It’s that time of year again when everyone’s favorite activity comes around—taxes! Taxes are one of two areas we say are absolute and unchanging, along with death. For this post, we want to talk about taxes as an expat. We’ll discuss taxes from a US perspective because it’s our experience and because the US is one of the few countries in the world where you have to pay taxes even if you don’t live there!
DISCLAIMER: The information in this post is for educational purposes only and should not be considered financial advice. We are not tax or financial advisors; always consult a tax professional to handle your individual tax situation.
Taxes as an Expat
So, how do you deal with US taxes as an expat? Well, first and foremost, you need to know two important facts:
- You HAVE to file your US taxes, regardless of where you live.
- You might owe US taxes, even if you live abroad.
All US citizens and residents are required to file taxes. It does not matter where in the world you are located; the IRS is expecting your tax return. Not filing risks all kinds of legal and financial ramifications that aren’t worth it! So you have to file, but you may not actually owe anything if you earn income abroad.
How do I know if I owe or what I owe? Many US citizens use software designed to help you, such as TurboTax. TurboTax is fine and all that, but what about when your income doesn’t come from a US source? TurboTax offers extra features for additional costs to help expats, but they’re clunky and not straightforward, considering what many expats claim. Many foreign employers don’t give you W2s. So, how do you input your income? Do you actually owe on that income?
Foreign Earned Income Exclusion
Many, if not most, expats claim this. Despite being annoyingly confusing, the IRS does have to abide by the law, which means Americans cannot be double-taxed on the same income. However, how do we know what counts or what doesn’t?
The foreign earned income exclusion (FEIE) is a statute that allows expatriates to avoid this double taxation. To claim this, though, you need to meet certain criteria. Per the IRS, you need to be one of these three:
- A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
- A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
- A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or country for at least 330 full days for 12 consecutive months.
To qualify for FEIE, most expats are not also citizens of another country with which the US has a tax treaty. Expatriates tend to use either number 1 or number 3.
Bona Fide Residents
The first one requires you to be a bona fide resident of a foreign country. To do this, you generally need a working visa from the country where you live. That means you apply on your own if perhaps you’re a digital nomad or your employer has acquired a visa on your behalf. It’s important to note that, to qualify for this, you have to have been a resident of that country for an ENTIRE tax year. That means January 1 to December 31. This means that if you move abroad mid-year, you won’t be able to use this as a way to qualify for FEIE that first year.
Physical Presence Test
If you don’t fall in that range, then you don’t qualify under this stipulation. However, expats have yet another major option: being physically present in a foreign country for at least 330 days in 12 consecutive months. While taxes may technically be due April 15, you are granted an extension as an expat. You can ask for more time to file if you need to hit 330 days.
For many people going abroad for the first time or going back out, this is the best option to claim that FEIE!
Filing Your Taxes as an Expat
Now that you know about your foreign wages, how do you file taxes as an expat? Yes, you can use the above-stated TurboTax. Yes, it can still be confusing. What if you own a house? What if you rented out a place or had income from the US before you went abroad? Taxes are too important a piece of our lives for us to gamble with thinking we know what we’re doing.
We find that the people whose livelihoods are devoted to taxes are much better at this than us. There are plenty of different people you can hire to do your taxes, but as expats, we like to work with a professional with expat-specific experience. We have used a group called TieTax for years (no affiliation whatsoever, just a good old-fashioned shout-out), as they work almost exclusively with expatriates. They are equipped to answer your questions, file on your behalf, and have a much greater knowledge of taxes (it’s their job!) than the average US citizen.
As a general rule of thumb, when we find something valuable, we have no trouble paying for it. In this case, paying to get our taxes done right and at little to no emotional cost to us is worth the price. That said, paying for your taxes to be professionally done isn’t necessarily cheap. TieTax costs us approximately $300, but again, this is a price we are willing to pay to not deal with the stress of “Did we file correctly?” or “Where does this number actually come from?” Adding your tax filing fee to your monthly budget and setting the money aside for a few months before tax season can help you feel more confident about this expense when the time comes.
Final Thoughts on Taxes as an Expat
To wrap up, taxes are a pain, and taxes as an expat are even more so. Still, with the right professionals guiding you every step of the way, you can have the peace of mind of knowing you’re abiding by your obligations in the US as expected.
Have you ever filed taxes while living abroad or having foreign income? What has been your experience? We’d love to hear from you! Feel free to share your tax stories with us by contacting us or on our social media platforms (X, Instagram, or YouTube).
DISCLAIMER: The information in this post is for educational purposes only and should not be considered financial advice. We are not tax or financial advisors; always consult a tax professional to handle your individual tax situation.
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