Your Guide to Filing Taxes as an American Expat

article by Arya A. author
Are you living outside the country because of work, family, or you are protesting the current political climate? You're not alone and you currently join the millions of Americans who live and work abroad.

And while you are no longer physically residing in the U.S., you still have to pay your fair share of taxes. The IRS still wants its cut, even if you aren’t making American dollars. Knowing the rules ahead of time will make things easier when you enlist the help of tax preparation services in your new home.

Your Overseas Income May be Excluded

If you live and work outside of the United States, up to $92,900 USD of income earned overseas may be excluded from your return. You must pass a residence or physical prescience test in order to qualify.

Form 2555 must be filled out as part of you 1040 in order to claim the exclusion.

Claim the Foreign Tax Credit

Those of you living in another country are probably paying taxes there as well. You can claim the Foreign Tax Credit to help ease the impact of double taxation. Just fill out form 1116 for the 1040 to claim a deduction for your foreign income tax payments.

Don’t worry; you won’t have to hire a tax accountant to get the deduction. All of the best tax software services like TaxAct and Online Taxes provide support for the Foreign Tax Credit. The program will ask straightforward questions that will determine how much you can deduct.

Taxes Must be Paid in US Dollars

When filing your taxes as an expat, remember that you must pay any amount owed in US dollars. Foreign exchange rates change daily, so make sure you get the most current rate in order to save a few bucks when filing. It is always best to check the exchange rates before you file. The best online tax filing programs just allow you to file and pay your taxes. They won’t provide exchange rate data.

You Have Longer to File

The good news is that you have longer to file your tax return than the average American, who only have until April. Expats get an automatic extension to June 15. However, if you know that you owe taxes, you must pay those taxes by the initial filing deadline to avoid interest charges. Late payment penalties don’t kick in until June 15.

If you need further time to file your return, you can file Form 4868 and get an extension to October 15.

If You Don’t File – The IRS Will Come After You

 Some expats believe that they can skip filing taxes and the IRS will never bother them. If you fall in that category, get ready for your wakeup call. In 2010, the Foreign Account Tax Compliance Act (FATCA) was enacted and since that time, the IRS has entered into partnerships with other nations to gather financial information on expats.

For those that are caught skirting their taxes, consequences can be severe. In addition to amassing penalties and interest, you may get deported.

Staring in 2016, any expat who owes $50,000 or more in back taxes could have their passport cancelled by the government. Once this happens, authorities in the country you live in can arrest you and send you back to the United States.

Luckily, there are tax amnesty programs available that can get you back into the good graces of the IRS. You definitely should seek legal representation if you decide to go this route.