The time for US expat tax filing is soon approaching and the 2018 tax bill has minimal changes affecting expat tax return filing. Read this guide to know how to prepare for the coming tax filing year and the details of what needs to be reported on your expat tax return, as a US expat earning and living in a foreign country.
While most US citizens are aware of the April 15th deadline (April 17th for 2019), many expats living and earning abroad remain unaware of their tax obligations to their home country. While it can be a cumbersome and complicated task, filing your expat tax return will keep you out of the limelight of the IRS and avoid hefty interest and penalties by ensuring you report all your foreign earned income and foreign financial details.
Earning and living in a foreign country means having to establish not only a residence but also basic things like bank accounts. By having bank accounts and assets in a foreign country, you are liable to report these details, such as Foreign Bank Account Reporting(FBAR) or FATCA form 8938, to the IRS with your annual tax return
FBAR – Foreign bank account balances exceeding $10,000 at any point during the year, even if by a $1, need to be reported and you can file Foreign Bank Account Reporting (FBAR) on FinCen’s BSA e-filing portal.
FATCA Form 8938 – To satisfy Foreign Account Tax Compliance Act (FATCA) reporting requirements, accounts, stocks, assets etc., exceeding pre-determined amounts need to be reported. For single and married couples filing separately, who have foreign assets exceeding $300,000 at any time during the year or have assets exceeding $200,000 on the last day of the tax year need to report the details on FATCA Form 8938. For married couples filing jointly, if their foreign assets exceed $600,000 at any time during the year or have assets exceeding $400,000 on the last day of the tax year, then form 8938 will need to be filed.
Expats who have returned to the US, but continue to hold foreign assets and accounts are also obligated to file form 8938, however the reporting threshold hold differs, as outlined below:
The last day to file annual tax returns for Americans is April 17th, 2019, but expats benefit from an automatic 2-month extension, however the extension is only for filing and not for taxes owing. Below are important tax filing dates for 2018.
This deadline is applicable to all Americans living in the US, including expats who move back prior to this date. For expats who receive an automatic two-month extension for filing need to ensure that any taxes owed are paid by this date, as interest will start accruing till the date of payment.
If you have filed your tax return by this date, then filing of FBAR must be also be submitted with your annual tax return, unless an extension till Oct 15th, 2019 is applied for.
Unless an extension has been applied for, all US expats are required to report their foreign earned income, FBAR and form 8938 to avoid interest and penalties.
For those who applied for extension, all details must be filed and reported to the IRS. Failure to report details of foreign assets and accounts can result in severe penalties and in certain situations, criminal prosecution.
Tax filing can be stressful and especially more so for expats unless tax professionals are enlisted to aid with the process. Below are a few tips to help smoothen the process.
FATCA – Enacted in 2010, FATCA filing was established to catch tax evaders. So, check if you have assets and accounts exceeding the thresholds mentioned above and file form 8938, if needed.
Streamline Foreign Offshore Procedure – If you are among the US expats who were unaware of your filing and reporting obligations, then avail of the Streamlined Foreign Offshore Procedure to catch up on tax returns from the past 3 years and your FBAR’s for the past 6 years. However, you will need to prove that non-filing was non-willful.
File Tax Return in Resident Country – Ensure to pay taxes in your resident country. For example, if you are currently living and working in Germany, then fulfill your tax filing obligations in Germany. This will not only help you in availing of exemptions and credits when filing your US expat tax return but also ensure you remain tax compliant in your resident country as well.
Foreign Earned Income Exclusion
As per the new 2018 tax bill, US expats can now exclude up to $104,100 for 2018 filing by availing of FEIE, which is up from $102,100 for 2017.
Foreign Tax Credit
By filing your tax returns in your resident country, you can avail of Foreign Tax Credit (FTC), which allows US expats to claim tax credit of $1 for every dollar of tax paid in the foreign country. FTC can be availed by filing form 1116 along with your federal tax return.
Foreign Housing Exclusion
US expats can avail of the Foreign Housing Exclusion and claim allowable housing expenses from living in a foreign country.
While the Trump administration has made significant changes this year with the 2018 Tax Bill, the points mentioned below will affect US expats filing their returns this year.
Requirements for expat tax filing for tax year 2018-19 mostly remain the same. As per previous years the details of all assets, accounts and income need to be reported to ensure compliance with US tax laws so that interest and penalties are not imposed.
A. Your FBAR needs to be filed along with your tax return. So, if you are filing by June 15th, 2019 then your FBAR also needs to be filed on this date with your federal tax return.
A. This IRS aims to process refunds within 21 days, however to find out the status of your refund owing, you can check on the IRS website with the Where’s My Refund tool.
A. The deadline for filing your US expat tax return is June 15th, 2019, unless an extension is applied for.
A. The latest you can file your FBAR is October 15th, 2019, if you have filed for an extension.