Four tax challenges facing US expats - Ingleton Partners| Ingleton Partners
Tom LR Griffiths is a tax advisor and consultant, specialising in US expatriate tax matters
Tom LR Griffiths
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Four tax challenges facing US expats – Ingleton Partners

Four tax challenges facing US expats – Ingleton Partners

Tom LR Griffiths is a US and UK tax specialist at Ingleton Partners.

Every American citizen and Green Card Holder living overseas must file taxes with the IRS every year. There are no exceptions, and whether you live in the US or another country, you must be compliant.

In fact, the US is one of just two countries that require their citizens to pay tax, regardless of where they live and work. And while you might think it’s easy to give the IRS the slip for a few years, it’s a complicated and slick system. Not paying taxes as a US expat can get result in penalties and problems down the line.

Here are four US expat tax challenges we help our clients with on a regular basis.

Tax challenges facing US expats


1. Understanding US expat filing requirements

Some US expats living overseas simply do not realise that they are obliged to continue to pay taxes to the United States Government. However, as stated early, all US citizens must still file income tax returns and pay estimated tax in exactly the same way as citizens living in the US.

Here are some of the filing requirements for different categories of US expats. These correspond to the Standard Deduction for the 2019 tax year.

  • You are single with a worldwide gross income of more than$12,200.
  • You’re head of the household with a worldwide gross income of more than $18,350.
  • You’re married and filing jointly with a worldwide gross income of $24,400 between you.
  • You’re married and filing separately with a worldwide gross income of $12,200.

The gross worldwide income is everything you earn, whether it’s as goods, services, cash or property that isn’t tax exempt.

2. Knowing when to file US taxes

This year, the IRS began the tax filing season on 28 January 2019 for the 2018 tax year. The deadline for US tax filing is 15 April every year, but US expats have an automatic extension until 15 June.

US expats have more preparation to do and more paperwork to sort than citizens residing in the United States. You may have foreign income and tax records, and foreign investment and bank account statements to comply with your Foreign Bank Account Report (FBAR). You must also be able to prove exactly how many days you spent in the US during 2018 and be aware that travel time does not count.

While it would be great to file your taxes as soon as possible, as an expat you must wait until your overseas taxes have been filed. Then you will be able to claim Foreign tax Credit (FTC) to claim US tax credits to the same value. This is why US expats have an automatic extension until 15 June.

If you need yet more time, then you must apply specifically for the final extension date of 15 October. An important point to note is that you must also pay any outstanding tax owing by 15 April, to avoid paying interest or being hit by other penalties.

Not everyone is best off claiming FTC to ensure they’re paying the minimum amount of tax. Many US expats could fare better by claiming the Foreign Earned Income Exclusion (FEIE). This allows expats that meet specific criteria to exclude from US income tax $103,900 of their earned income.

3. Being aware of extra forms that must be filed

You may have heard of the Report of Foreign Bank and Financial Accounts (FBAR), which is filed using FinCEN Report 114. Many US expats forget about this overlook this requirement, leading to potential penalties of $10,000 every time, whether wilful or not.

If you have a bank account, are a signatory on a bank account or otherwise hold authority over an account in a foreign country, and the total value is more than $10,000 at any time during the tax year, you must file the FBAR.

This also must be filed by 15 April every year, with the same max extension of 15 October. This is not a tax return and, as such, does not go along with your Form 1040. Rather, it must be filed online with the Financial Crimes Enforcement Network.

4. Understanding legislative changes to filing taxes

This year US expats are filing the first income tax return to include legislative changes made in the 2017 Tax Reform. The most relevant of changes made include an increase in Standard Deduction, the decrease in tax rates, changes in tax brackets and end of personal exemption.

US expats who own a company registered in foreign countries also have new and different taxes to pay. Another noticeable change for US expats who have filed taxes before is Form 1040 itself. It is now smaller and simpler to use for expats with simple records. However, those with more complex circumstances will lead expats to spend more time getting used to the new forms.

The US tax system for citizens, whether they live in the country or overseas, is complex and subject to change. In order to ensure compliance and avoid penalties, it is advisable to engage a tax specialist with experience in US and UK (or other overseas countries) tax systems.

At Ingleton Partners, consultants have years of experience in administering taxes on both sides of the Atlantic and are well positioned to help clients ensure compliance in the simplest way possible.