Taxes for expats can be particularly complicated. If you’re a US citizen living abroad and you’ve reached this blog, you’d be pleased to know that you are not the only person looking for answers on the US expatriate tax. In fact, some US expats aren’t even aware that they have to file US tax returns when living overseas. Then there’s the chance of double taxation which has to be mitigated through exemptions or credits, all of which together make expat taxes a lot more complicated than they should be. So, we decided to come up with a few tips to tide over the trouble and help you with your expatriate taxes.
Everything on filing US expat taxes
Let’s face it! Almost every country in the world taxes people who either live in that country or those who earn income originating from that country, but the United States is different! The US taxes both American citizens no matter where they stay as well as Green Card holders/ permanent residents, on their global income. Yes, you read that right! So, even people who’ve never lived in the US or hold a US passport are obligated to pay US taxes, just because they were born on American soil (including military bases) or have one of the parents of American origin.
Now that we’ve cleared this out, it’s time to dive into some of the specifics that can make your life and filing US expat taxes easier.
Foreign accounts: While filing your expat taxes, you have to report your worldwide income, but you must also report your foreign account holdings via FBAR or Foreign Bank and Financial Accounts. This applies to all US citizens who’ve amassed $10,000 or more (in total) across any and all financial accounts. This includes checking, savings, investments, and even pension accounts. If you have signatory authority/ control over any other account, such as a business account, you must report that as well.
Foreign assets: The Foreign Account Tax Compliance Act, mostly referred to as FATCA, doesn’t let US citizens evade taxes through foreign accounts. The FATCA requires all Americans to report their financial assets on IRS Form 8938 every year. For US expats living abroad, the threshold is set at $200,000, though it may vary in some cases. A US tax accountant who specializes in expat taxes may help you better understand the legalities of this.
Foreign businesses: This is another thing that as a US expat you’d have to report to the IRS. All foreign-registered businesses/ corporations owned by an American citizen with at least a 10% stake in it or having a foreign-registered partnership, has to be reported. For this, you would have to file Form 5471 and Form 8865, respectively. Those who have a stake in a foreign-registered LLC must file IRS Form 8832 and Form 8858 annually. To know more, you must consult with a professional US tax accountant.
Foreign taxes: Depending on which country you are residing in or earn income from, you may also be subject to foreign taxes. That said, the United States have several tax treaties in place with many nations around the globe, which prevents Americans living abroad from being double-taxed. According to these treaties, US expats staying abroad for a short period (3-5 years) should continue to pay social security taxes to the US and not to the country in which they reside. If they stay longer in that country, they’ll have to pay the same taxes to the country they are residing in and not to the US.
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IRS provisions to benefit expats living abroad
Not being able to benefit from the US tax treaties? That’s fine! The US offers a couple of other credits and exclusions that would sure come in handy. One of those programs is the FTC or Foreign Tax Credit. It basically allows expats to deduct the taxes that they’ve already paid to the foreign government from what they owe to the US. Since most countries have higher taxes than the US, you often don’t have to pay anything to the US. For those looking to claim the FTC while filing the US expatriate tax, you’ll have to fill out Form 1116.
This brings to yet another IRS provision designed to help US expats lower their tax obligation to the US. This is known as the Foreign Earned Income Exclusion or FEIE and allows US expats to exclude a certain amount of income from taxation. When you consult with a professional US tax accountant while filing your US expat taxes, he or she will guide you through this. For 2023, this amount was $120,000 but has been raised in 2024 to account for inflation. US expats can exclude up to $126,500 on their 2025 tax returns. That said, to claim the FEIE, US expats will have to fill out Form 2555.
Why should you consult with a US tax accountant?
Expat taxes are complicated and thus when you are filing expat taxes, consulting with tax consultants makes sense. As a US citizen living abroad, you are expected to file taxes just like residents in the US, though the process and the sections under which you do so, change. This requires a thorough understanding of the US expatriate tax, tax treaties in place, meeting FBAR and FATCA requirements, and avoiding double taxation – all of which can only be achieved when you have someone with you who can guide you through this. This is where we at Expat Global Tax come in.
At Expat Global Tax, our tax consultants are adept at handling US expat tax regulations, know the ins and outs, and thus are best suited to help you navigate these intricate tax rules, meet compliance, and even lower your tax burden. We can help you understand on how to use the tax benefits, thereby significantly reducing your tax liabilities. The fact that we stay updated with the latest tax rules make us the best people to reach out to when dealing with USA expat taxes.
So what are you waiting for? Connect with our experts at Expat Global Tax, now!
