While living and working abroad can offer fantastic lifestyle and career opportunities, international tax can be a confusing topic to understand. As U.S. expats, you are taxed using a citizenship-based system, meaning that no matter where you live or earn your income, you will need to declare your worldwide income to the IRS every year.
There are a few things you must do to ensure full Expat Tax compliance. Here we will walk you through how to stay on top of your international tax deadlines.
1. Master the Expat Tax Calendar
One of the largest mistakes many expatriates make when it comes to international tax is assuming the deadlines will be the same as they are at home. Taxpayers residing in the US have a deadline of April 15th to file their tax return, but expats receive special extensions.
Key Dates for Individual Expat Returns:
- April 15: This is the primary payment deadline. Even though your filing deadline may be extended, any tax liability owed for the prior tax year must be paid by April 15 to prevent interest from accruing.
- June 15: U.S. expatriates residing overseas are automatically granted an additional two months to file their tax returns, extending the deadline from April 15 to June 15 without requiring a separate extension application.
- October 15: If you require extra time beyond June 15, filing Form 4868 extends your federal filing deadline to October 15.
- December 15: Under special circumstances, expats can apply for an additional discretionary two-month extension through written request to the IRS.
2. Don’t Ignore Foreign Financial Account Disclosures
This is much more than just reporting your income. The United States government has strict reporting requirements for foreign assets. If you do not file the information forms you can get some of the highest penalties from the tax code.
FBAR (FinCEN Form 114))
You are required to file an FBAR if the total combined value of your overseas bank accounts, mutual funds, and investment holdings surpasses $10,000 at any time during the tax year.
- Filing Path: Filed online via the BSA E-Filing System, separate from your standard 1040
- Deadline: Officially due April 15, with an automatic extension to October 15 (no extension form required).
(FATCA / Form 8938)
If your foreign specified financial assets exceed specific thresholds (typically $200,000 on the last day of the tax year for single filers residing abroad), you must attach Form 8938 directly to your federal income tax return. Because Form 8938 is part of your main tax return, it follows your standard Form 1040 filing deadlines (including the June 15 and October 15 extensions).
3. Utilize Provisions to Avoid Double Taxation
Staying compliant doesn’t mean paying taxes twice. Seeking expert tax advice for expats can help you leverage specific mechanisms designed to minimize or eliminate double taxation:
- Foreign Earned Income Exclusion (FEIE – Form 2555): Allows qualified expats to exclude up to $130,000 (indexed for inflation) of foreign earned wages or self-employment income. To qualify, you have to meet either the Bona Fide Residence Test or the Physical Presence Test (requiring 330 full days spent in foreign countries over 12 months).
- Foreign Tax Credit (FTC – Form 1116): Offers a dollar-for-dollar credit against your U.S. tax bill for the income taxes can be paid to a foreign country. FTC is often the preferred choice for expats residing in high-tax countries (e.g., across Western Europe) because it helps generate tax credits that can be carried forward.
Choosing between the FEIE and FTC depends heavily on your location, income composition, and family status—making personalized tax advice for expats crucial prior to choosing your strategy.
4. Best Practices for Bulletproof Compliance
- Keep digital folders. Keeping a record of the balance statements for any foreign bank accounts during the year will help with calculating the FBAR. It is important to keep track of your dates travelled in/out of the U.S. to ensure you qualify for the FEIE.
- Convert currencies. All foreign currencies must be converted into U.S. Dollars using the official exchange rates provided by the Treasury.
- Catch Up via Tax Amnesty Programs: If you were unaware of your obligation to file U.S. taxes from abroad, do not panic. The IRS offers the Streamlined Filing Compliance Procedures, an amnesty program allowing non-willful expats to catch up on delinquent returns and FBARs without facing failure-to-file penalties.
Final Thoughts
Getting your Expat Tax compliant is simple, you just need to know when you are going to complete your tax, keep your records in order, and take advantage of international tax credits. Being prepared and having a professional Expat Tax advisor will ensure that you don’t get any unexpected interest or disclosure charges.
