If you’re an American who moved abroad, you may have been surprised by the fact that you have a continued, lifelong requirement to file annual Federal Tax Returns. Expat taxes follow you around the globe for as long as you remain an American citizen, and many expats feel as if they don’t know where to begin. Greenback was founded by expats, and many of our accountants understand the dread and shock expats go through when they find out about the tax-filing requirement. Check out our step-by-step guide to the basics of expat taxes so that you know what lies ahead.
Step One: Determine If You Are an American Citizen
If you have spent the majority of your life stateside, the answer to this question is easy. However, there is a group of expats who were surprised by their American citizenship – these expats are often referred to as “Accidental Americans.” Accidental Americans often come from backstories where their parents gave birth to them in America, but in some instances, they were in the US for less than a week and have never been back. Even this category of expats is subject to American expat taxes, and the apparent unfairness of this has led to a recent lawsuit in France. So, chances are good that if you were born here, you are required to file expat taxes each year.
Step Two: Determine How Long You Have Been Abroad
Some expats recognize right away that they need to pay taxes. For others, years may pass before they realize that they are now non-compliant with their US expat taxes. If you’re in the first category, filing taxes is relatively simple. Expats receive an automatic extension to file taxes through June 15th each year, so you’re not even late yet! You can also request an additional extension until October 15th, as long as you file the request by June 15th.
Step Three: Save Money on Your Expat Taxes
If you know where to look, there are lots of available exclusions, deductions, and allowances that can help reduce your tax liability and avoid double taxation at the same time. For starters, to use the Foreign Earned Income Exclusion, you’ll need to fill out Form 2555 after qualifying via one of the tests. Using Form 2555 allows you to deduct qualified expenses with the Foreign Housing Exclusion as well.
Depending on the country in which you currently reside, the US may have a Totalization Agreement that can prevent you from paying into Social Security twice. The US may also have a tax treaty with the country where you live, which helps mitigate double taxation.
Step Four: Consider All the Factors
Expats are not just on the hook for filing annual expat taxes, they also may find themselves with other tax-filing requirements. For instance, if you have more than $10,000 in foreign bank accounts (total – including all of your bank accounts!), you will likely have to file FBAR (Foreign Bank Account Reports). Depending on the amount of your foreign assets, you may also need to file FATCA Form 8938.
If you moved from a sticky state, you may be required to file annual state tax returns. And, additional forms and schedules may be necessary if you own a small business, are a shareholder of a PFIC (Passive Foreign Investment Company), or in certain other circumstances.
Step Five: Get Caught Up on Your Expat Taxes
If you’re several years behind, fortunately, the process to get caught up is also relatively simple and can typically be accomplished without accruing penalties. Expats who were unaware of their tax-filing requirements can use the Streamlined Filing Procedures to get caught up. You’ll just need to file three years of delinquent Federal Tax Returns and six years of FBARS. However, you cannot use Streamlined Filing Procedures if you knew of the requirement or if the IRS contacted you for being non-compliant. So, the sooner you get started, the better!
Greenback Can Make This Easy
Greenback’s team of expert accountants focus exclusively on expat taxes and are here to tackle the hard stuff so you don’t have to. Get started today, and you’ll be compliant before you know it!