As a US expat, chances are you have a thirst for adventure – and as such, enjoy traveling from place to place. Because you may have more flexibility to move around, you may end up collecting and stashing money in a number of countries. However, many expats don’t realize that doing so can make expat taxes and reporting income a bit more complex! Here are some considerations you should make if you intend to hold financial accounts in different countries.
1. Reporting Financial Accounts
You may be familiar with the Foreign Bank Account Report (FBAR) and FATCA Form 8938, but perhaps you aren’t quite sure of the reporting thresholds. Here’s what you should know as a US expat:
- FBAR: Any US citizen who has bank account(s) with over $10,000 at any time during the tax year must file an FBAR. This is a cumulative amount, so if you have $3,000 in one foreign account and $8,000 in another, you would need to file an FBAR. You’ll file this form electronically with the US Treasury Department, and new in 2017, the FBAR deadline follows the tax deadline – so expats will need to file by June 15th.
- FATCA Form 8938: US citizens must file Form 8938 along with their US Tax Return if the value of aggregate foreign financial accounts meets one of the following thresholds:
- Single/Married Filing Separately – Total value of foreign assets is greater than $200,000 on the last day of the tax year or more than $300,000 at any point during the year.
- Married Filing Jointly – Total value of foreign assets owned by you and your spouse is greater than $400,000 on the last day of the tax year or more than $600,000 at any point during the year.
As you can see, if you have financial accounts spread out across a variety of countries, you’ll want to be sure you’re carefully tracking and reporting these amounts to the IRS!
2. Thoughtful Financial Planning
Not sure of the best location for establishing foreign bank accounts? Take a deep dive into the financial stability of the country, regulations of the financial market, impact on your taxes as a US expat and of course, what’s most convenient for your situation. Own a home in France and considering renting it out when you head off on your next adventure? You may find it easier to maintain a French bank account for handling finances related to your rental property. Transferring money internationally typically incurs transfer and exchange rate fees, which can add up quickly! Not to mention, it can make reporting your financial accounts more complex.
3. Accurate Record-keeping
As a US expat, you probably realize the value of keeping accurate records (for things like qualifying for the Foreign Earned Income Exclusion), but it’s even more important when you hold financial accounts in several countries. Also note that the IRS requires you to report your US expat taxes in US dollars – so you’ll need to use the currency exchange rate applicable on particular dates (a site like oanda.com can help you find specific exchange rates). Keeping a spreadsheet with all transactions can help ease this process.
4. Foreign Pensions
A big area for consideration when living abroad as a US expat is the best way to invest your dollars toward retirement. Fortunately, the US has double tax treaties with about 70 countries, which makes it less complex to participate in a foreign pension plan. However, participating in a foreign pension in a country with which the US doesn’t have a tax treaty is not recommended as it makes reporting complex and has punitive tax rates. You can read more specifics about foreign pensions here, which can help you make an informed decision.
There are a number of important factors to consider when living abroad as a US expat, and it’s always recommended to consult with a tax professional for expat tax advice. You can also find important expat tax deadlines, ways to save and more in our tax guide for Americans working overseas.
Still Need to File Your US Expat Taxes?
With just over a month until the expat tax deadline, it’s time to get serious about completing your expat tax return. Get started today with one of our expat-expert accountants and cross taxes off your to-do list for 2017!