How Do I File Taxes as a US Citizen Living Abroad?

American citizens who move overseas to live and work can expect to face many new challenges, from navigating cultural differences to meeting new people. Among these challenges is the need to navigate the complex tax requirements that apply to U.S. expats. While many U.S. citizens assume that leaving the country relieves them of their obligations to the Internal Revenue Service, that is not the case; even those who move to the far-flung corners of the world must file a tax return with the IRS, though there are certain tax provisions that benefit American expats. If you or someone you know is a U.S. citizen living abroad, the team at U.S. Tax Help can provide the expertise and assistance to tackle any tax issue that might arise. Keep reading to find out more.

Tax Return Filing Requirements for US Citizens Living Abroad

As mentioned above, even moving to another country does not allow an American citizen to escape the reach of the IRS. Many expats believe that they don’t have to worry about their U.S. taxes, at least at first. However, the U.S. is one of the two countries in the world that tax people based on citizenship rather than location or country of residence. (The other country to do so is Eritrea, which imposes a flat two percent tax rate on non-residents.)

This means that, as an expat and American taxpayer, your first concern come tax season should be to prepare your federal tax return using IRS Form 1040, the U.S. Individual Income Tax Return – a familiar form for most adult Americans. While in many ways this form works the same for expats as for domestic taxpayers, there are a few notable differences that could affect how and when you file. For instance, taxpayers who are out of the country are generally eligible for an automatic two-month deadline extension, which makes the effective filing date for expats June 15 instead of the usual April date.

Keep in mind, however, that many of these helpful tax provisions come with exceptions and caveats as well. One example: The two-month extension only applies to the submission of your tax return and any related paperwork, meaning that any payments due April 15 will begin collecting interest on that date. If you choose to file your return in June, make sure you send in any tax obligations by April 15, or you could see your financial obligation grow.

Additional Filing Requirements for American Expats

While filing an expat tax return is certainly important, don’t forget that U.S. citizens living abroad have a number of other filing requirements as well. Some of these are beneficial and can reduce your tax burden; others simply force you to disclose accounts and other assets to the government. Let’s cover two of the most helpful provisions first.

Foreign Earned Income Exclusion

If you work for a company overseas or are a self-employed expat, you are probably eligible for the foreign earned income exclusion, or FEIE. This popular tax provision allows Americans who live in other countries to avoid double taxation by excluding a significant portion of their foreign-earned income from what’s considered taxable by the IRS. The maximum amount of income that can be excluded is adjusted for inflation each year, so it increases steadily; for the 2019 tax year, expats can subtract up to $105,900 from their taxable income.

The requirements for this provision are fairly simple: You must pass either the bona fide residence test or physical presence test to qualify, and your tax home must be in a foreign country. Then, you must file IRS Form 2555, Foreign Earned Income. Keep in mind that this provision only applies to earned income; any money you collect from passive sources like rent or dividends cannot be part of the amount you exclude.

Foreign Housing Exclusion/Deduction

Expats who pay for their own housing may be able to subtract that expense from their taxable income as well. Though the terms vary, the only difference between the foreign housing deduction and foreign housing exclusion is that the former is for those who are self-employed, while the latter is for employees of foreign companies. To claim this benefit, enter the expenses you paid for housing for yourself, your spouse, and your dependents on Line 28 of Form 2555.

Report of Foreign Bank and Financial Accounts (FBAR)

Those with control over one or more foreign bank accounts totaling at least $10,000 must report those assets to the government by filing a Report of Foreign Bank and Financial Accounts, better known as an FBAR. As with tax returns, expats who must file this form are granted an automatic extension beyond the traditional April 15 deadline; for the FBAR, the extension pushes the deadline back six months to October 15. Unlike some of the other forms that must be submitted, an FBAR is filed electronically through the Financial Crimes Enforcement Network using FinCEN Form 114.

International Tax Experts Serving US Citizens Living Overseas

Although the provisions discussed above represent the most common filing concerns for American expats, you may have to file still more paperwork to stay in compliance with the IRS; for example, those with significant foreign assets worth hundreds of thousands of dollars must file IRS Form 8938 in accordance with the Foreign Account Tax Compliance Act or face serious penalties. If you are a U.S. taxpayer who lives in another country, let the experts at U.S. Tax Help guide you through tax season so you can avoid penalties and claim each of the many deductions, exclusions, and credits for which you are likely eligible. To learn more or schedule your first consultation, visit us online or call (541) 362-9127 today.