who have additional payments to submit must file Schedule 3.
When to File US Taxes from Abroad
Almost every adult American should be familiar with the standard tax filing deadline in the United States. While Tax Day generally falls in mid-April, there might be some extenuating circumstances that cause the IRS to push back the deadline. Furthermore, expats should know that there are some special considerations given to those filing their U.S. taxes from abroad.
Perhaps the most useful advantage here is the automatic two-month extension granted to taxpayers living overseas, pushing their effective filing deadline to mid-June in most cases. However, it’s important to note that, while late filing penalties will not be assessed until after the automatic extension, interest on any amount owed will begin to accumulate starting on Tax Day, so waiting to pay could cost you money.
Another piece of good news for expats is that there are a number of ways in which you can file your taxes from anywhere in the world. For instance, a virtual accountant for U.S. tax filing can lend professional expertise to your filing process, reducing your tax liability and ensuring that no mistakes are made. To benefit from this, all you need is a computer and an internet connection. For those who prefer to mail their forms personally, the IRS suggests the use of private delivery services – such as DHL Express, UPS Next Day Air, or FedEx Overnight – to ensure that you meet the standards for timely mailing and filing set by the agency. More information about this is available on the IRS website.
How to File Your Taxes Online While Living Abroad
When living abroad, submitting your taxes via mail can take too long and might make you miss the filing deadline, depending on when you send them in. To make things easier, you can always file your taxes online.
There are many online tax preparation services that claim to file your taxes for you in as little as a few clicks. That said, using such services might cause you to miss out on important deductions and credits. Furthermore, you might not be able to submit all necessary schedules and corresponding documents when you use such online services.
The IRS has an online tax filing service, IRS Free File, that allows certain taxpayers to prepare and submit their tax returns online. You will not be charged for submitting your tax returns when you use this service. Non-affiliated filing services might charge you for simply submitting your taxes online without providing tax preparation services.
With IRS Free File, you will still have to do your taxes without guidance. Alternatively, when you rely on our tax CPAs for American expatriates, you can get assistance regarding your taxes. We can prepare and submit your taxes on your behalf, whether online or by mail, so that you do not have to worry about meeting any filing deadlines or sending in your tax returns.
What if You Don’t File Your US Taxes While Living Abroad?
Expatriates who do not submit their annual tax returns to the IRS by the deadline or fail to file their taxes before the automatic two-month filing deadline will likely be penalized for non-compliance by the IRS.
Initial penalties for late filing are 5% of the taxes owed, up to 25%. Expatriates who remain ignorant of their tax liabilities might be more heavily penalized and could possibly face criminal consequences for tax evasion.
If you have other filing requirements as an expatriate, such as Form 8938 or the FBAR, penalties for not reporting will likely be much steeper.
If you cannot feasible file your taxes by the deadline or by the end of the automatic two-month extension, you can file for an additional six-month extension from Tax Day, placing your new deadline in mid-October.
To avoid such stress and hassles, contact our tax CPAs for American expatriates. We can prepare your taxes for you and be sure to any informational returns you must file and forms associated with tax perks for expatriates. This can allow you to avoid possible penalties for non-compliance from the IRS while living abroad.
Call Our Experienced International Accountants for Filing US Taxes from Abroad
To learn more about what we do or schedule your first consultation with our tax CPAs for American expatriates, visit the US Tax Help website or call this link – get in touch today.