Top 3 Expatriate Tax Tips

Sometimes it seems like to tax season never really ends. Either you find yourself worrying about your tax liabilities, utilizing strategies to reduce your tax bill, collecting information for your annual tax filing, completing your current tax form or waiting for your taxes (and any refunds) to be processed. It sometimes seems like a never-ending cycle.

For American expats living abroad, the stress at tax time is real. After living overseas for even a short period, chances are you’ve heard horror stories from fellow U.S. citizens sharing their own unique experiences as they adjusted to their new lifestyle outside of the 50 states. Avoid their missteps by following these Top Three tax tips to make the 2022 tax season your least stressful one yet.

Don’t forget to file

It seems obvious but forgetting to file their United States tax returns is a major reason why so many expats incur costly fees and penalties. Sometimes expatriates – especially those living abroad for less than a year – can focus so much on their local tax liability and a filing process that is so new to them that they forget that Uncle Sam is still expecting to hear from them, too.

In addition, new expats may not even be aware that they continue to have a tax relationship with the Internal Revenue Service (IRS) simply because of their citizenship and not their current residency status.

Those who do understand the tax laws and requirements in dual countries may still miss the tax filing deadline since all expats receive an automatic two-month extension through June 15 to file their return.

Reduce your tax bill by claiming the Foreign Earned Income Exclusion or Foreign Tax Credit 

To avoid double taxation on income already being taxed, the IRS provides two valuable tools for expats: The Foreign Earned Income Exclusion and the Foreign Tax Credit. The caveat is that you must choose one and cannot claim both. This means you need to research the two to see which benefits your family’s circumstances more.

The Foreign Earned Income Exclusion, according to the IRS, allows you to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation. For 2021, that figure comes in at $108,700 per person. 

The Foreign Tax Credit recognizes that expats are required to pay taxes to a current country of residence, and it balances tax responsibilities by allowing taxes already paid to be claimed on American tax form 1116.

You may have to file an FBAR

A Foreign Bank Account Report, or FBAR, was created to prevent tax evasion. It requires all United States citizens with a foreign financial account that totals more than $10,000 at any time during the calendar year to report it to the IRS. This includes brokerage accounts and mutual funds.

Using FinCEN Form 114, the FBAR needs to be separately submitted from tax forms and filed electronically using the Financial Crimes Enforcement Network’s BSA E-Filing System,