Expat Tax Professional vs. Your Usual Tax Accountant: Which Do You Need?

All American citizens, even if living abroad, must file taxes. But between currency conversions, new tax breaks, and changes in reporting obligations, expat taxes can get complicated. As such, many US expats turn to tax professionals for assistance. But there are differences between tax professionals, like an expat tax professional who specializes in tax preparation for those with international circumstances vs. the tax accountant you’ve been working with while US-based.

While people sometimes find comfort in the ongoing relationship they’ve held with their US-based accountant for years, each has a slightly different area of expertise — meaning that one may be a better fit for you than the other.

Below, we’ll go over the differences between an expat tax professional vs. a CPA back home, what their areas of expertise are, and how to evaluate which one is right for you.

Understanding your tax needs

The first step to choosing between an expat tax professional and your former CPA is defining your tax needs. You’ll want to ask yourself three questions in particular.

How complex is your tax situation?

Some US expats’ circumstances result in relatively straightforward tax returns. Others’ tax returns are more involved and may require a dedicated long-term tax strategy. A few of the factors that can make your tax situation more or less complex include:

• Income sources: Generally, the more income sources you have, the more complex your taxes become. Those with a single source of income (e.g. employment) will have much lighter tax needs than someone with multiple sources of income (e.g. employment, property rental, dividends, etc.).
• Tax residency status: US expats who live in another country full-time often become tax residents of those countries. As such, they may need to file a tax return and/or pay income taxes in their country of residence in addition to the US. Some US expats may even need to file state taxes.
• Foreign assets: Expats with a significant amount in foreign assets are often subject to additional filing obligations. For example:
  • Those with more than $10,000 in a foreign financial account must file the Foreign Bank Account Report (FBAR)
  • Those outside the US with foreign assets exceeding $200,000 on the last day of the tax year — or $300,000 at any point in the year — must file a Statement of Specified Foreign Financial Assets (Form 8938)
• Tax break eligibility: Americans abroad are often eligible for unique tax breaks that their stateside counterparts are not. These include the Foreign Tax Credit, Foreign Earned Income Exclusion, and Foreign Housing Exclusion/Deduction. In specific cases, expats may also benefit from claiming the benefits of tax treaties.

What’s your filing history?

The level of support you need from your tax professional will also vary depending on your filing history. For example:

• First-time filers: Those who have never filed their taxes abroad typically aren’t familiar with the intricacies of expat taxes. As such, they often need hands-on support. 
• Past-due filers: Whether they’re accidental Americans or just mistakenly thought that moving abroad nullified their US tax and reporting obligations, some US taxpayers must catch up on years of back tax returns. In such cases, the IRS Streamlined Procedure may help them catch up penalty-free — but it can be daunting to navigate alone.
• Filers with past issues: Accurate filings are even more important for US expats who have previously had filing issues (e.g. audits, amended returns). To avoid future mistakes, it’s often best for them to leave their taxes in the hands of a professional.
• Seasoned filers: Those with experience filing expat taxes without issues may not need intensive support. However, they may still want help optimizing their tax strategy or filing taxes to save time and reduce effort.

Do you have any additional financial needs?

Those working with a financial advisor may need help understanding and optimizing the tax implications of different financial strategies, like:

• Estate planning: When planning your estate, it’s important to consider the most efficient ways to transfer assets to your beneficiaries. After all, you don’t want to leave them with tax bills so high they offset your gift.
• Stock liquidation: Selling a significant amount in stock can negatively affect your taxes. In some cases, for example, someone might be subject to capital gains taxes and a higher income tax bracket.
• Retirement planning: Tax planning is a critical component of retirement planning. The right tax strategies can help ensure your assets last as long as needed.

Expat tax professional vs. your usual tax accountant

Now that we’ve talked about how to assess your tax needs, let’s get to the heart of this guide: the differences between an expat tax professional and your former US-based CPA  — and which you should choose to do your taxes.

Expat tax professional

• Overview: A tax professional is a specialist in handling tax issues for people living abroad — in this case, US citizens who live outside the country. They have deep knowledge of the unique tax situations expats face, including foreign income, tax treaties, the Foreign Earned Income Exclusion (FEIE), tax credits, and more.
• Services:
  • Identifying tax solutions to minimize tax liability
  • Interpreting tax laws relevant to clients
  • Evaluating and bringing clients up to compliance
• Pros:
  • Uncover new tax mitigation opportunities
  • Help ensure tax compliance
  • Optimize existing tax strategy
  • Clarify ambiguous tax law
  • Provide insight in the wake of legislative updates
• Cons:
  • May sometimes charge a higher price than you’re used to
  • May not have a local brick-and-mortar office you can drop into and say hello
  • May not be able to do your taxes in the country you live in as well
• Cost:
  • An average of $2,000 or more per year

Your usual tax accountant

• Overview: Your tax accountant back home is also a certified professional with a broad knowledge of US tax preparation, finance, and accounting in the US. If they hold a CPA title that means this professional also has a bachelor’s degree, has earned at least 150 credits in relevant coursework, gained a minimum amount of work experience (most states require one to two years), and passed the American Institute of Certified Public Accountants’ (AICPA’s) CPA exam.
• Services:
  • Preparing and filing your US taxes
  • Providing strategic recommendations related to taxes, finances, and accounting
  • Bookkeeping and reparation of financial statements
  • Administering US payroll
• Pros:
  • Certified professionals with broader knowledge
  • A wider range of financial services
  • Can represent you when dealing with the IRS
• Cons:
  • May not have as extensive knowledge of international tax situations and tax law as tax advisors
  • May not offer a paperless service – requiring you to mail documents
  • May not have enough experience with tax laws in different countries
• Cost:
  • Varies by service, but tax prep and filing is typically less than $1,000
  • Some tax professionals not well versed in international matters may ultimately cost more, due to the research required to prepare your return accurately 

Local US tax accountants, on the other hand, have a broader knowledge of finance and offer hands-on support with payroll, too, but may not have a lot of experience with foreign income taxation and strategies to avoid double income taxes.

Choosing the right professional

The next question, naturally, is “Should I hire an expat tax advisor or stick with my US-based accountant?” The answer isn’t cut and dry, but here’s a rule of thumb.

An expat tax advisor may be a better fit if you:

• Are living outside the US as a digital nomad or have dual citizenship
• Are living in the US but have received income through a foreign-based account
• Have income sourced outside the US
• Are married to a non-US citizen
• Inherited, bought, or sold a foreign property
• Have rental income from a property you own back in the US

Your former CPA, on the other hand, may be a better fit if you:

• Want someone to prepare your taxes and file them for you, but your taxes are fairly simple (you’re a W-2 employee working for a single employer with no additional streams of income)
• Require hands-on, day-to-day tax or small business accounting support
• Need someone to represent you during an IRS audit, appeal, or dispute

Americans living abroad should make sure that any financial professionals they partner with is able to provide guidance on the international component of their situation US expat tax specialists will be more effective in helping you:

• Navigate reporting currency conversions
• Evaluate and claim international tax treaties
• Meet the reporting obligations most common among expats
• Claim tax credits, deductions, and exclusions available exclusively to expats

A US expat tax specialist may also be able to recommend — and collaborate with — a tax specialist in your country of residence.

Get the best of both worlds with Bright!Tax

When you partner with Bright!Tax, you choose to rely on a team of certified tax advisors and CPAs who have a vast experience of preparing and filing taxes for US expats worldwide.

We offer the specialized knowledge that Americans abroad need to file their taxes timely, achieve compliance, catch up with late payments, and optimize their overall tax strategy, avoiding double taxation.

Resources:

1. Tax Advisor vs. CPA: What Are the Differences You Should Know?
2. Pricing and Costs of Tax Consultants
3. Everything a CPA can do for your business besides tax prep