Get to know the authorLiving abroad as a US expat comes with awesome “I can’t believe this is my life” experiences. But, it also comes with an increased need for organization when it comes to household administration. Staying on top of necessary administrative tasks, such as maintaining organized records and tracking expenses, can be challenging. Although it can be a tedious exercise, keeping accurate records is vital to ensure compliance with US and foreign tax laws.
Fortunately, there are ways to minimize the bookkeeping drain on your time and energy as a US expat. In the following article, we’ll review tips and strategies to help you maintain accurate financial records, which will make it easier to navigate detailed administrative tasks such as filing taxes.
The importance of strong record-keeping for US expats
The US tax system requires US citizens and Green Card holders to report their worldwide income, regardless of where in the world they reside. This often comes as a shock to Americans living abroad, who then find themselves scrambling to get up-to-date on their US filing. It’s also completely natural to feel that having to file US taxes is unfair – why is a French citizen residing in the US only liable to file taxes with the IRS, but an American citizen residing in France liable to file taxes in both France and the US? The answer lies in the countries’ different approaches to taxation: France, like most of the world, uses a residence-based taxation schema. The US uses a citizenship-based taxation schema, which has been in place since 1861, with its origins based on a time when the US government needed funds for the Civil War.
While you may be tempted to throw up your hands and ignore US filing responsibilities while you’re abroad, this choice could come back to haunt you. Failing to maintain accurate records risks significant potential financial penalties and legal issues. These may include the possibility of the IRS launching an audit to investigate inconsistencies or gaps in information. Fortunately, if you have strong record-keeping practices to fall back on, navigating tax-filing requirements becomes less stressful.
Moreover, maintaining accurate financial records can assist US expats in making informed financial decisions. In many cases, utilizing an online bookkeeping system can more easily allow US expats to track their income and expenses.
Using an electronic organizer as a means of maintaining accurate records as a US expat
Using a bookkeeping system can help US expats establish a structure for all the information they need to organize. As mentioned earlier, in many cases, US expats aren’t aware that they may need to file a US tax return from their foreign country of residence. The following is a list of practical tips and strategies to help you stay on top of your tax and financial record-keeping game.
US tax system: What to know
Setting out to organize the paperwork associated with being an expat can feel daunting, particularly if you feel like you’ve been caught flat-footed. Where should you begin?
A good place to start is by familiarizing yourself with the filing requirements and deadlines for US expats. For example, if you have foreign financial assets that exceed certain thresholds, you may need to file a Foreign Bank Account Report (FBAR) or a Foreign Account Tax Compliance Act (FATCA) form.
Additionally, it’s crucial to understand the US tax residency rules, as they determine whether you’re subject to US taxation on your worldwide income. Crucially, even if you are subject to US taxation on your worldwide income if you first owe taxes to your foreign country of residence, there are ways to apply credits and exclusions to the US tax return that may reduce your liability to $0.
Keep track of important documents
Even if you work with an expat tax professional, you will still be required to produce the necessary information required to prepare the US return. Here are some best ways to keep track of important documents:
- Create a filing system: A filing system helps keep important documents organized and easy to access. Create a system that includes categories such as identification documents, financial records, tax records, and legal documents. Ensure that the categories are clear and that the documents are arranged in a logical order, such as by tax year.
- Use cloud-based storage: Storing important documents on a cloud-based system like Google Drive, Dropbox, or OneDrive provides secure access to your documents from anywhere in the world. It also provides a backup in case you lose the original documents.
- Scan your documents: Scanning your important documents, such as passports, visas, and other important papers, ensures that you have digital copies available in case of loss or damage. Use a high-quality scanner or a receipt scanning app to scan your documents and save them on your computer or cloud storage.
- Keep originals in a safe place: For critical documents that cannot be replaced, such as passports, birth certificates, and marriage certificates, store the original copies in a safe place like a safety deposit box or a fireproof home safe.
- Label and date your documents: Proper labeling and dating of documents can save you time and effort when you need to retrieve them. It is best to use a consistent labeling format for all your documents, including the date and the document name.
Facilitate online bookkeeping with the latest technology
Leveraging technology that employs AI in bookkeeping can be a game-changer for US expats because living abroad often comes with complex financial transactions that require precise documentation. However, it is important for US expats to carefully research and choose the best technology tools that suit their specific needs and budget. With so many options available in the market, it can be overwhelming to make a decision. But expats should take the time to evaluate their priorities, consider the features they require, and determine the level of automation they want to achieve in their bookkeeping processes.
Choosing the right CPA for filing your US expat tax return
US expats will find great value in working with a certified public accountant (CPA) who specializes in international taxation.
Additionally, seeking professional advice can help you take advantage of tax-saving opportunities. CPAs with experience filing US expat returns can provide insights into tax deductions, credits, and other beneficial strategies designed to minimize (or erase) your US tax liability.
Here are some tips to consider when selecting a professional CPA to file your US tax return from abroad:
- Specialization: Look for a professional who specializes in international taxation and has extensive experience working with US expats.
- Qualifications: Verify that the professional has the necessary qualifications and certifications, such as a CPA or enrolled agent (EA). These professionals are required to meet certain education and testing requirements and adhere to ethical standards.
- Reputation: Do your research and check the professional’s reputation. Look for reviews and testimonials from past clients, and follow up your research with any specific questions you may have regarding your personal situation.
- Communication: Choose a professional who is easy to communicate with and is responsive to your questions and concerns. Filing US taxes from abroad is complex and often requires significant financial investment, so you should feel comfortable and confident working with your CPA.
- Fees: Understand the professional’s fees and how they are calculated. Ask for a written fee agreement that outlines the scope of services and the associated costs.
- Technology: Check if the professional uses technology tools, such as AI-based document management systems, to streamline the record-keeping process. This can save time and reduce the risk of errors.
By considering these tips, you can select a professional who is qualified, trustworthy, and responsive to your needs.
Work with a CPA specializing in US expat tax
Anyone who has ever filed a US tax return from abroad will attest that it is a very different experience from filing as a resident in the US. As a result, US expats often opt to work with a professional tax firm specializing in US expat taxes. These specialized firms specialize in streamlined recordkeeping and ensure that each taxpayer’s circumstances are taken into account during filing.
BrightTax is a cutting-edge expat tax provider blending kindness with expertise. Our team have decades of combined experience in serving US citizens and Green Card holders living abroad. We specialize in catching up on US taxes and maintaining annual compliance, all while filing to the individual’s best advantage.
The Bright!Tax team is also comprised of majority US expats, and we intimately understand the unique challenges that US expats face when it comes to tax and financial record-keeping. We offer a range of services, including tax preparation, and tax planning, to help US expats stay on top of their tax obligations.
We are also pleased to offer total tax season simplicity to clients based in the UK and Canada, and France thanks to our additional service as a tax provider in those countries. For all other clients, the Bright!Tax Global Partnership network offers a well-vetted group of professionals around the world. These professionals collaborate with the Bright!Tax Team and offer the kindness, ease & expertise Bright!Tax clients deserve.
