US Expats2021-11-22T12:58:21-05:00

Taxes for Expats | US Citizens Living Abroad

If you’re like many US citizens living abroad, you probably have many tax questions. Maybe you are trying to figure out your tax filing requirements in both countries. Or how to avoid double taxation. Perhaps you heard a rumor that you could exclude more than $100,000 of your income from US tax but aren’t sure how to do it. And what about the FBAR?

The rumor mill among expats never stops. And even when you do your homework online, it’s hard to know if you’re getting the right information. Every day, we help US expats take advantage of the great tax benefits available to them. And avoid the huge pitfalls that can cost them dearly.

Tips for Reducing Your Total Tax

As an American living abroad, you have multiple ways you can reduce your total tax:

  1. Claim benefits under tax treaties
  2. Use the Foreign Earned Income Exclusion and Foreign Housing Exclusions to shield income completely from US tax
  3. Claim foreign tax credits on your US return for taxes paid abroad
  4. Make use of special elections and adjustments in your first and last year’s abroad
  5. Coordinate approaches between your US and foreign tax preparers to identify the best solution for both sides

We can help you navigate the complex calculations and compare your tax results under different approaches. We also advise on how to comply with US tax laws and foreign asset reporting requirements. And can refer reliable tax providers for your foreign tax preparation needs.

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Don’t Forget Your Foreign Asset Reporting

Expat tax is more than just reporting your income and claiming all possible tax benefits for Americans living abroad. It’s also about making sure you get your foreign asset reporting right.

Why? Because your innocent actions (or inactions) can easily get you in trouble with the IRS.

Here are just a few examples of common things Americans do while living abroad that get them in big trouble with the IRS:

  • Investing in a personal retirement plan outside the US (such as an ISA or superannuation)
  • Making employee contributions to a foreign employer’s pension plan
  • Rolling over foreign pension plans to other retirement accounts
  • Not properly reporting employer or personal pensions or life insurance
  • Investing in foreign mutual funds or pooled investments
  • Investing in real estate or other investments through a trust or entity

Doing any of these things (among other actions) can make you subject to US tax and reporting requirements on a variety of required “informational disclosure” forms— not just the FBAR! These forms carry penalties of $10,000, $25,000, or $100,000 per form if you fail to file them each year. Learn more about our Foreign Asset Reporting services.

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Frequently Asked Tax Questions for US Citizens Living in Foreign Countries

Do US citizens always need to file US tax returns when living overseas?2020-01-15T15:05:21-05:00

Generally, yes. As a US citizen, you typically must file a US tax return each year to report your worldwide income and foreign financial assets. This is true even if you live outside the United States and even if you pay foreign taxes on your income. Ultimately, you may not owe US tax, but you shouldn’t be tempted to skip the filings. To claim expat tax benefits (and not owe US tax), you must actually file a tax return. Plus, you might be required to file state tax returns for your home state, as well as informational filings for your foreign assets. Skipping any of these usually results in steep penalties and interest charges.

What is the 330 day rule?2020-01-15T15:04:19-05:00

You may have heard about the Foreign Earned Income Exclusion (FEIE), which allows expats to shield more than $100,000 of salary or compensation from US tax each year. There are two ways to qualify for the FEIE. Under the Physical Presence Test (PPT), you must remain outside the US for 330 days in a 365-day period. Under the Bona Fide Residence (BFR) Test, your days outside the US are less important. This test looks at your facts and circumstances to determine whether you were a resident of a foreign country during the calendar year.

But be careful! Claiming the FEIE is not always your best course of action. If you are in a high-tax country, such as the UK, you often get a better tax result by claiming foreign tax credits. Plus, there are other factors to consider.

I knew about the FBAR but not about the other foreign asset reports. How important are they?2020-01-15T15:03:27-05:00

Very! The IRS sees the fines and penalties associated with these reports as easy money. Unfortunately, many expats and online expat tax providers miss these forms or get them wrong, and the IRS knows it. See our Foreign Asset Reporting [internal link services/foreign asset reporting] information to learn more about the required forms. And if you need to fix your prior reporting [internal link amended return], we can help.

How will the IRS ever know if I have foreign assets or haven’t reported all my foreign income?2020-01-15T15:02:02-05:00

In recent years, the IRS has become more sophisticated in uncovering foreign assets that have not been reported. In 2018, the IRS consolidated its data from years of foreign asset audits and is now using advanced data analytics to focus audits on Americans who may not be reporting their full foreign assets. Check out our blog post on this topic. [internal link to]

I’m thinking about giving up my US citizenship. How do I free myself of future US tax obligations?2020-01-15T15:01:36-05:00

This is a big decision— and one that should be carefully planned from both tax and immigration perspectives. On the tax side, you will need to file specific forms to end your tax obligations. It is not enough to give up your citizenship. Instead, you must certify to the IRS that your last 5 years of tax returns are accurate and have been filed with the IRS. Also, you may be subject to an “Exit Tax” on your net worth. Learn more about our Exit Tax services. [internal link to “Service-Individuals and Expats-Exit Tax Planning] information.

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How We Help US Citizens Living Abroad

As international tax practitioners, we help US citizens living in foreign countries with a variety of needs, including:

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Using an Online Expat Tax Provider?

Please use caution when considering these services! Many American expats are lured in by the low fees advertised by online expat tax providers. They end up paying a steep price.

A large part of our tax practice involves correcting returns that were prepared by these online providers—or by CPAs who are not well versed in expat tax, and expats who tried to prepare their filings themselves.

Daily, we see the high cost that expats pay for using these online and DIY services. They owe back tax and interest. They incur fees to correct past filings. And worst, they pay to defend audits and fight IRS penalties. If they were lucky enough to file timely FBARs, they are still surprised by the many other forms they needed to file for their foreign assets—and the $10,000-$100,000 penalties per missing or inaccurate form.

It’s not worth the risk. Get it done right the first time. We can do that.

Why The Wolf Group?

Since 1983, we’ve worked with clients in the United States and abroad on international tax matters. We have a long history of “cleaning up” complex tax returns, reporting foreign assets, and reconstructing financial records.

Check out our extensive team of CPAs, all with vast international tax experience.

Looking for a Nexia International Partner?

We’re an active member of Nexia International, a global network of independent accountancy, tax and business advisors with over 250 firms around the globe.

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What our clients say

“Living overseas, your personal attention during tax time takes ALL the worry out of that one important task each year. I thank you kindly for giving me peace of mind while I live abroad.”

“Outstanding service. Helped correct some of my past mistakes when I did my own taxes.”

“The whole process was very efficiently handled with the minimum of fuss. Correspondence answered quickly and precisely. Overall, an excellent experience—we have recommended the Wolf Group to others.”

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