Each year, our US Expat Opinion Survey brings to light the most important issues that Americans abroad are currently facing. The most important topics are usually not ‘new’ issues; they are ongoing concerns that the expat population has been speaking out on for some time, but have not been addressed by the US government. Here are a few concerns US expats feel most opinionated about regarding expatriate taxes.
Filing Expatriate Taxes
As you’re likely aware, US expats must file a US expat tax return even if they are living and working abroad. Many expats find filing US expatriate taxes in addition to local taxes burdensome, so it’s not surprising that nearly 70% of surveyed expats feel they shouldn’t be required to file US taxes each year. Interestingly, 62% said they didn’t owe the IRS last year – and some of those even received a refund.
This goes to show that the resistance to filing US taxes is not always about the potential costs involved – it’s also about the time and effort required to file taxes in two locations, even though they are not living in the US.
Despite the fact that having to file US taxes can be viewed as a burden, fortunately, there are credits, deductions and exclusions in place to help US expats save money on their US taxes, including:
- Foreign Earned Income Exclusion – This allows you to exclude up to $101,300 of foreign earned income from your 2016 US expatriate tax.
- Foreign Tax Credit – This allows you to offset the taxes you paid to your host country with your US expat taxes dollar for dollar.
- Foreign Housing Exclusion – This allows you to exclude certain household expenses that occur as a result of living abroad.
While it’s true that most expats would prefer to not file US expatriate taxes at all, being able to take advantage of the savings above can be one positive way to look at the filing requirement! To learn more about ways to save on your expat tax, download a US expat tax guide for your particular tax situation.
Foreign Bank Account Report (FBAR)
US expats with foreign financial accounts that held $10,000 or more during the filing year (either in a single account or cumulative across multiple accounts) must file their FBAR each year. The results from our 2016 survey highlight the fact that most expats are aware if they are required to file, with only 5.3% stating they don’t know what FBAR entails.
The FBAR is an informational form that reports your foreign bank account information to the US Treasury. Filing FBAR does not generate taxes or amounts due, and its purpose is to prevent the hiding of offshore assets and income, and thus avoiding US income taxes. It’s very important to file this form if you meet the requirements, as the penalties can be quite steep. FBAR forms are due April 15th, with an automatic two-month extension for Americans living abroad.
Foreign Account Tax Compliance Act (FATCA)
FATCA is a major initiative by the US government, created as a way to uncover taxpayers hiding money overseas in an attempt to avoid paying US expatriate taxes. The law, which went into effect in 2010, has created much controversy among foreign financial institutions and individuals who are required to file FATCA Form 8938 to report their foreign accounts. In fact, over 43% of survey respondents stated they’d like to see the US government address the repeal of FATCA. This may be due in part to the complicated nature of the additional reporting required, which has caused some foreign financial institutions to refuse to serve Americans, causing a headache for US expats living abroad.
Clearly, US expats face adversity when it comes to their finances and expatriate taxes while living abroad. Though, only a mere 7% feel that their interests are well represented by the US government. With a major election on the horizon, there is an opportunity for the Presidential candidates to reach these expats – who are 9 million strong around the world – by educating themselves on what is most important to the expat population, and taking action to support this influential group. Surely, a politician who acknowledges and makes a real effort to provide support to expats will have the opportunity to win their votes on November 8th!
Need Help Filing Your US Expatriate Taxes or Reporting Foreign Bank Accounts?
Our team of expat-expert CPAs and IRS Enrolled Agents can help make filing your expat taxes a more hassle-free process, so you can get back to your amazing adventure abroad. Get started today!