Living overseas is an incredible experience, however Americans still have to file US taxes even when they are living abroad. Furthermore, filing US taxes is more complex for expats than for Americans living in the States, as crackdowns on overseas tax cheats over the last few years have resulted in an ever-increasing amount of filing paperwork for ordinary Americans living abroad too.
General US tax filing rules for expats
Americans living abroad are still required to file and pay US taxes on their worldwide income.
This means that if you are earning in a foreign currency, you will have to convert your earnings to dollars using the official IRS exchange rates for your US tax return.
You will also have to file further forms alongside form 1040 to claim one or more of the exclusions available to expatriates to reduce or hopefully eliminate your US tax liability. These include the Foreign Earned Income Exclusion, which allows expats to exclude the first around $100,000 of their income from US taxes, and the Foreign Tax Credit, which grants a $1 US tax credit for every dollar of tax already paid abroad.
Both of these must be claimed though, by filing the relevant forms.
Furthermore, if you have bank or investment (including some pension, mutual or life insurance) accounts abroad with a minimum total value between them of $10,000 at any time during the tax year, you have to file an FBAR (Foreign Bank Account Report) to FinCEN to report them. This is also true is you have signature authority or control over an account, such as a trust, business, or joint account.
If you have assets worth over $200,000 meanwhile, not including property, you will also have to file form 8938 with your tax return to report them.
Many expats also have business filing requirements too.
The good news is that expats have until June 15th to file, with a further extension available on request until October 15th. Any US tax due must still be paid by April 15th though.
“The dollar cost to do your taxes is worth consideration, but don’t forget the value of your time.”
– USA Today
Should I use an accountant?
For Americans living in the States, if they have perhaps just one or two sources of income, and not too complicated a savings and investments situation, filing their own taxes often makes sense. An expat with the same situation may struggle however, due to the extra filing requirements faced by Americans living abroad.
Many expats also have to file a foreign tax return too, if they are a permanent resident in a foreign country. Filing the two returns, including the currency conversions, exclusions, and overlaps can be a real headache.
Some expats persevere, but it may take them literally days if you count up all the hours they spend doing it, and while they do it themselves to save money, it may not in fact yield any real savings compared to using an accountant once they factor in the cost of their own time.
Another advantage in hiring an accountant is that their expertise and experience lets them strategize for your optimum benefit. We save many of our clients more money than we charge them this way.
So in answer to the original question, whether as a US expat you should consider hiring an accountant, the answer is yes unless your situation is incredibly simple. Otherwise, the time it will take you is unlikely to justify the cost saving, and furthermore you may well not file to your best advantage , so that you might end up paying either more tax than necessary, or missing out on a refund or on tax credits that you weren’t aware of.
What sort of accountant should I hire to help me file my US taxesas an expat?
Because taxes for expats are more complex compared to Americans living stateside, ensure you hire an accountant who has significant experience in filing taxes for expats, so they can file to your best advantage.
You should also aim to hire a CPA rather than a lesser-qualified EA.
Many US expats aren’t aware of their requirement to file from abroad. If that’s you, don’t panic, as there’s an IRS amnesty program that lets expats catch up with their filing called the Streamlined Procedure. To file using the Streamlined Procedure, you have to file your last 3 returns and your last 6 FBARs (in both cases, if applicable), pay any tax due (often none, if you claim one or more of the available exemptions), and self-certify that your previous failure to file was non-willful.