For the millions of American citizens residing overseas, filling their US income tax can be a neck-breaking experience. After all, the rules and regulations for US expat tax filing can get complicated and overwhelming.
If you’re a US taxpayer living abroad who has a hard time dealing with tax filing, allow me to share some tips you can take to streamline the process.
1. Hire a trusted third-party firm for expat tax services
US expat tax filing can get overwhelming and confusing, and many expatriates can often make mistakes. Some, or you, may even have special cases.
In fact, according to Joshua Ashman, CPA at ExpatTaxProfessionals:
“US expat tax filings can be nuanced and complex, so expats should strongly consider reaching out for help. Whether filing in the current year, or filing late through a tax amnesty program, your best bet is to hire an experienced firm with in-house US-trained professionals.”
Because you’re living away from the US, you may have a harder time inquiring from the right offices and sorting out your tax returns and issues.
If that’s the case, you can hire a trusted third-party firm to help you with the complexities of US expat tax returns.
The best firm you can choose to tap would have US-trained, licensed, and highly experienced CPAs and international tax experts.
These credentials will be essential if you are to entrust the filing of your tax returns correctly to them.
Ideally, they should have a user-friendly website, app, or system for preparing your taxes, entering information, and uploading documents.
Their online operations must be accessible anytime and anywhere. They must uphold accountability and integrity, as well.
2. File your US tax return annually
Filing your US tax returns year in and year out seems like common sense already. But millions of Americans living outside the USA still fail to do this.
If your income goes beyond the filing threshold (although they’re particularly low), even though you live in a foreign country or you’re a green card holder, you need to file your US tax return.
If your situation falls under the following conditions as a US expat, you may still have tax obligations:
- If you earn personal income in the form of commissions, consultancy fees, wages, tips, salaries, dividends, interest, alimony fund, pension fund, US and/or overseas social security, capital gains, royalties, farm income, rental property, inheritance, or even payment in kind in the US or from another country.
- If you earn income abroad, and you have never lived in the country or moved many years ago.
- Even if a portion or all of your earnings have been taxed at source already or will be taxed by another country.
- Even if you are not generating any profit but married someone who did make income.
Here’s the good news, however. You can turn out not incurring any taxes in the US, thanks to a handful of advantageous exclusions, deductions, and credits.
3. Know and meet deadlines
Knowing the deadlines and meeting them saves you any penalties you might incur. You can also avoid possible double taxation and unnecessary hassle of filing taxes late.
Nevertheless, it’s best that you’re aware and try your best to file your tax returns before the due date.
For a majority of the US expats, the deadline for filing tax returns is on the 15th of June.
You need to know some special due dates for other cases and exemptions.
For example, foreign bank account reporting (FBAR) is initially due on the 15th of April. However, FBAR is extended automatically for six months, that is, the 15th of October.
Another instance is when you report your foreign trust ownership (pension considered as a trust for tax uses). Its deadline is on the 15th of March.
This due date can be extended, though, but that is if you submit your request for an extension by the initial deadline.
4. Update yourself on tax reforms
Being informed about updates on tax reforms (as much as possible) lets you grasp and plan any changes on how your tax returns and processing shall go.
It’s beneficial for you because you can take these updates into account when you file your tax returns for the year.
The Tax Cuts and Jobs Act (TCJA) under President Trump’s administration, for instance, announced some reforms to income tax rules for US taxpayers.
Changes concerning US expat individuals include omitting several itemized deductions, curtailing tax rates for ordinary income, higher exemptions for estate and gift taxes, augmenting the standard deduction, and raising the child tax credit.
Now, if you’re running a business abroad, you need to know that more essential changes apply.
Some of these are reductions in rates for corporate tax (now a flat rate of 21 percent), the launch of a one-time tax on deferred income for foreign businesses, modifications on interest deduction limitations, and the removal of alternative minimum tax for corporations.
In moving forward, TCJA sets in place a new system where it includes business owners of “global intangible low-taxed income” of controlled foreign corporations.
Subsequently, US expats with enterprises overseas will likely discover added intricacies to the new tax returns and international forms to prepare and submit.
5. File an extension in requesting for deductions
Perhaps you’re considering using the Foreign Earned Income Exclusion (FEIE) though you won’t be abroad for a long time.
If you are but haven’t consumed the sufficient number of days overseas to qualify when tax season arrives, you can submit a request for an extension.
If the amount of time still isn’t enough, you can opt to submit Form 2350. This form extends the number of days needed for you to meet the qualification.
Keep in mind that you can submit Form 2350 only if you’re considering using the FEIE.
6. Document properly
Filing your US expat taxes can overwhelming and intimidating. However, one way that can help ease this process for you is by documenting everything and being organized.
Diligently keep the necessary documents, including your expenses and travel-related files, the whole year-round.
Collecting these documents is usually the most burdensome areas of tax preparation. But if you follow the advice mentioned, filing your tax dues can be less taxing (pun intended)!
Not every US expat enjoys tax filing. You may even be one of them. Nevertheless, the process can be a bit more bearable if you follow these tips.
Remember to be more mindful of your obligations and government updates, so you don’t miss out on any information that you can benefit from as a US taxpayer, no matter where you reside.
Did this post answer your questions for a streamlined US expat tax filing? Feel free to share this guide if it did. Cheers!
Interesting related article: “Definition of Tax Return.”