In addition to understanding which tax laws apply to you as an American living abroad, it’s also important that you know what documents you need for your US expat tax preparation. You will need these documents to not only finalize your tax return, but to also protect yourself in the event of an IRS audit. Being able to prove your numbers via these documents is the quickest way out of an IRS mess!
Check out the list of the most common forms that you will need to gather and store in order to get started and complete your expat tax preparation.
This form is the baseline for your expat tax preparer to get started on your tax return. The questionnaire answers many questions that your tax preparer will ask, without a lot of hassle. It provides your name, address, tax ID number, and all your dependent information. The questionnaire also asks about your living and working situation, as well as questions about the previous year that may help you get deductions or credits on your tax return. While this questionnaire may seem like a lot of pages, it will save you (and your preparer) a lot of time and hassle in the long run!
Prior Year Tax Return
Providing your prior year tax return will help you with your current tax return in a lot of ways. It supplies a much-needed reference point for your current tax situation. Many items, such as the Foreign Tax Credit, can be carried from one year to the next – and it’s important to carry it forward (or backward!) correctly. Your expat tax preparer will use the prior year return to make sure that you are eligible for certain tax positions, preventing you from getting any nasty surprises from the IRS. Since expat taxes can be tricky, your preparer will also take a look at your prior year return to make sure that nothing was overlooked in the preparation.
Keeping track of your travel dates is extremely important for expats, as you may already know. Keeping a travel calendar during the year helps your tax preparers allocate expenses and income between your US and non-US sources. The travel calendar also helps to show whether or not you would qualify for the Foreign Earned Income Exclusion and Foreign Housing Deduction. The IRS requires that actual dates be entered on your tax return, so an accurate calendar is essential.
Income Documents for Expat Tax Preparation
These documents are some of the most important documents that you will need for your expat tax preparation. There are a variety of income documents, so we will break it down a bit:
- Wages, Compensation, Salaries: Wage and salaries are typically earned as an employee of a company. In the US, this type of income is reported on a form W-2. If you do not work for a US based company, you will most likely not receive a W-2, but may receive the equivalent in your resident country. In the UK, wage income is reported on a P60 or P45. Your tax preparer will require these documents. If you don’t have a yearly wage reporting document, then you will need to provide your periodic wage statements (pay stubs). Make sure to keep a file of your pay statements as you receive them, it makes tax time a lot easier!
- Self Employed, Sole Proprietorship: If you are self-employed you will need to keep records of your gross income (before deductions) and your total expenses (categorized).
- Interest and Dividend Income: Interest is income that a bank or financial institution pays you because you have money deposited with them. Dividends are profit sharing from a corporation that you own stock in. If you own financial accounts with a US bank or financial institution, you will receive year end reporting forms from these banks showing the amount of income paid to you. Foreign banks general do not have the same reporting requirements. In the US, you would receive the 1099-Int or 1099-Div forms, but not from a foreign bank account. It’s important to keep any documents which have the amount of interest, dividends, or capital gains paid to you. Typically bank statements, quarterly statements, and other periodic account statements will have this information. You must keep all reports of income from your foreign bank accounts, even if the income is not taxable in your resident country.
- Stock and Securities Transactions: If you own investments, either in the US or in a foreign country, you will need to report any capital gains and losses you have during the year on your tax return. If you trade with a US investment company, you will receive a year-end reporting statement. This statement will detail out your income and reportable transactions during the year. If you invest with a foreign bank or investment house, you may need to keep track of the transactions yourself using monthly or periodic statements. As with interest and dividend income, you need to report all income to the IRS, even if it is not taxable to your resident country. Letting your foreign broker or investment agent know that you have US tax obligations may help facilitate a quicker response when requesting unusual documents from them. In the US, you would receive a 1099-B for these transactions, but you may need monthly or periodic account statements from a foreign bank in order to find the correct information.
- Rental Income: If you own a rental property, whether in the US or abroad, you will need to keep any documents related to the rental income and expenses. These documents will help your tax preparer to compile your rental gain or loss for the year. If you have a US management company, they may issue you a 1099-Misc form showing the gross rental income.
- Real Estate Sales: If you sold real estate, whether it’s your house or land, you will need to report it on your tax return. There may not be any tax implications, but your tax preparer should be made aware of the transaction. You need to keep documents from both the purchase of the real estate and from the sale. The documents should include the following information: Date of sale, date of purchase, purpose of the property (personal use, business use, etc.), total cost, total proceeds from the sale, and any improvements made during ownership.
- Social Security and Pension Payments: If you receive Social Security payments from the US you will receive a form SSA 1099 from the US Government. Other pension and retirement income from the US is reported to you on a form 1099-Ret. Payments from foreign social securities and pensions may not have end of year statements, so you need to keep track of the payments using your bank accounts and or statements from your plan holder.
- Other Income: If you are an owner of a business that is not considered a sole proprietorship, such as a partnership or corporation, then you will need to keep track of the income generated and passed along to you. In the US, you would receive a form K-1 from the business, detailing your income and pass through expenses from the business. If you are part owner of a foreign partnership or corporation, you will need to make sure that you have access to the year-end accounting statements of that business. Other income that you may need to keep track of includes (but is not limited to) gambling income, farming income, royalties, unemployment compensation, and foreign disability income.
Deductions are items that help to reduce your taxable income on your tax return. Here is a list of deductions for which you will need to keep track of documents to prove:
- Interest Paid: Mortgage interest is a deductible expense on your tax return. If you paid interest to a US bank you will receive a form 1098 detailing the amount paid during the year. If you paid mortgage interest to a foreign bank you will need to keep your bank account statements for the year that show the amount paid.
- Taxes Paid (Property): Property taxes paid can be used for several deductions on your return, so it’s important to keep track of them. Property taxes are the taxes assessed from a governing agency on the amount of land and real estate you own or rent. Keep track of the payments you make directly to the governing agency, and to the amounts paid directly from an escrow account.
- Taxes Paid (Income): Income taxes are taxes paid on your income or expect to be paid on your income for the year. If you live in a country that assesses income tax on your income, it’s important to keep track of how much you are paying to avoid double taxation on your income.
- Foreign Housing Expenses: If you are living abroad, you may be able to take a deduction for the cost of your housing. Deductible expenses include rent, utilities (not including TV service and internet), property insurance (renters or homeowner’s insurance), repairs, and parking fees. If you pay any of these expenses, be sure to keep track of the payments, either through canceled checks or bank statements.
- Dependents: While your children and other dependents are not as easily tracked on a bank statement, there are still some documents that you should keep in order to be able to claim their deductions. Keep track of Social Security numbers or ITINs for each of your dependents. College/University costs may also give you a tax return boost, so keep track of all expenses paid for your dependent’s schooling. Additionally, child care costs for children under the age of 13 may also be a boost for your taxes, so keep track of the cost as well as the name and address of the care provider.
- Other Deductions: Some of your other yearly expenses may also give you added deductions to your tax return. Charitable contributions, either cash or household items, to a qualified charity can lower your taxable income. Make sure you note the amount of the donation, the date of donation, and the charity’s name when you give. Medical expenses, those not paid by an insurance plan, can also help to lower your taxes. Document the amount paid, the date, and who you paid in order to take the deduction. Other things that should be kept track of are: alimony paid (with a valid court order), unreimbursed business expenses (expenses paid for you to be able to do your job), and expenses paid to investment houses in order to keep your account running (administrative fees and such).
Foreign Bank Accounts
FATCA (Foreign Account Tax Compliance Act) has tightened the regulations regarding the reporting of foreign bank and investment accounts. If you own a foreign bank or investment account, you should be keeping all of your bank statements for at least 7 years. Keeping a physical copy of the statements you receive is best, as online statements for most banks are only available for the last 18 months (at best) and if the IRS audits you they will most likely be looking for documents from several years back.
If you think that you are missing a document, don’t ignore it! US documents are not only sent to you, a copy is also sent to the IRS for their records. The IRS has a complex computer system that matches documents received with tax returns filed. If there is a discrepancy between your return and the documents they have, you will receive an IRS letter and possibly an audit! If you think that you should have received a document, be sure to contact the sender to be sure that it was not waylaid in the US overseas mailing bog down. If you cannot contact the sender of the document, you may be able to get a copy from the IRS.
Are You Ready to Get Started with Expat Tax Preparation?
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Originally published in 2016; updated October 16, 2018.