There are many intricacies involved in US expat taxes of which expats should be aware. If you didn’t realize you had filing obligations and have found yourself behind, don’t fret! We’ve created a guide to help you navigate how to get caught up on your late taxes.
1. Understand Filing Obligations.
With US expat taxes, the first step is knowing what’s required of you. If your income exceeds the filing threshold (which depends on filing status), you are required to file a Federal Tax Return annually. This applies to self-employed expats as well.
Note: while special deductions are available to US expats, which could lower or even eliminate your taxes owed (see #13 below), if your income exceeds the filing threshold, you’ll still need to file. The IRS looks at your income before the Foreign Earned Income Exclusion when determining the filing threshold.
2. Gather Necessary Documents.
Before you can begin working on your US expat taxes and getting caught up, you need to gather important tax documents that will help you fill in the required information on your tax forms. These documents include:
- Prior year tax return
- Travel calendar
- Record of wages, compensation/tips or taxes paid to your resident country
- Record of interest/dividends
- Record of any mortgage interest
- Record of distributions from retirement accounts
- Record of Social Security benefits paid to you
- Record of business income and expenses if you’re self-employed
- Record of US health insurance (if applicable)
Download our handy guide for the full list!
3. Know the Forms You Need to File.
Forgetting a tax form and not knowing you need to file a particular form are common reasons taxpayers miss the deadline. Doing your research about the required forms is essential, especially if you’re filing on your own. If you decide to work with a tax professional, you’ll likely receive a questionnaire that will help your accountant determine the forms you’ll need to file. At Greenback, the Greenback Tax Companion is optimized to ask for only the forms you need to file for your individual situation – saving you tons of time and stress!
4. Remember Foreign Bank Account Reporting (FBAR)!
If your aggregate bank account total exceeded $10,000 at any point during the year, you’ll need to be sure to file FBAR (FinCEN Form 114). For the 2017 filing year, the deadline was April 17, 2018 but there is an automatic extension until October 15, 2018.
5. Be Aware of FATCA Requirements.
In addition to reporting your bank accounts on FinCEN Form 114, you might have additional foreign financial account reporting requirements on Form 8938 if you exceed certain thresholds:
- Single taxpayers living abroad: $200,000 on the last day of the tax year or $300,000 at any point during the year
- Married taxpayers filing jointly living abroad: $400,000 on the last day of the tax year or $600,000 at any point during the year
Note: for married taxpayers who file a return separately from their spouse, the “single taxpayer” thresholds apply.
6. Determine If You Qualify for the Streamlined Filing Procedures.
The IRS created an amnesty program called the Streamlined Filing Procedures to help those who may be behind on filing their US expat taxes without incurring penalties, as long as the failure to file was non-willful. For this program, you will need to file three years of delinquent tax returns and six years of delinquent FBARs even if you did not exceed $10,000 in your bank accounts during each of those years.
7. The Offshore Voluntary Disclosure Program (OVDP) Ends September 28, 2018.
If you don’t qualify for the Streamlined Program, the OVDP was an alternative IRS amnesty program offered by the IRS. However, this program is closing on September 28, 2018, which may signal the IRS is going to end other amnesty programs, like Streamlined Filing as well. So, if you are behind, the best option is to get caught up as quickly as possible!
8. Educate Yourself on Passive Foreign Investment Corporations (PFICs).
It’s possible you may have a PFIC and not even realize it – PFICS typically include mutual funds, insurance products, money market savings accounts, or a non-US pension account.
Specific reporting requirements apply for PFICs include filing Form 8621, so be very aware if any of your foreign investments are considered PFICs in order to be sure you file the correct form on time.
9. Be Aware of the Passport Revocation Law.
In January 2016, Congress passed a law that allows the US State Department to revoke your passport if you owe $50,000 or more to the IRS. While it may seem nearly impossible to accumulate that amount of debt, it’s actually quite easy for penalties to add up for non-filing or delinquent filing of certain tax forms. If you’re behind, it’s important to get caught up right away so you can avoid your passport being revoked!
10. Know Audit Risks.
A considerable audit risk, of course, is failure to file – so if you have delinquent US expat taxes, getting caught up quickly is essential. Additionally, failing to include accurate information, forgetting certain forms, or omitting income can set you up for trouble.
The IRS doubled the audit period from three years to six years in 2016, which means your risk of being audited is prolonged.
11. Don’t Forget About State Tax Returns!
Every state is different when it comes to filing requirements for US expats, and some won’t require you to file at all. Others, though, will require you to file state taxes if you have any ties to the state, such as a driver’s license, voter registration, or a mortgage.
In these instances, you may be required to submit a state return until you prove residency in another state. State deadlines will vary, so be sure you keep track of these in order to meet the filing deadline in the future.
12. Understand the Penalties and How to Avoid Them.
Each tax form may include specific penalties for late filing or providing incorrect information so you will want to check on the requirements and carefully read the instructions before completing the forms.
13. Use Exclusions to Your Advantage.
As an expat, quite a few deductions, credits, and exclusions are available to you, but keep in mind that late filing can reduce or eliminate your ability to use some of these. Most expats are able to offset all of their foreign income or tax liability with the following:
You must be an expat and have foreign income to use these money-saving exclusions, and you must file your tax return to prove you’re eligible for these benefits.
14. Have an Extension Request Filed by June 15th.
Don’t forget that if you’re running behind on your taxes, you can file an extension ahead of time by June 15th. As an expat, you automatically receive a two-month extension until June 15th for filing your Federal Tax Return, and you can request an additional extension until October 15th. This is a great way to buy extra time if you aren’t sure you can meet the initial filing deadline.
15. Keep Track of Deadlines.
This is the best way to avoid being late with your taxes in the future! Filing on time is especially important when it comes to saving money. Being penalized for missing deadlines can add up quickly, so take note of the major deadlines and plan accordingly.
Federal and State Taxes in 2018
- April 17th – This is the Federal filing deadline for your 2017 US expat taxes, but as an expat, you will automatically receive a two-month extension. Note that any taxes you owe must have been paid by the April 17th deadline to prevent interest charges.
- June 15th – This is the expat tax extension deadline, as long as you were living outside the US on April 17th. You must file your tax return or request an extension by this date.
- October 15th – This is the final filing deadline if you filed an extension by June 15th. If you owe the IRS, it’s critical that you file your return by this date to avoid failure-to-pay or a failure-to-file penalty on your balance due.
Foreign Bank Account Reporting
- April 17th – This is the deadline for filing your Financial Bank Account Report (FBAR). You can also request a six-month extension by this date.
- October 15th – This is the final filing deadline if you requested a six-month extension.
Need to Get Caught Up On Your US Expat Taxes?
Greenback can help! Our team of expat-expert CPAs and IRS Enrolled Agents has specific experience helping US expats get caught up on their late taxes, and we have a special Streamlined Filing Package to make it even easier. Get started today and become compliant on your US tax obligations!