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What are the Steps to File Taxes as a U.S. Expat?

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What are the Steps to File Taxes as a U.S. Expat?

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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 outside the United States. Importantly, even though they are no longer in the country, 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 international return.

Foreign Accounts and Assets

Much of the time, expats have foreign accounts and financial assets. There are many reporting requirements for these accounts and assets even if they don’t generate any income. This list includes:

  • Bank accounts,
  • Retirement accounts
  • Investment accounts
  • Interests in foreign businesses
  • Interests in foreign entities
  • And other types of other foreign investments

This information is reported on a variety of forms, but the two most important are the Report of Foreign Bank and Financial Accounts (FBAR) and Form 8938.

  • FBAR is filed whenever the aggregate total of your foreign accounts is worth at least $10,000 during the year.
  • Form 8938 has higher filing thresholds; it is very important to collect details in addition to your income statements.

How to File Taxes as an Expat

Step 1: Know the tax deadlines and start the tax filing process as soon as possible.

As we all know, the filing deadline for 2016 U.S. tax returns is April 18, 2017. However, this deadline applies only to U.S. taxpayers living in the U.S. For those taxpayers living abroad on that date, your filing deadline can be extended automatically to June 15, 2017. Note that you still have to pay tax 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 16, 2017.

Step 2: Gather all the necessary tax documents to file your U.S. return and FBAR.

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 2016 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: Now that you know the purpose of the FBAR and Form 8938, determine if you need to file each form.

In most cases, the answer to at least one of these questions is going to be “yes”. FBAR reports are required when the aggregate balances of your foreign financial accounts on any given day throughout the year exceeds $10,000.

The typical accounts included in reporting are: bank, investments and retirement accounts. Remember, this threshold applies to all accounts you own separately and jointly, as well as accounts you have signature authority over.

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.

If you are under the age of 65 and are filing as single, the threshold for filing a U.S. return is $10,300. Form 8938 filing requirements, on the other hand, vary depending on where you are residing and your filing status. For example, if you are single and living in the U.S., you must file Form 8938 if the total value of your foreign financial assets is more than $50,000 on December 31, or more than $75,000 at any time of the year. However, if you are single and living abroad, those numbers become $200,000 and $300,000 respectively.

Check out “FBAR Filing Deadline Change For Expats In 2017” for specifics.

Additional Resources

If you have further questions, please feel free to take a look at other commonly asked expat tax preparation questions. Regardless of where you live, our Expat tax experts can prepare your return through our virtual tax preparation service.

Filing a U.S. return if you are living abroad doesn’t have to be a challenge, H&R Block Expat Tax Services is here to help!

[Note: This post focuses solely on the federal Form 1040. Some expats may still have a state tax return filing requirement.]

- Contributing Author: Mohit Sandhu, H&R Block Expat Tax Services

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