What are the steps to file taxes as a U.S. expat?
Editor's Note: Here are some basics you should know to get started if you are filing expat taxes.
What is An Expat?
An expatriate, or expat, is a U.S. citizen or green-card holder living or working outside the United States. Importantly, even though they are no longer in the U.S., they are still required to report worldwide income and file a Form 1040 if they meet specific filing thresholds. However, there are some special issues expats need to consider when filing their return. Fortunately, the Expat tax advisors at H&R Block’s Expat office can help you navigate through the complexities of your U.S. reporting obligations.
How to File Taxes as an Expat
Step 1: Know the tax deadlines and start the tax filing process as soon as possible.
Expats living abroad should know that the IRS provides them an automatic filing extension to June 15. However, if you owe any taxes to the IRS, those should be paid by the original April date or you will continue to accrue interest on any unpaid tax amounts.
This can be the case when you are waiting to receive documents from foreign investments or are waiting to file your foreign tax return to determine your final foreign tax liability. This can affect the amount of foreign taxes that you can credit or deduct on your U.S. return. In addition, if you need even more time to file your return, you can get your filing date extended to October 15.
Step 2: Gather all the necessary tax documents to file your U.S. return
Taxpayers who live in the U.S. benefit from having most, or all, of their tax documents given by government-issued forms. That’s not always the case for expats.
Generally, you will need to obtain documents that report income earned throughout the calendar year. If you live in a country that also uses the calendar year for filing taxes, the documents reporting wage and salary income may be easy to obtain. However, if you are living in a country that uses a fiscal year for tax filing, usually a combination of official tax statements and end-of-year pay slips must be used to calculate the income earned during the calendar year.
It may also be harder to obtain tax statements from your foreign bank. Foreign stock sales, interest and dividends must all be reported on your U.S. return. Many foreign countries do not provide annual tax statements for these types of income, and others that do so may not provide the necessary information you need for your U.S. filing. Instead, you will need to acquire statements from your foreign bank that report these items of income on a calendar year basis. Whether that is monthly, quarterly or annual statements, you must make sure the report includes:
- Investment Income
- Stock sale transactions
- Maximum account balances
Step 3: Understand that your filing requirements include forms beyond just Form 1040.
Holders of foreign bank accounts and foreign financial assets need to know additional reporting may be required. For example, FBAR reporting is required when the aggregate balances of your foreign financial accounts on any given day throughout the year exceeds $10,000. Form 8938 is a separate filing related to foreign financial accounts and assets and has a higher filing threshold.
Two key differences between Form 8938 and FBAR are that Form 8938 only has to be filed if a U.S. tax return is filed and that Form 8938 requires reporting of not just foreign accounts but also foreign assets.