Taxes are stressful enough when you live domestically, and moving abroad could complicate things further for taxpayers.
We must report all income sources, including any from American or Portuguese companies is important, as the IRS taxes citizens on their worldwide incomes, even if they work and live abroad. How long you have lived abroad will determine if you can claim certain tax perks, and we can see if you will pass IRS assessments like the bona fide residence and physical presence tests. We can also review your foreign bank accounts and financial assets to see if you must submit international information returns as well. We can help expats prepare and file their taxes before the deadline, as interest accrues on unpaid tax despite the IRS providing a two-month filing extension for expatriates living in Portugal and elsewhere around the world.
For help from our tax CPAs for U.S. expats, call US Tax Help today at (541) 362-9127.
Preparing Your Taxes While Living in Portugal as a US Expat
Preparing U.S. taxes from abroad is challenging, as expats must identify and report all income sources and be prepared to report foreign accounts and assets above a certain threshold. Our tax accountants can organize the necessary information for your return and identify the exclusions that can lower your taxable income.
Confirm All Tax Liabilities
After moving to Portugal and living and earning income there for some time, you might gain a new tax liability. You will keep your reporting liability to the IRS when you relocate to Portugal, as U.S. citizens have to report their worldwide incomes no matter where they live. You may be taxed as a Portuguese resident if you live there for 183 days or more out of a calendar year. You may still have a tax liability in Portugal if you are a non-resident, though you may be taxed at a lower rate.
You must continue to file an annual tax return with the IRS each year you live abroad in Portugal. Expats can often exclude some or all of their incomes but still have to file the necessary paperwork with the IRS to do so. Otherwise, expats could incur substantial financial penalties for failure to file or pay what they owe. Falling seriously delinquent with the IRS could lead to additional consequences, like passport revocation.
Identify All Income Sources
When our tax CPAs for U.S. expats living in Portugal begin preparing your American taxes, we must identify all income sources to report them on your behalf. Expats must report their worldwide incomes, including any earned from foreign employers. You must also report income if you are self-employed while living abroad. Because our world is increasingly digital, workers may relocate to foreign countries and continue working for American companies remotely. All income earned from U.S. companies is reportable and taxable, even if expats live outside the United States.
Take Residency Tests
The IRS uses residency tests to determine if expatriates qualify for certain perks, like the foreign tax credit (FTC) or the foreign earned income exclusion (FEIE). The FEIE lets expatriates exclude a large portion of their income from U.S. taxation, up to $126,500 per person in 2024. The FEIE increases annually to adjust for inflation and is among the most useful benefits available to expatriates.
However, you must pass one of two residency tests to use it. We can assess whether you will pass the bona fide residence or physical presence tests by reviewing how long you have lived in Portugal since moving there. To be considered a bona fide resident, expats must live in a foreign country for an uninterrupted period, including an entire tax year. To pass the physical presence test, expats must show the IRS that they were in a foreign country for 330 full days of a 12-month period.
Confirming if you will pass either residency test is important, as doing so could also make you eligible for the FTC. This credit lets expats apply income and other taxes paid to the Portuguese government to their U.S. tax liability, reducing it and their chances of double taxation.
Report Foreign Accounts
Expats might transfer their savings to foreign bank accounts when permanently moving abroad. After living abroad for some time, expats might accrue foreign financial assets and holdings, which could create new reporting responsibilities. When preparing your tax return, our tax accountants can review your foreign financial accounts to see if you must file Form 8938 or complete a Report of Foreign Bank and Financial Accounts (FBAR). Form 8938 is for expats with more than $200,000 in foreign assets on the last day of the tax year or $300,000 at any time during the year. Filers living domestically might also have to file Form 8938 to report foreign financial assets, but their reporting thresholds are much lower.
FBARs get filed online through the Financial Crimes Enforcement Network and are used to report foreign bank accounts with $10,000 or more across them. As with Form 8938, there are serious penalties for not filing an FBAR when required. For example, you could lose up to 50% of the contents of your foreign bank accounts or be fined $100,000, whichever amount is greater.
File on Time
Preparing your taxes to file them by the deadline of Tax Day is important, despite the IRS offering filing extensions for expats. When you opt for this automatic two-month filing extension, effectively pushing your submission date to mid-June, interest still accrues on unpaid tax. So, if the FEIE and the FTC do not eliminate your U.S. tax liability, you might pay more than you would have owed even had you not used the filing extension. That said, you will not be penalized for late filing, provided you file by the extended deadline.
Call Us for Help Preparing and Filing Your Taxes from Portugal
For help from our tax CPAs for U.S. expats living in Portugal, call US Tax Help today at (541) 362-9127.