How do expats file taxes

If you expatriated on or after June 17, , the new IRC A expatriation rules apply to you if any of the following statements apply. A citizen will be treated as relinquishing his or her U. For long-term residents, as defined in IRC b 6 , a long-term resident ceases to be a lawful permanent resident if:. IRC A imposes a mark-to-market regime, which generally means that all property of a covered expatriate is deemed sold for its fair market value on the day before the expatriation date.

Any gain arising from the deemed sale is taken into account for the tax year of the deemed sale notwithstanding any other provisions of the Code.

Any loss from the deemed sale is taken into account for the tax year of the deemed sale to the extent otherwise provided in the Code, except that the wash sale rules of IRC do not apply.

For other years, refer to the Instructions for Form The amount of any gain or loss subsequently realized i. A taxpayer may elect to defer payment of tax attributable to property deemed sold. Form , Initial and Annual Expatriation Information Statement, and its Instructions have been revised to permit individuals to meet the new notification and information reporting requirements.

The revised Form and its instructions also address how individuals should certify in accordance with the new law that they have met their federal tax obligations for the five preceding taxable years and what constitutes notification to the Department of State or the Department of Homeland Security.

If you expatriated before June 17, , the expatriation rules in effect at that time continue to apply. See chapter 4 in Publication , U. Tax Guide for Aliens , for more information. In addition, it requires individuals to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation and requires annual information reporting for each taxable year during which an individual is subject to the rules of IRC This allows Americans abroad to select a timeframe that maximizes their time in foreign countries and therefore the exclusion amount they can claim under the FEIE.

New expats often request an extension to file until October This gives them more time to qualify for the FEIE. More about the deadlines, and a special provision for expats, later. Being a bona fide resident of a foreign country is another way to qualify for the FEIE. To qualify you must have your home in a foreign country and have strong ties there. No single tie or list of ties determines your resident status. Rather a collection of strong ties abroad and no ties in the US help to qualify.

Strong ties include:. Due to coronavirus, many US expats spent more time than they expected in the United States in Fortunately, the IRS has implemented relief measures for taxpayers in this situation.

They also must meet several other requirements to qualify. As always, you can only exclude the income you earn while being abroad with the Foreign Earned Income.

Income earned while in the States is taxable. This helps to offset the higher cost of living in many foreign countries. The exact amount varies depending on where you live. The IRS updates the limits each year. Expensive cities have even higher exclusion limits. Eligible expenses must be reasonable housing expenses that you, your spouse, or dependents incurred as a result of living abroad.

Expenses such as personal property insurance, leasing fees, rental furniture, parking rental, and repairs are all eligible for the Foreign Housing Exclusion or Deduction. Housing expenses that are non-essential or deemed extravagant are not eligible for the Foreign Housing Exclusion or Deduction. Mortgage payments, costs associated with domestic labor, television services, internet, telephone, and purchased furniture do not qualify for exclusion or deduction.

Using the FTC, expats receive a dollar-for-dollar credit for taxes paid to another country. This can offset or even entirely eliminate taxes due to the US government. You can even carry over unused tax credits from a high-tax jurisdiction for use at a later date when you move to a low-tax jurisdiction.

Talk to an experienced expat tax accountant to evaluate which is better for your situation. Self-employed expats need to know that the FEIE only excludes income from income tax. They must still pay self-employment tax on the net earnings.

The self-employment tax is On the other hand, if your residence country has a Social Security Totalization Agreement with the United States, then you can choose which country you would like to contribute to, based on your personal and tax situation. The United States has Tax Treaties with over 60 countries, including most but not all popular expat destinations.

The list of countries with income tax treaties includes Australia, Canada, most of Western Europe, Mexico, China, Japan, and even far-flung places like Kyrgyzstan. An experienced expat tax accountant will make sure to apply all applicable treaty benefits to your US tax return. The combined value includes any accounts which you have a financial interest in or signature authority over. Make sure you understand the specific requirements and file correctly.

Failure to disclose all relevant accounts can lead to hefty fines. If you have other foreign financial assets such as mutual funds, foreign pensions, stocks, bonds, loans, and other investments you may also need to file Form video.

This form is filed together with your tax return. For a US expat filing as single, Form is required if the value of the foreign assets exceeds:. Please be aware that the filing thresholds for Form are significantly lower for someone who lives in the United States.

As an American abroad, you may still have to pay state taxes to your former state of residence. Your obligations depend on the specific state. The easiest states for US citizens abroad are those which do not have income tax. This includes Florida, Nevada, Texas, and Washington, among others. Some other states have a neutral stance towards expats. These states will generally stop considering you a tax resident after you have been gone for a certain period. The other country to do so is Eritrea, which imposes a flat two percent tax rate on non-residents.

This means that, as an expat and American taxpayer, your first concern come tax season should be to prepare your federal tax return using IRS Form , the U. Individual Income Tax Return — a familiar form for most adult Americans. While in many ways this form works the same for expats as for domestic taxpayers, there are a few notable differences that could affect how and when you file.

For instance, taxpayers who are out of the country are generally eligible for an automatic two-month deadline extension, which makes the effective filing date for expats June 15 instead of the usual April date.

Keep in mind, however, that many of these helpful tax provisions come with exceptions and caveats as well. One example: The two-month extension only applies to the submission of your tax return and any related paperwork, meaning that any payments due April 15 will begin collecting interest on that date. If you choose to file your return in June, make sure you send in any tax obligations by April 15, or you could see your financial obligation grow.

Some of these are beneficial and can reduce your tax burden; others simply force you to disclose accounts and other assets to the government. If you work for a company overseas or are a self-employed expat , you are probably eligible for the foreign earned income exclusion, or FEIE.