Tom LR Griffiths on stress-free US expat taxes | Tom LR Griffiths
Tom LR Griffiths is a tax advisor and consultant, specialising in US expatriate tax matters
Tom LR Griffiths
post-template-default,single,single-post,postid-15643,single-format-standard,ajax_fade,page_not_loaded,,qode-theme-ver-17.1,qode-theme-bridge,wpb-js-composer js-comp-ver-5.5.5,vc_responsive

How to take the stress out of taxes for US expats

How to take the stress out of taxes for US expats

Filing taxes as a US citizen can be stressful. There’s paperwork to fill in, records to keep, documents to find and deadlines to meet. But filing taxes as a US expat living overseas can be even more of a headache for those who don’t fully understand the system.

The best way to deal with US expat taxes is to work with a specialist tax advisor. But it’s also a good idea to know roughly what you need to go. Here’s a checklist for any US expat who is attempting to comply with the IRS requirements from another country.

What US expats need to know about taxes

If you do choose to go it alone and file your taxes yourself, then bear in mind there is a lot of time and effort involved. You will need to research which forms you need to fill in, which credit you can apply for, and know all the aspects of the process to ensure you’re not taxed twice on the same income, and don’t incur any penalties.

First things first – know the deadlines. When you have the deadlines in your mind, you can plan ahead much more efficiently. This will save you stressing out and scrambling to get there. The deadline for US citizens and green card holders to file their taxes is 17 April every year.

However, the good news for US expats is they are granted an automatic extension until 17 July. This is to allow you time to file taxes with the country you’re living in first. If you need even more of an extension, you have to request it directly from the IRS. This is not automatic, and you must apply online. If it’s granted, then your filing deadline shifts to 15 October.

Paperwork and forms to fill in

You will need paperwork to cover everything needed in the return. This includes bank accounts, retirement accounts and any stocks or bonds you hold. If you’re working in a country that uses a fiscal year to file taxes, like the UK, then you will also need the end-of-year pay slip handy.

Next is working out which forms you need to fill in. Most US expats will need to file a Form 8938 and/or the FBAR (Foreign Bank and Financial Accounts) using FinCEN Form 114. The former covers foreign accounts and foreign assets, and the FBAR is necessary when the whole balance of all your foreign financial accounts reaches more than $10,000 at one time during the previous tax year. FBAR reporting includes all retirements accounts, bank accounts and investments you hold.

Tax breaks and exemptions

As a US expat it’s up to you to work out whether you are eligible for tax breaks. This means doing the research to understand what you must report, what you can claim for, and what will be deducted. Your reported income is your worldwide income, and as such, must include dividends, any rental income, interest and all monies earned from both US and foreign sources.

Self-employed US expats must report income that is more than $400. This means that even if you earn just over the threshold, you must file a US tax return. It may feel that the IRS is out to get you when you’re just trying to live your life in a foreign country. However, it’s important to remember that you aren’t being taxed twice on the same income.

The IRS has put in place a number of deductions, credits and exemptions that can ensure you aren’t double taxed. One of these that commonly benefits US expats is the Foreign Earned Income Exclusion (FEIE). This excludes the first $100,800 of your income from being taxed by the US. To be eligible, you must first pass one of these foreign residency tests:

  • You are physically present in the foreign country for 330/365 days.
  • You have lived abroad in a different country for an entire calendar year and you have no plans to go back to the US.

US expats can also claim the Foreign Tax Credit (FTC), which ensures you’re not taxed twice. The FTC works against the income that has been taxed in the country you’re living in. For example, if you owe the IRS $15,000 in US taxes, but you’ve already paid the UK Government the equivalent of $10,000, you only owe the difference ($5,000) to the IRS.

These are not the only two exclusions available, and it may well be possible to whittle your US tax bill down further by using others.

Did you know?

  • You can amend a previous tax return

Something that should give all US expats a modicum of peace of mind is that if you make an error on your return, you can go back and amend it. For example, if you realise afterwards that you didn’t report a specific income, you can correct it.

It’s common for people to make mistakes when they file taxes, particularly so for US expats doing it for the first time. Without professional assistance, it’s difficult to know for sure you’ve done it all correctly. If you do think you’ve made one, tell the IRS straight away, before they come to you.

  • FATCA may also affect you

The Foreign Account Tax Compliance Act (FATCA) is a legal requirement for foreign banks to share relevant information with the IRS. This is so that the US Government can crack down on offshore tax evasion.

If you hold money in a foreign bank account, you are legally required to provide that bank with the W-9 Form, so that they can follow FATCA rules.

These are the basics of US expat tax obligations and can start you on the right track. As you can see, there is a lot of information to understand before you can accurately file taxes as a US expat. Contact Ingleton Partners for a totally stress-free experience in meeting your obligations.

For more information, go to the IRS tax guides website.