Today’s post is perfect for anyone living abroad who has ever struggled with doing their taxes (haven’t we all?!) Written by the experts of Taxes for Expats, this helpful post will help you get clued in for that always difficult process of filing your taxes from abroad.
We at Taxes For Expats often get asked to explain tax filing requirements for Americans residing abroad. Here’s a quick and easy to digest guide covering what you need to know, and nothing you don’t. Please see our U.S. Tax Guide for 2017 for complete info.
WHAT YOU NEED TO KNOW:
- Live where you want – file where you have to. If you are a US citizens or Green Card holder, you must (assuming you meet the minimum filing thresholds) file an annual tax return reporting their worldwide income.
- All men (and women) must file. Few must pay. The good news is that most expats don’t end up paying any taxes to the IRS. There are many tax deductions available which allow taxpayers to deduct more than $100,000 from their taxable income. But – they must continue to file. Failure to do so can lead to penalties.
WHAT’S DIFFERENT ABOUT EXPAT RETURNS?
- The first and most straightforward difference is the date when your tax return is due. If you reside abroad on tax day, April 15, you are eligible for an automatic extension to file until June 15. If you would like, you can also apply for an additional extension to file until October. Now – although you can file later with the extension, if you do wind up owing tax, interest will begin to accrue from April 15.
- The aforementioned deductions are not automatic. In order to benefit from the myriad of exclusions available – the Foreign Earned Income Exclusion (FEIE), Foreign Tax Credit, Foreign Housing Exclusion, Treaty exclusions, and many more – your tax return must be prepared correctly and tax saving tools utilized properly.
- Unlike a U.S. employer which will issue a W-2, which will be sent to the IRS and to you, your foreign employer will not provide you with such a form (and even if there is a local tax declaration, it does not get forwarded to the IRS). As such, you should keep accurate records of your finances.
- Depending on where you live, and what your personal financial situation is, the complexity of your filing can vary. Factoring self-employment complications, foreign pension treatment, treatment of employer contributions, taxability of foreign passive investment corporations, totalization agreements, and digging through the dense web of tax treaties, the world of expat taxes is difficult and can make the most astute of regular CPAs throw their hands up in defeat.
FINANCIAL ACCOUNT REPORTING – FBAR and FATCA
- Aside from filing tax returns, the U.S. Treasury requires you to report your non-U.S. financial accounts. This is not a taxable, but simply informational. This reporting consists of two main forms — FBAR (FinCEN 114) and FATCA (form 8938).
- The former is filed with the treasury and is required if the sum of your non-US accounts exceeds $10k USD at any point in the year. The latter form has higher thresholds (depends on where you live and what your marital status is – see our full guide link above), and is filed as part of your tax return to the IRS.
- FBAR used to be due on June 30th, but starting with 2017 the deadline has been moved to coincide with the U.S. tax year (April 15th). Given that this is the first year, the treasury has provided an automatic extension to file this form until October.
Ines Zemelman, EA is the founder of www.taxesforexpats.com
She can be reached at [email protected]