US Expat Tax Frequently Asked Questions
Taxes can be stressful for anyone, but for most it is a familiar challenge, a task of either entering numbers into a software or gathering up all their financial documents and sending them to their trusted tax professional for assistance.
For expats, however, getting their taxes filed may be an exercise in frustration. New expats often miss tax deadlines and can become overwhelmed by the process trying to do everything themselves. Even those who have lived abroad for years can find themselves tangled in a tax web if they aren’t careful with their documentation!
Here are a few frequently asked expat tax questions that people seem to struggle with the most. If you can’t find what you’re looking for here, please reach out to an expat tax professional for additional guidance.
Q: What are the deadlines I need to be aware of?
A: June 15 is the filing deadline for expats. Oct. 15 is the filing deadline for extensions and for filing the Foreign Bank Account Report (FBAR).
Q: What is Foreign Earned Income Exclusion?
A: The Foreign Earned Income Exclusion reduces your U.S. tax liability by allowing you to exclude your foreign earnings from income up to an amount adjusted annually for inflation. For tax year 2021, that figure is $108,700 per person, based on inflation. If you’re married and both live abroad, you can each select the Foreign Earned Income Exclusion to protect up to $217,400 in assets. To qualify for the Foreign Earned Income Exclusion, you will need to meet and prove IRS foreign residency or overseas presence requirements.
Q: What is the Foreign Tax Credit?
A: The Foreign Tax Credit is designed to reduce overall liability if you had no choice but to pay foreign income taxes. By filing Form 1116, this credit can reduce the amount of tax you owe.
Q: What is the FBAR?
A: An FBAR is required for all United States citizens, residents, businesses and estates with financial interest in or authority over a foreign financial account or multiple accounts with balances that in combination total more than $10,000 at any time during the calendar year. FBARS are filed on FinCEN Form 114, which is submitted separately for tax returns using FinCEN’s BSA E-Filing System.
Q: If I have to file federal taxes, do I have to file state taxes, too?
A: Maybe, depending on the state you last lived in. Check with your state for more information.
Q: What type of income do I need to report to the IRS?
A: Uncle Sam is interested in all wages and income, even if not earned in American dollars. However, the government is also interested in tips, interest, dividends, pensions, rent, capital gains and royalties.
Q: What happens if I don’t file taxes or my FBAR?
A: There are monetary penalties, loss of passport and/or criminal penalties for expats who don’t follow tax laws whether they are aware of them or not. When in doubt, contact a tax professional if specializes in expat returns.