The United States is one of only a few countries that taxes based on citizenship, regardless of residency. As such, Americans who live and work abroad are still required to file taxes with the IRS if they meet a certain income threshold. Taxable foreign income for U.S. citizens living abroad includes wages, dividends, and rental income.
To file expat taxes with the IRS, the tax season follows a similar timeline as if you were filing from within the U.S.: the tax year runs from January 1 to December 31, and taxes are due in the following year. You must file your federal income tax returns, along with any additional forms that may be necessary based on your situation. If you resided in a state where you still have certain ties, such as property or voter registration, you may also be required to file a state income tax return.
Do Expats Pay Double Taxes?
The U.S. tries to protect citizens from double taxation through tax treaties. These treaties help citizens and residents determine which country certain taxes will be paid to, in order to avoid paying them to both countries. These tax treaties reduce or eliminate taxes that expats have to pay on certain forms of income. The U.S. has tax treaties with 68 countries worldwide, but the treaties vary from country to country. As such, it is important to review the tax treaty with an international tax professional to ensure you are in compliance with both country’s tax codes and that you are not paying double taxes when it can be avoided.
When To File Taxes as an Expat
Expats are given an automatic 2-month extension for filing their tax returns, so they are not due on the typical date of April 15, but rather June 15 of the year following the tax season they are filing for. Taxpayers are still required to pay any taxes due by April 15, and will incur a financial penalty for each day after April 15 that the tax payment is made.
U.S. citizens who live and work abroad often hold assets in foreign bank accounts and these assets must be reported to the IRS along with the annual federal tax returns. If you hold more than $10,000 in a foreign bank account, whether it is in your country of residence or offshore accounts, you are required to file the Foreign Bank Account Reporting form, along with your tax return. This form helps the IRS keep track of international income and assets of U.S. citizens.
Along with filing FBAR, you must file FinCEN Form 114. Both of these forms are due by April 15, but the IRS provides an automatic extension to those who miss the deadline, and the final deadline is October 15. If the deadline is missed by a taxpayer due to negligence, there could be financial and criminal penalties placed against them.
For individuals who hold assets in foreign countries, such as business or properties, that are worth more than $50,000 at any given point throughout the tax year, an additional form is required to be filed with the IRS. This form 8938, is the Statement of Specified Foreign Financial Assets form and helps the government keep track of foreign assets that all citizens may hold. This form should be included with the annual tax return.
If you do not meet the income tax return filing requirement for a tax year, you are also exempt from filing Form 8938, even if you meet the threshold for filing. Consult with an expat tax attorney before determining you do not need to file these international tax forms, as the penalties can be steep and failure to pay penalties can result in prosecution.
FBAR, FATCA & Offshore Disclosure Obligations for Expats
As discussed above, expats have certain obligations to disclose offshore accounts, foreign bank accounts and foreign assets to the IRS each year while filing their annual tax return. The requirements for filing FBAR and FATCA can vary based on an individual’s situation, but the general rule is that if at any point throughout the year you had $10,000 of assets in a foreign bank account that you have financial interest in or control over, you must file FBAR. If at any point throughout the year you had financial assets, such as property or businesses, that are worth more than $50,000, you must file FATCA. These forms are very important to comply with, and failure to do so can result in hefty penalties and fines so consult a skilled expat tax lawyer.