Get to know the authorWhen tax season rolls around, many expats find themselves wondering: Should I do my own taxes? While it is possible to do taxes by yourself or with the help of tax preparation software, it’s not exactly ideal.
The US tax code contains many complexities as is. Factor in expat status, and it gets all the more complicated. Even with the help of tax software, it’s easy to make mistakes, overlook reporting obligations, and miss beneficial tax provisions.
The best way to file accurately and optimally is to hire a professional tax preparation service that specializes in expat taxes. Often, the savings tax professionals help you find are greater than the cost of hiring them — making it smart to work with a tax pro regardless of your financial situation.
But tax professionals can do much more than just help you save money. Below, we’ll go over some of the top benefits of hiring a tax expert.
Maximize tax deductions & credits
Tax deductions and credits are one of the best ways to minimize your US tax burden, but very few taxpayers are familiar with the full array available to them.
To avoid the tedious process of itemizing deductions, many taxpayers opt for the standard deduction. But as an expat, there are typically more beneficial tax breaks available to you, like the:
- Foreign Earned Income Exclusion (FEIE): Allows expats to exclude up to $120,000 of their foreign earned income from taxation in the 2023 tax year, and up to $126,500 in 2024
- Foreign Housing Exclusion/Deduction (FHE/FHD): Helps expats offset qualifying foreign housing expenses like rent, utilities, parking, and more
- Foreign Tax Credit (FTC): Provides expats with dollar-for-dollar credits on any foreign income taxes they’ve paid, often completely erasing US tax liability. In some cases, they even receive surplus credits they can apply to future tax bills
And that’s not even to mention all the different tax breaks available to small business owners, parents, and students. A qualified US expat tax professional will be aware of all of these options, as well as any changes due to constantly evolving tax laws. This helps you reduce your tax liability as much as possible.
Note:
Mistakenly claiming a deduction you don’t qualify for — or making a mistake in your claim — can trigger an IRS audit. When you have an expert hand reviewing your return, they can alert you to potential red flags. Tax software and free filing programs, however, rarely catch these — so you won’t be aware of your mistake until after the IRS notifies you.
Achieve full compliance
As you may know by now, a tax return must often include more than just the standard Form 1040. You may need to file additional or different schedules, forms, and reports depending on your circumstances.
On top of that, living abroad can often add to or change your reporting obligations. Expats with foreign financial accounts and assets may need to file reports like the following:
- Foreign Bank Account Report (FBAR): Mandatory for Americans with more than $10,000 across foreign financial accounts
- Statement of Specified Foreign Financial Assets (Form 8938): Mandatory for expats with more than $200,000 worth of foreign assets on the last day of the tax year or over $300,000 worth of foreign assets at any point during the tax year
- Note: Americans living within the US may need to file this report as well, but the reporting thresholds are significantly lower ($50,000 vs. $200,000, $75,000 vs. $300,000)
Whatever forms or reports you have to submit, a tax professional will make sure to include them when filing your return.
Avoid potential IRS penalties & amended returns
It’s easy to make mistakes during the filing process, whether you enter a number incorrectly or fail to file a mandatory report.
Unfortunately, even unintentional errors can have consequences. At the very least, you usually have to file an amended return, which can be difficult, stressful, and time-consuming. In other cases, you may face more severe penalties and fines.
Take for example, the FBAR we mentioned above. The lowest-level penalty for an incorrect FBAR filing or non-willful (unintentional) failure to file is $10,000 per report. Intentional errors can carry a fine of $100,000 or 50% of the account balance at the time of the infraction (whichever is higher). In some cases, a tax error may even lead to prison time.
A 2010 law called the Foreign Account Tax Compliance Act (FATCA) compels foreign financial institutions to share American expat clients’ account details with the US government. So, even if the government doesn’t reach out to someone immediately after an FBAR mistake or failure to file, they might catch up at some point.
Tax professionals understand the significance of errors and failures to file, and can flag them to you before filing your tax return. That way, you don’t have to worry about re-filing or paying a steep fine.
Pro tip:
Tax professionals may also be able to help you catch up on back taxes without penalties. An IRS amnesty program called the Streamlined Filing Compliance Procedures allows expats to get up-to-date on past-due federal tax returns with no additional fines or fees.
Save time & reduce stress
According to the IRS, the average American takes 13 hours to complete and submit their tax return. For business owners, that number increases to 24 hours. If you have a complex situation—say, a foreign-registered business, multiple streams of income, or depreciation to calculate—it can take even longer.
With a tax professional, though, you won’t have to spend time digging through the tax code, interpreting complex instructions, or filling out and reviewing forms. All you need to do is share information about your income, expenses, assets, and other details. From there, your tax consultant will do all the heavy lifting.
Leaving your taxes to a credentialed tax expert like a Certified Public Accountants (CPA) or enrolled agent (EA) also helps reduce stress. These professionals have the knowledge, experience, and educational background needed to handle even the most complex tax scenarios.
Ultimately, this decreases the odds of tax return mistakes — and subsequently, amended return requests, penalties and fines, and audits.
Pro tip:
You can contact tax professionals at any point in the year if you have questions or concerns. Unlike the live help agents some tax software companies offer, a dedicated tax professional will already be familiar with your specific tax situation. As a result, they’ll be able to offer better, more personalized advice.
Optimize your long-term tax strategy
Partnering with a tax professional doesn’t just help you mitigate your tax burden on one return — it can lead to significant long-term savings. An expat tax professional can help you develop an optimized tax strategy that ensures you don’t have to pay any more than your fair share.
For example, a tax professional can advise you on:
- What type of business structure to elect
- How to reduce your taxable income
- Whether (and where) to register a foreign business
- Tax-efficient retirement savings strategies
By evaluating your circumstances through an expert lens, a tax professional can make more informed tax planning recommendations. In many cases, this can reduce your tax burden for years to come.
Tax prep software is incapable of providing this long-term view and making detailed, personalized recommendations. Trying to plan by yourself, meanwhile, opens you up to significant risk — very few taxpayers have the expertise needed to optimize their tax strategy.
Find a partner in Bright!Tax
The bottom line is that taxes are complex. For expats, that’s doubly true. There are even more tax breaks, reporting obligations, and complex rules for Americans abroad than their stateside counterparts.
Trying to navigate all of this on your own can be time-consuming and stressful. And going it alone can lead to errors, amended returns, audits, penalties, higher tax bills, and suboptimal tax strategies.
