Tax for Expats: Things to Know When Filing Form 1040

Tax for Expats and Form 1040

As an expat, you may have a lot of questions about your tax for expats liability and may not know offhand which forms you need to complete. That’s completely normal, and why it can often be helpful to work with an expat tax professional to guide you through the filing process. One thing that you should be aware of, however, is filing Form 1040 – this is the form all US taxpayers must use to file a US Tax Return, regardless of where in the world they are living. Get the details about this form below.

Reporting Worldwide Income

All US taxpayers must report worldwide income (which means foreign earned income, too) on their US tax for expats, so if you’re living abroad as an expat, you must meet this requirement as well. According to the IRS, income must be reported regardless of where it was earned, if taxes were already paid on it somewhere else or what currency it was earned in. With that said, you can see why it’s so important to maintain accurate records, since you must report every penny on your Federal Tax Return!

What Needs to Be Reported

Now that you know worldwide income must be reported, these income categories might help you calculate what you’ll need to report for the tax year:

  • Wages and salaries
  • Taxable interest (Schedule B)
  • Ordinary dividends
  • Returns, credits or other offsets/local income taxes
  • Alimony received
  • Business profit or loss (Schedule C or C-EZ)
  • Capital gains or losses (Schedule D)
  • Other gains or losses (Form 4797)
  • IRA distributions
  • Pensions and annuities
  • Rental real estate, royalties, partnerships, S-corps and trusts (Schedule E)
  • Farm income
  • Unemployment compensation
  • Social Security benefits
  • Other income

In any event, it’s so important to have documentation that shows exactly how you earned the income – because if you were audited, you will need to prove the amount reported on your tax for expats is accurate.

Saving Money on Your Tax for Expats

While it may seem daunting to report your worldwide income in the US, even if you’ve already filed taxes in your host country, luckily there are some deductions that will help you offset your US tax for expats liability. These include:

  • Educator expenses
  • Business expenses – Form 2106
  • Health savings account deductions – Form 8889
  • Moving expenses – Form 3903
  • Penalty on early withdrawal of savings
  • Alimony paid
  • IRA deductions
  • Student loan interest
  • Tuition fees paid
  • Other deductions

Also, there are a few ways US expats in particular can save big on US tax abroad, including:

  • The Foreign Earned Income Exclusion, which allows you to exclude up to $101,300 of foreign earned income from your 2016 US taxes or $102,100 from your 2017 US taxes.
  • The Foreign Tax Credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
  • The Foreign Housing Exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.

You can find more money-saving tips in our tax guide for Americans working overseas.

What’s Next?

Knowing what information to gather is a big step of the tax filing process, so now that you’re aware of the documentation you may need, you can begin the process of filing Form 1040 using these steps:

  1. The easy part – fill out your name, spouse’s name and dependents (if applicable).
  2. Report your income using information provided from respective distributors (employers, banks, mortgage lenders, etc.).
  3. When you’ve determined your total income, you’ll adjust it with the appropriate deductions (including the Foreign Earned Income Exclusion, mentioned above) to show your adjusted gross income (the amount taxed by the US). You can review tax rates to determine how much you’ll owe by consulting this table (if you made less than $100,000) or use the tax computation worksheet on page 89 (if you earned more than $100,000).
  4. Once you’ve completed Form 1040, you will be able to e-file or mail in your tax return, depending on your situation and preferences.

If you aren’t ready to file your 2016 tax for expats yet, you can request an extension until the October 16th deadline – but the extension request must be filed by June 15th!

Still Need to File Your 2016 Tax for Expats?

Our team of expat-expert accountants is standing by, ready to help you become and stay compliant on your expat tax obligations. Get started with us today and we’ll help you file an extension request to give us more time to work together to complete your expat tax return!