Taxes as an Expat: 9 Common Mistakes (and How to Avoid Them)

Living abroad may change your view, your routine, and your favorite snacks—but not your tax obligations.

As long as you’re a U.S. citizen or green card holder, the IRS still expects you to file—no matter where in the world you live or work. That includes digital nomads, retirees, self-employed entrepreneurs, and remote employees.

The problem? When it comes to taxes as an expat, the rules are confusing—and easy to mess up. Here are the most common filing mistakes Americans make overseas (and how to dodge them).

Mistake #1: Assuming you don’t have to file a U.S. tax return

This one trips up a lot of Americans abroad: “I live in another country now, so the IRS can’t possibly expect me to file taxes… right?”

Wrong.

If you’re a U.S. citizen or resident alien and your gross income exceeds the IRS filing threshold for your filing status, you’re required to file a federal tax return—even if every penny was earned outside the U.S. That includes income from a job in Paris, freelance work in Bali, or a business in Berlin.

And if you’re self-employed, the bar is even lower: earn just $400 or more and you’re on the hook for self-employment tax, regardless of where your clients live or where you’re working from.

A few important notes:

• Filing a tax return doesn’t always mean owing money—you might qualify for tax benefits like the Foreign Earned Income Exclusion or Foreign Tax Credit.
• Your U.S. return is separate from your local filing in your country of residence. Most expats must file in both.
• Financial accounts abroad may also trigger additional reporting (think FBAR or FATCA), even if your income is modest.

Mistake #2: Missing the tax deadline (or thinking it’s April 15 everywhere)

Expats, rejoice—you get more time. Sort of.

While the standard U.S. tax deadline is still April 15, Americans living abroad automatically get a two-month extension to June 15. No paperwork required. Just a perk of having a foreign address.

But—and this is important—interest on any taxes owed starts accruing from April 15. So even if you file in June, you’ll still owe interest if there’s a balance due.

Here’s how it works:

• April 15: Still the start of the IRS clock. If you owe taxes, interest begins now.
• June 15: Automatic filing extension for expats (but not a payment extension).
• October 15: You can request a further extension if needed—but you must apply before June 15.
• December 15: A final extension is possible for expats, but it’s not automatic—you must submit a written request to the IRS explaining why you need more time.

Bonus for e-filers: You can file online using authorized software or through a tax professional from wherever you are—no printer, post office, or timezone juggling required.

Mistake #3: Ignoring FBAR and FATCA

You moved abroad, opened a local bank account, and maybe even invested in a few foreign funds. Great! Just don’t forget to tell the U.S. government about it.

Many U.S. taxpayers living overseas don’t realize that foreign financial accounts come with their own reporting rules—completely separate from your regular income tax return.

Here’s what to know:

FBAR (Foreign Bank Account Report)

• File FinCEN Form 114 if the aggregate value of all foreign accounts exceeds $10,000 USD at any point in the calendar year.
• This includes checking, savings, pensions, and joint accounts—even if they’re not actively used.
• Due date: April 15, with an automatic extension to October 15 (but don’t wait that long).

FATCA (Form 8938)

• Report foreign assets (like investment accounts, trusts, or certain real estate holdings) if they exceed specific thresholds.
• For expats: Single filers must report if assets exceed $200,000 at year-end or $300,000 at any point during the year.
• This form goes with your Form 1040, not FinCEN.

Mistake #4: Misunderstanding the Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion (FEIE) is one of the best tools American expatriates have to lower their tax liability—but only if used correctly.

Many taxpayers assume they automatically qualify just by living abroad. Unfortunately, it’s not that simple.

To claim the FEIE, you must:

• Have a tax home in a foreign country, and
• Pass either the:
  • Bona Fide Residence Test (you’ve lived in a foreign country for a full tax year), or
  • Physical Presence Test (you’ve been outside the U.S. for at least 330 full days in a 12-month period).

If you qualify, you can exclude up to $130,000 in foreign earned income for the 2025 tax year. (This number increases annually with inflation.)

But here’s the catch:

• The FEIE only applies to earned income (like wages or self-employment)—not pensions, rental income, or investment earnings.
• It doesn’t eliminate your Social Security or self-employment tax obligations.
• If you don’t meet the time tests, you may not qualify at all. Additionally, if you move mid-year, the potential amount of the total exclusion will be lowered. 

Using the wrong exclusion—or applying it incorrectly—is one of the most common expat tax missteps. A smart tax preparation strategy keeps you compliant and maximizes your savings.

Mistake #5: Not using the Foreign Tax Credit

If you’re paying income tax to a foreign country, the Foreign Tax Credit (FTC) could be your secret weapon against double taxation—but many expats overlook it entirely.

The FTC (claimed using Form 1116) allows you to reduce your U.S. tax bill by the amount of foreign taxes you’ve already paid. Unlike the Foreign Earned Income Exclusion, which removes income from taxation, the FTC directly reduces your U.S. tax owed.

Here’s when the credit might be better than the exclusion:

• You don’t meet the residency tests for FEIE.
• You earn more than the FEIE limit (in 2025, that’s $130,000).
• You live in a country with high tax rates—so the credit wipes out your U.S. tax liability.
• You have income that isn’t considered “earned,” such as investments, rental income, or pension income. 

Claiming the FTC correctly takes some calculation—but with the right tax forms and a bit of planning, it’s one of the best tools American expats have to avoid being taxed twice on the same income.

Mistake #6: Forgetting to file state taxes

Just because you’ve moved to a new country doesn’t mean your home state is ready to say goodbye. Some U.S. states—California, New York, and South Carolina, we’re looking at you—are notorious for clinging to expats like a bad ex.

Even if you live abroad full-time, these states may still consider you a resident for tax purposes if you haven’t properly severed ties. That means you could be on the hook for state taxes on your worldwide income—yes, even income earned halfway around the globe.

To qualify for non-resident status, you’ll need to cut the cord. That means:

• Surrendering your driver’s license
• Closing bank accounts with local branches
• Cancelling voter registration
• Updating your mailing address with the IRS and financial institutions

Bottom line: don’t let your state tax obligations sneak up on you. Even when your federal e-filing is in order, that pesky state return can create surprise bills—or worse, penalties.

Mistake #7: Overlooking foreign business and investment reporting

Got a business abroad? Holding crypto in a local exchange? Own rental property in Portugal? If you’re an American expat with foreign investments or businesses, the IRS wants to know—and they’ve got the forms to prove it.

For starters:

• Form 5471: For U.S. taxpayers who own part of a foreign corporation
• Form 8865: For interests in foreign partnerships
• Form 8858: For foreign disregarded entities (think: certain single-owner LLC-style setups)

And it doesn’t stop there. U.S. tax laws require you to report foreign real estate income, crypto holdings, and foreign bank account earnings, even if you’re already taxed locally. That’s because U.S. taxation is based on worldwide income—and self-employed expats are especially likely to miss these requirements.

Mistake #8: Going DIY with complex expat tax returns

Sure, DIY tax software works for a basic W-2 and a cup of coffee. But throw in foreign income, tax treaties, FATCA, and FBAR, and suddenly you’re trying to assemble IKEA furniture blindfolded—with pieces from three different sets.

Most tax software isn’t built for the complexity of U.S. expat returns. It can’t guide you through the Foreign Earned Income Exclusion, spot the best use of the Foreign Tax Credit, or help you avoid double taxation under a tax treaty. And it definitely won’t warn you when you’re about to miss a critical filing requirement.

Mistakes here aren’t just frustrating—they can be expensive. Miss a form or misreport your foreign income, and you could face penalties, audits, or an accidental overpayment.

If your tax life involves multiple countries, income streams, or bank accounts, it’s time to call in tax experts who live and breathe expat tax services.

Mistake #9: Leaving money on the table

Living abroad doesn’t mean saying goodbye to every tax break. In fact, American expats often miss out on refunds they rightfully deserve—just because they didn’t know to claim them.

Here are some of the most commonly overlooked tax benefits:

• Child Tax Credit: Yes, even if your kids live overseas with you.
• Foreign Housing Exclusion: Especially useful if you live in a high-cost city and pay out of pocket for rent.
• Education Credits: Like the Lifetime Learning Credit, which can still apply to eligible U.S. institutions.

Even self-employed expats and those with relatively low gross income may qualify for a refund—especially if they’ve been overpaying or didn’t realize they could offset their U.S. tax liability with foreign credits and exclusions.

Stay compliant—without the headache

Living abroad comes with enough adventure—your taxes shouldn’t be one of them. Understanding your filing requirements, staying ahead of deadlines, and claiming every credit you’re eligible for can make a big difference in your tax situation.

If you’re ready to stop second-guessing and start feeling confident, Bright!Tax can help. Our CPAs specialize in U.S. taxes for expats and remote workers, with clear pricing and support year-round.

Let’s make this your easiest tax season yet.

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