Sometimes, understanding the tax requirements for US expats can be confusing. With different forms to file, a variety of deductions and exclusions and often, the need to report foreign bank accounts, there are quite a few things to keep track of when planning your expat taxes. Let’s play a little game of ‘This or That’ to learn more about some of the most buzzed about topics when it comes to US expatriate tax help.
FBAR or FATCA
You’ve probably heard about the Foreign Bank Account Report (FBAR) or the rather controversial Foreign Account Tax Compliance Act (FATCA), but maybe you don’t know which (if either) apply to you. Here’s how you can better understand the differences between the two with a little US expatriate tax help:
FBAR – This is used for reporting your foreign bank account information to the US Treasury Department annually. It must be filed by all US individuals and businesses who own or have an interest in foreign bank or financial accounts that exceed $10,000 at any point during the calendar year. For the first time, the FBAR will follow the US tax deadlines – while it will be due April 18th, US expats receive an extension until the June 15th expatriate tax deadline. This year, to help taxpayers acclimate to the new deadline, there is also an automatic extension until the final October 16th deadline. This form will go directly to the US Treasury Department – not the IRS. You can learn more specifics about FBAR here.
FATCA – You’ll use Form 8938 to report your foreign financial accounts if the value of your foreign assets is greater than $200,000 on the last day of the tax year or over $300,000 at any point during the year for single or married filing separately taxpayers. For married filing jointly taxpayers, you’ll file Form 8938 if the value of your foreign assets is greater than $400,000 on the last day of the year or more than $600,000 at any point during the year. The types of accounts you must report are quite broad – bank accounts, brokerage accounts, foreign stock/securities, foreign financial instruments, foreign-issued life insurance, annuity contracts with cash value, shares in foreign hedge funds and private equity funds. If required to file Form 8938, you’ll do so along with your US expat taxes.
FEIE or FTC
When it comes to saving money on your expat taxes, fortunately, there are a number of credits, deductions and exclusions you can take advantage of – two of which are the Foreign Earned Income Exclusion and the Foreign Tax Credit. Get the US expatriate tax help you need here:
FEIE – This is a tool provided by the IRS to help you reduce or eliminate the risk of being double taxed (by the US and your host country). If you qualify, you can exclude $101,300 of foreign earned income from your US Tax Return. You must pass either the Physical Presence Test or the Bona Fide Residence Test in order to qualify for the FEIE. Learn more about the two qualifying tests here.
FTC – The Foreign Tax Credit is a dollar-for-dollar reduction in your US tax liability on foreign earned income. It’s important to note that you cannot take the FTC against income you’ve already excluded with the FEIE. This means that you can either use it on additional income over the FEIE limits, or in place of the FEIE, if you don’t qualify or if the FTC saves you more money. There are certain intricacies of the FTC, so be sure you learn more about the ins and outs of the FTC here.
Streamlined Filing or OVDP
From time to time, an American living abroad may have failed to file expat taxes and he or she is unsure of the best way to get caught up. Fortunately, the IRS has two amnesty programs in place to help taxpayers who find themselves in this situation: the Streamlined Filing Procedures and the Offshore Voluntary Disclosure Program.
Streamlined Program: For taxpayers whose failure to file was non-willful (meaning you truly didn’t realize you had a filing obligation), the Streamlined Filing Procedures can help you become compliant with the IRS without incurring large penalties or interest. You’ll be required to file the past three years of late tax returns and up to six FBARs in order to get caught up using this method. Read more about Streamlined Filing requirements on the IRS website.
OVDP: For taxpayers whose failure to file is considered willful (meaning you knew you had a filing obligation but failed to do so for a number of reasons), the OVDP is your best bet for getting caught up. While it can still lead to heavy financial penalties, it eliminates your risk of facing criminal penalties, so it’s certainly something you should consider if you are behind on filing. Get more details about using the OVDP here.
These are just a few of many things you’ll have to understand as an expat taxpayer – that’s why it’s always recommended to consult with an expat tax professional for US expatriate tax help, so you’ll be able to better understand your specific tax requirements. To get more helpful expat tax information regarding how to save money on taxes and important deadlines to mark on your calendar, be sure to download a US expat tax guide!
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