Live abroad? Save money on U.S. taxes with these 6 tax saving strategies
You’re living your best life abroad, exploring new places, absorbing the local culture and customs, and navigating everyday life like a pro. Everything’s going smoothly and you think, “Hey — I think I’ve got this whole expat thing down pat.”
Then comes your U.S. tax bill, and suddenly you’re not so sure you did everything right.
How to save money on taxes isn’t usually the first thing people think about when they’re planning a life overseas, but it should be at the top of your financial planning list. The experts at H&R Block are here to help, so we’ll guide you through factors that affect how much tax you pay and how to save money on U.S. taxes while living overseas. Ready to file your expat taxes? Get started with H&R Block’s online expat tax prep.
How U.S. expats can lower their U.S. tax bill
The first thing you need to understand is that, unfortunately, you can’t exactly “save money on taxes.” Taxes are what they are, and you owe what you owe based on your taxable income.
You can, however, lower your overall tax bill and save money during tax season by applying available deductions and credits, lowering your taxable income, and by saving money on your tax prep and advising cost.
We’re going to tell you how to do it, broken down into six tax saving strategies:
- Understand your tax situation before tax season starts
- Avoid common U.S. expat tax penalties
- Lower your taxable income with tax credits, exclusions, and deductions
- Choose between the Foreign Earned Income Exclusion and the Foreign Tax Credit wisely
- Vet your expat tax professional carefully
- Choose to DIY your expat taxes with an online expat tax service
Ready to file? Get started now.
1. Understand your tax situation before tax seasons starts
Before you make any financial decisions it’s wise to understand your entire financial landscape — now and future. The same goes with taxes. We hear story after story from expats who — for a variety of reasons—didn’t understand their tax situation before tax season starts.
For example, some expats get penalized because they don’t know they have to pay state taxes on top of federal ones. Other common scenarios involve not understanding what foreign income is taxable for expats or how the number of days in a country affect their credits and exclusions (more on that later).
Secondly, you may also have to report money and financial accounts overseas — and not doing so when you’re supposed to can lead to heavy fines and penalties. Which brings us to our second tax saving strategy…
2. Avoid common expat tax penalties
If you want to lower your U.S. tax bill, compliancy is key. Why? Because the fines, added interest, and penalties for expats are no joke.
Expat tax fines range anywhere from $1,000 to $50,000 (or more), and the penalties don’t stop at increased audit scrutiny and monetary fines — intentional tax evaders can even lose passport privileges or serve jail time.
To slim down on the cost of filing and avoid U.S. tax penalties, make sure you've got an experienced tax advisor. There are dozens of forms and schedules specific to expats, and something as small as failing to check a box can cost you thousands of dollars (yes, really!!).
3. Lower your taxable income by using expat tax credits, exclusions, and deductions
U.S. tax law has built-in safeguards to lower taxable income and ensure U.S. citizens aren’t over-paying on taxes. The problem is many expats—and even many tax preparers—don’t know these safeguards exists.
These are the credits, exclusions, and deductions you need to get to know to lower your taxable income and save money on taxes next year:
- The Foreign Tax Credit (FTC)
- The Foreign Earned Income Exclusion (FEIE)
- The Foreign Housing Exclusion
- Child tax credit
- Child and dependent care deduction
- Student loan interest deduction
- Mortgage interest deduction
- Tax treaty provisions/in-country tax credits and benefits
4. Choose between the FEIE and the FTC wisely
Two of the main tools U.S. expats use to owe less on taxes are the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). You have to choose wisely between them and track your time carefully—your specific situation may have caveats that make it better for you to choose one or the other and choosing the wrong one can have an impact that lasts for years.
Because of the huge potential impact, we recommend you consult with your financial advisor or let one of our tax pros guide you.
5. Avoid scams and missed money-saving opportunities by vetting your expat tax advisor carefully
Not all expat tax professionals are created equal. Some expats think hiring an in-country tax preparer to do both their resident country and U.S. taxes is the best way to go, but that may be a mistake. Not only are there high-stakes penalties to worry about, but tax law in the U.S. is also incredibly complicated. That’s why you should look for these qualities in an expat tax advisor:
- Positive reviews and BBB ratings
- Professional credentials
- Proof of resident country expertise
- Proof of specialization in U.S. taxes for expats
- Upfront fee and pricing structure
- Confirmation they can submit all your required forms
H&R Block’s Expat Tax Advisors offer all the above, and:
- Backup for complicated returns, including our tax advisors and The Tax Institute
- Common expat form support, including FBAR and FATCA
- Accuracy Guarantee
- Free extension filing
- Advance notice and year-round audit support (additional fee)
6. Save money on tax prep by using a DIY online expat tax service
If your filing situation is relatively simple and you don’t think you need the help of an advisor, a smart way to whittle down your costs during tax season may be to go the DIY route. Beware, though—while filing your U.S. taxes online has been mainstream for over a decade, most online tax tools aren’t designed for expats.
Expats have extremely specific forms and unique situations involving treaties, foreign investments, eligibility for exclusions and credits, etc., that often aren’t accounted for in domestic online tax prep—meaning choosing the wrong service can lead to an incorrect tax return.
Here’s what you should look for in online DIY expat tax prep:
- Designed for expats
- Upfront fee and pricing structure
- Confirmation they can submit all your required forms (including FBAR)
- Reliable, trustworthy support if needed
- Security and brand trust guarantee
For example, H&R Block’s DIY expat tax tool was designed specifically with U.S. expats in mind, allowing you to file your U.S. taxes online whenever you want, wherever you are. Not only does our DIY tool provide all the above, it also features:
- Tailored sections for foreign income, from your salary to your Social Security benefits
- Support for forms many domestic services do not, like your FBAR and FATCA
- Sections specific to expat tax credits, deductions, and exclusions, including the Foreign Tax Credit, Foreign Earned Income Exclusion, and Foreign Housing Exclusion
- Support for difficult returns if it turns out your situation isn’t as cut-and-dry as you thought
- Ability to file both state and income taxes if you’re required to file state taxes
- H&R Block’s 100% Accuracy Guarantee so you can rest easy knowing Block has your back
Live abroad? Need help on U.S. taxes? Join the thousands of expats who seek the help of H&R Block’s Expat Tax Services
When you live abroad, having the right tax partner is key to saving money on U.S. taxes. Thousands of Americans overseas have already discovered the benefits of using H&R Block’s Expat Tax Services. Join them! No matter where in the world you are, we’ve got a tax solution for you. Get started with our made-for-expats online expat tax services today!