Taxes as an Expat: 9 Mistakes That Could Cost You

Living abroad may change your view, your routine, and your favorite snacks. It doesn’t automatically end your U.S. tax filing duties. U.S. citizens and resident aliens must still report worldwide income when they meet the filing requirements.

At Bright!Tax, we help Americans living abroad work out what to file, which tax breaks to claim, and what deserves a closer look. Here are nine mistakes to avoid when handling U.S. expat taxes.

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

“I live in another country now, so the IRS can’t possibly expect me to file taxes… right?”

Your overseas address doesn’t settle that question.

If you’re a U.S. citizen or resident alien, including most green card holders, your filing requirements still depend on your income and circumstances. That includes income from a job in Paris, freelance work in Bali, or a business in Berlin.

For adults who aren’t dependents, these are the basic gross income filing thresholds:

Filing status	2025 tax year	2026 tax year
Single, under 65	$15,750	$16,100
Married filing jointly, both under 65	$31,500	$32,200
Head of household, under 65	$23,625	$24,150
Married filing separately	$5	$5

These are starting points, not the complete filing rules. Different thresholds can apply to older taxpayers and dependents, and other circumstances can require a federal income tax return below these amounts.

You must count income before applying the Foreign Earned Income Exclusion.

Say we’re reviewing a return for Elise, an American employee in Spain earning $48,000. Even if an exclusion or credit removes her federal income tax bill, she still meets the income threshold for filing.

Self-employed taxpayers have another trigger: net earnings from self-employment of $400 or more can require a return. U.S. self-employment tax may also apply, unless a separate exemption, such as coverage under a totalization agreement, changes the result.

Living abroad doesn’t make you a non-resident alien

A U.S. citizen doesn’t become a non-resident alien simply by moving overseas. The Internal Revenue Service uses that term for a non-U.S. citizen who does not meet the rules for U.S. tax residency, subject to exceptions and elections.

If your spouse is a non-resident alien, that can affect your filing status and available tax benefits. We review those choices separately rather than assuming every married couple should file a joint U.S. income tax return.

A few distinctions matter:

• Filing a return doesn’t necessarily mean owing tax.
• Your U.S. return is separate from any return required in your country of residence.
• Foreign accounts can trigger FBAR or FATCA reporting even when your income is modest.

Mistake #2: Missing the tax deadline

Americans abroad can get extra time. But the details matter, especially when a filing extension and a payment extension aren’t the same thing.

The normal federal deadline for calendar-year taxpayers is April 15.

You qualify for an automatic two-month overseas extension if, on the regular due date, you’re a U.S. citizen or resident alien and:

• You live outside the United States and Puerto Rico, and your main place of business or post of duty is also outside those places; or
• You’re serving in the military or naval service outside the United States and Puerto Rico.

You don’t need to submit an advance application for this extension. You do need to attach a statement to your return explaining why you qualify.

Deadline	What it means
April 15	Normal filing and payment deadline; interest starts on unpaid tax after this deadline
June 15	Qualifying overseas taxpayers receive an automatic extension to file and pay, but interest still runs from the April deadline
October 15	A further filing extension is available, normally by submitting Form 4868 by the qualifying June deadline
December 15	Certain taxpayers abroad can request a discretionary filing extension by sending an explanatory letter by the October deadline

These are the usual calendar-year deadlines. Weekends, holidays, and special relief can change the dates.

The two-month overseas extension covers both filing and payment. However, it does not stop interest on unpaid tax from the regular April deadline. Later filing extensions do not provide extra payment time.

If you need more time to meet an FEIE qualifying test, Form 2350 may be more appropriate than a standard filing extension.

Don’t overlook estimated taxes

Your annual filing deadline isn’t your only payment date.

If you have self-employment income, investment income, or other income without enough U.S. withholding, you may need to make payments toward estimated taxes during the year. These payments can cover income tax and self-employment tax.

We check this for our Bright!Tax clients who freelance abroad or receive pay from foreign employers without U.S. withholding. An extension to file your annual return does not automatically postpone estimated tax payments.

Mistake #3: Ignoring FBAR and FATCA

You moved abroad, opened a local bank account, and perhaps started saving or investing there. Nothing unusual about that.

But foreign financial accounts come with their own U.S. reporting rules. These can apply even when you owe no federal income tax.

FBAR: Reporting foreign financial accounts

The Foreign Bank Account Report, usually called the FBAR, is filed using FinCEN Form 114.

A U.S. person must file if they have a reportable financial interest in, or signature authority over, foreign financial accounts whose combined value exceeds $10,000 at any time during the calendar year, subject to reporting exceptions.

Reportable accounts can include:

• Checking and savings accounts.
• Brokerage accounts.
• Certain foreign pension accounts.
• Joint accounts.
• Certain insurance policies with cash value.

An inactive account isn’t automatically exempt.

For a client like Mateo in Mexico, we would check every reportable account, not just the largest one. If his checking account holds $6,000 and his savings account holds $5,000 at the same time, their combined $11,000 exceeds the threshold. Neither account needs to reach $10,000 on its own.

You file FinCEN Form 114 separately from your tax return. The standard April 15 deadline has an automatic extension to October 15.

FATCA: Reporting specified foreign financial assets

Form 8938 covers specified foreign financial assets, including foreign financial accounts and certain investments held outside an account.

For individuals who meet the IRS rules for living abroad:

Filing status	Value at year-end	Value at any point during the year
Single or married filing separately	More than $200,000	More than $300,000
Married filing jointly	More than $400,000	More than $600,000

A foreign address alone doesn’t establish eligibility for these higher thresholds. Lower thresholds apply when the IRS living-abroad conditions aren’t met.

If you aren’t required to file an income tax return, you don’t have to file Form 8938. A separate FBAR duty may still apply.

Reporting rule	FBAR	Form 8938
Filed with	FinCEN	IRS, with your income tax return
Main focus	Reportable foreign financial accounts	Specified foreign financial assets
Can apply without an income tax return requirement?	Yes	No
Does filing one replace the other?	No	No

Directly owned foreign real estate is not reported on Form 8938. An interest in a foreign entity that owns real estate may be reportable.

Mistake #4: Misunderstanding the Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion can reduce federal income tax on qualifying work abroad. It isn’t automatic, and it doesn’t cover every kind of income.

To claim it, you need:

1. Qualifying foreign earned income.
2. A tax home in a foreign country.
3. Eligibility under either the Bona Fide Residence Test or Physical Presence Test.

Test	Basic requirement
Bona Fide Residence Test	Genuine foreign residence for an uninterrupted period including an entire tax year; additional citizenship requirements apply to resident aliens
Physical Presence Test	Physical presence in foreign countries for at least 330 full days within 12 consecutive months

The Physical Presence Test counts qualifying days in foreign countries, not simply days outside the United States. International waters and airspace aren’t foreign countries, although special rules cover short trips between foreign countries.

Tax year	Maximum FEIE per qualifying person
2025	$130,000
2026	$132,900

If your qualifying period covers only part of the tax year, the maximum is prorated.

What the exclusion doesn’t cover

The FEIE does not exclude:

• Pay for work performed in the United States.
• Pension or Social Security benefits.
• Interest, dividends, or capital gains.
• Ordinary rental income.

In other words, earning passive income abroad doesn’t make it eligible for the FEIE. Interest from a foreign savings account and dividends from an overseas investment need their own tax review.

The exclusion also does not reduce U.S. self-employment tax, which includes Social Security tax and Medicare tax.

Take a freelancer like Nina in Thailand with $20,000 of Schedule C profit and no other income. Assuming no social security coverage exemption applies, her U.S. self-employment tax would be about $2,826. Claiming the FEIE would not remove that tax.

Mistake #5: Not using the Foreign Tax Credit

If you pay income tax in another country, the Foreign Tax Credit deserves a look.

It can help reduce double taxation when the United States and another country tax the same income.

Unlike the FEIE, which excludes qualifying income, the FTC reduces U.S. income tax based on eligible foreign income taxes paid or accrued. Individuals usually calculate it on Form 1116.

The credit has limits. It is not a dollar-for-dollar refund of every foreign tax you pay.

Question	FEIE	Foreign Tax Credit
What does it do?	Excludes qualifying earned income	Reduces U.S. income tax using eligible foreign income taxes
Requires an FEIE residence or presence test?	Yes	No
Can help with investment or pension income?	No	Potentially, subject to source and credit rules
Reduces self-employment tax?	No	No
Allows relief for taxes on excluded income?	Not relevant	No

For an employee like Ben in Germany, we would compare the eligible German tax with the U.S. tax on that income.

If his eligible German income tax is $18,000 and his FTC limit for that income category is $12,000, he can use up to $12,000 in that calculation. The remaining $6,000 doesn’t automatically become a tax refund. It may qualify for a carryback or carryforward under the credit rules.

Can you use the FEIE and FTC together?

You can use both on the same return when the rules allow it. But you cannot claim a credit for foreign taxes on income excluded under the FEIE.

You might exclude part of your foreign salary and claim the FTC for eligible foreign taxes on the portion that remains taxable.

If you already have an FEIE election, review the consequences before switching approaches. Revoking the election can restrict your ability to claim it again for the next five tax years without IRS approval.

Mistake #6: Forgetting to file state taxes

Just because you’ve moved to another country doesn’t mean your former state is ready to say goodbye.

California, New York, and South Carolina are examples of states where living abroad can still leave you with state tax duties. Your domicile, time spent in the state, living arrangements, and intentions can all matter.

A state that treats you as a resident may tax your worldwide income. A state that treats you as a nonresident may still tax income sourced there.

There’s no universal checklist that makes you a nonresident.

Factor to review	Why it matters
Permanent home and plans	A temporary overseas assignment may not change your domicile
Days in the state	Some states have separate day-count residency rules
Homes available for your use	Keeping a home can affect the analysis
Family and business ties	These can help show where your main connections remain
State-specific exceptions	Safe harbors may allow nonresident treatment even when domicile remains
State-source income	Rental income, workdays, or business income may remain taxable after a move

For example, if we’re reviewing an overseas assignment for a California client, we check whether the state’s employment-related safe harbor applies. That is a different question from whether the client qualifies for the federal FEIE.

California’s safe harbor can cover qualifying absences under an employment contract lasting at least 546 consecutive days, but exceptions and limits apply. New York has its own rules. One state’s answer doesn’t travel with you to the next.

Also, don’t cancel your voter registration based on a generic tax checklist. Voting for federal candidates from abroad does not itself create state tax liability.

Mistake #7: Overlooking foreign business and investment reporting

Got a business abroad? An interest in a foreign corporation? Rental property in Portugal?

The U.S. reporting question goes beyond whether the income appears on your return. Some interests and business activities require separate information forms.

Form	What can trigger it
Form 5471	Certain ownership, control, acquisition, officer, or director circumstances involving a foreign corporation
Form 8865	Certain foreign partnership ownership, contributions, or ownership changes
Form 8858	Certain foreign disregarded entities and foreign branches
Form 8621	Certain interests in passive foreign investment companies, which can include foreign mutual funds
Form 8938	Specified foreign financial assets above the relevant thresholds

Owning any amount of foreign stock does not automatically mean you need Form 5471. Equally, a business doesn’t need to be large or profitable to create information reporting duties.

U.S. tax classification matters. A business treated one way under local law may be treated differently on your U.S. return.

What about property and crypto?

Income from foreign real estate can be reportable even when taxed locally. Direct ownership of the property itself does not automatically trigger FBAR or Form 8938.

Crypto needs a separate review. Sales, exchanges, payments, and certain rewards can create reporting duties. Merely holding crypto does not by itself create a taxable transaction.

For a client who buys Bitcoin with euros and holds it all year, we would distinguish that purchase from a later sale, exchange, or receipt of staking income. They are different events with different tax consequences.

Mistake #8: Going DIY with a return your software doesn’t support

DIY tax software can handle some overseas returns. The question is whether your chosen product supports your return.

Add foreign companies, pension plans, FATCA, multiple income categories, and a tax treaty, and the job can start to feel like assembling furniture with instructions from three different sets.

That doesn’t mean software is useless. Products can support Form 2555 and Form 1116, and some include guided questions. But form support and tax planning are not the same thing.

Before filing, check:

Question	Why it matters
Does the product support every required form?	A basic federal return package may omit international information returns
Can it handle your foreign address and identification details?	Product restrictions can affect filing
Does it support your income categories and carryovers?	FTC calculations may need more than one Form 1116
Have you compared the FEIE and FTC?	The first available option may not produce the best result
Does a treaty position need review or disclosure?	Treaty relief is not automatic
Is FBAR included or handled separately?	Filing Form 1040 does not file an FBAR

E-filing your federal return does not automatically submit every separate report you need. Check how your software or preparer handles FBAR, state returns, and any forms that require a different filing method.

We can help our Bright!Tax clients assess the rules behind the form entries. That includes identifying when a foreign pension, business, or investment needs closer review.

Mistake #9: Leaving money on the table

Living abroad doesn’t mean saying goodbye to every tax break.

Depending on your circumstances, credits and exclusions can lower your bill. Some refundable credits can also produce a payment even when you owe no federal income tax.

Benefit	What to know
Child Tax Credit	Children living overseas can qualify if all requirements are met; the maximum is $2,200 per qualifying child for 2026
Additional Child Tax Credit	Up to $1,700 per qualifying child may be refundable for 2026, but filing Form 2555 blocks this refundable credit
Foreign Housing Exclusion	Qualifying housing costs paid from employer-provided amounts can provide relief above the base amount, subject to limits
Foreign Housing Deduction	Qualifying self-employed taxpayers can deduct eligible housing costs above the base amount, subject to limits
Lifetime Learning Credit	A nonrefundable education credit for eligible expenses at qualifying institutions, including some foreign institutions

A tax refund isn’t the same as an exclusion

The FEIE and ordinary FTC are not refundable credits. They can reduce your income tax and lead to a refund of tax you already paid, but they don’t automatically generate a payment.

The Lifetime Learning Credit is also nonrefundable. It cannot, by itself, create a refund beyond your income tax liability.

Housing costs deserve a calculation

If a qualifying employee has $30,000 of eligible housing expenses for a full qualifying year in 2026, the starting calculation is:

Item	Amount
Qualifying housing expenses	$30,000
Less annual base housing amount	−$21,264
Preliminary housing amount	$8,736

Other limits still apply. Employees use the foreign housing exclusion; qualifying self-employed taxpayers use the foreign housing deduction.

For our Bright!Tax clients with children, we also compare how the FEIE and FTC affect family tax benefits. An exclusion that removes income tax can still be the weaker choice if it blocks a refundable credit.

Stay compliant without the headache

Living abroad comes with enough adventure. Your taxes don’t need to add to it.

At Bright!Tax, our expat tax professionals help Americans abroad identify filing requirements, claim the tax benefits they qualify for, and prepare their U.S. returns. You’ll receive an upfront quote based on your needs before work begins.

Ready to stop second-guessing your expat taxes? Get started with Bright!Tax.

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