Tax season is hard enough when you live in the United States. If you move abroad to Denmark, filing your taxes might become even more complicated, and our tax accountants are prepared to help.
While living abroad in Denmark, expats still have to file annual tax returns with the IRS, starting with Form 1040. Expats may have to attach various forms to Form 1040, including Form 8938, which they can use to disclose foreign financial assets above the reporting threshold. Other forms are used to claim tax benefits for expats, like Forms 1116 and 2555, which can help expats avoid double taxation and lower their taxable incomes. Preparing all necessary forms by Tax Day to prevent interest accruing on unpaid taxes is crucial. That said, the IRS provides filing extensions for expats, which you can use if necessary to avoid financial penalties for late filing.
For assistance from US Tax Help, call our tax CPAs for U.S. expats at (541) 362-9127.
Tax Forms US Expats May Need to File After Moving to Denmark
After moving to Denmark, expats might face new filing requirements on top of the typical IRS Form 1040. New filing requirements may include IRS Forms 8938, 2555, and 1116, among others. Identifying which forms you have to file is important, as failure to submit any to the IRS could result in steep financial penalties.
IRS Form 1040
Expats must typically report their gross annual income using IRS Form 1040 or the appropriate variant. Our CPAs for U.S. expats living in Denmark can use Form 1040 to report any income, whether it comes from a foreign or domestic source. Americans must file an annual tax return no matter where they live as long as they retain U.S. citizenship.
IRS Form 8938
Completing IRS Form 8938 is mandatory for expats with certain specified foreign financial assets. Unmarried taxpayers living outside the U.S. have to file Form 8938 if their foreign financial assets exceed $200,000 on the last day of the tax year or $300,000 at any point during the tax year. For married U.S. taxpayers living in Denmark and filing joint returns, the reporting threshold for Form 8938 doubles.
Types of reportable foreign financial assets include bank and financial accounts with foreign financial institutions, interest in foreign entities, and certain foreign stocks and securities. We can further clarify reportable assets for Form 8938 so that you do not unintentionally fail to report them, which could lead to financial penalties from the IRS.
IRS Form 2555
IRS Form 2555 lets expats in Denmark claim the foreign earned income exclusion. Using Form 2555, our tax accountants can figure your exclusion based on your income from foreign sources. Currently, expats can exclude up to $126,500 of their income from taxation. This exclusion only applies to your IRS tax liability, not your tax liability to the Danish government.
If you and your spouse are both American citizens living in Denmark, you can each claim the foreign earned income exclusion, further reducing your household’s taxable income.
IRS Form 1116
Expats could have to pay taxes on the same income twice if they do not claim the foreign tax credit using IRS Form 1116. This lets you apply income, war, and excess profits taxes paid to the government in Denmark to the IRS, reducing your tax liability as much as possible.
To qualify for the foreign tax credit, or the foreign earned income exclusion, for that matter, you must pass certain tests set by the IRS. They are the bona fide residence and physical presence tests. These assessments aim to see whether or not an expat has resided in another country long enough that their tax liability to a foreign country would outweigh that of the United States. We can use the IRS’ criteria to determine if you pass either test and can reap the benefits of the foreign tax credit while living in Denmark.
FinCEN 114
In addition to reporting your foreign financial assets to the IRS using Form 8938, you may also have to report foreign bank accounts to the Financial Crimes Enforcement Network (FinCEN) using Form 114. This is known as a Report of Foreign Bank and Financial Accounts (FBAR), and American taxpayers must complete this form if they have over $10,000 across foreign bank accounts in a tax year. This reporting requirement applies to all U.S. taxpayers, not just expats living outside the country. We can confirm your FBAR liability and help prepare and submit Form 114 online through FinCEN’s BSA E-Filing System.
Tax Filing Deadlines for Expats Living in Denmark
While the same Tax Day deadline for domestic residents applies to expats, the IRS is a bit more lenient with those who live abroad, giving them an automatic two-month filing extension they can take advantage of if necessary.
That said, when expats do not file their taxes by Tax Day, interest will start to build on unpaid tax. While expats won’t get fined for filing later than Tax Day if they qualify for the two-month extension, interest combined with the cost of unpaid tax could start to add up. Despite often having until mid-June to submit their taxes without facing penalties, our tax accountants will focus on preparing the necessary forms for expats and filing them with the IRS by the normal Tax Day deadline.
Expats initially unaware of their continuing tax liability to the United States might miss Tax Day and the extension for expats. In these situations, we can help expats request an additional six-month extension from the original due date, putting the new deadline in mid-October. This is done using Form 4868. Living overseas won’t protect you from financial penalties for failure to file from the IRS, but our tax accountants can by planning, preparing, and filing all necessary tax forms on time.
Call Our Tax Accountants for Help with Your US Taxes
Call US Tax Help’s tax CPAs for U.S. expats at (541) 362-9127 today.