6 things no one tells you about US taxes as an expat
For the longest time, there was no word I feared more than the word “taxes.” Even now, it gives me a bit of a shiver.
As an American, understanding our tax system is a pain; there’s no denying it. As an American expat living and working abroad for a decade, who runs two businesses across multiple continents, it’s like facing Pandora’s box: it’s much easier to stick your head in the sand and ignore it for as long as possible. Shivers. At least, that was my strategy for a long time. Can you relate?
Luckily, I’ve learned the immense value of outsourcing to experts, thus relieving myself of the stress, anxiety, and total head trip that coincides with the US tax season. MyExpatTaxes makes filing US taxes as an expat easy, simple, and CHEAP. OMG, sign me up, stat!
With tax season in full swing, it’s essential that you, as an American abroad, are in the know about your US taxes. As I’ve wrapped my head around what is arguably my most significant stressor, I thought I’d share some of the meaningful lessons I’ve learned along the way. Here are six things no one tells you about US expat taxes- you’re welcome!
1. You have to report EVERYTHING, not just your U.S. earnings
David – “It’s a write off!”
“Do you even know what a write off is? – Johnny
David – “Yeah, it’s when you buy something for your business and the government pays you back for it.”
Hands up if you remember this ICONIC scene from Schitt’s Creek!! And secret hands up if that has totally been you at some point in your adult life. It’s definitely true, especially if you’re self-employed or a business owner. Why is all of this adult tax stuff so hard? Why don’t they teach us this in school? Why is the IRS so scary and complicated? Why won’t they pay me back for my bedding, lamps, and luxury skincare products?
Like David, I learned the hard way about how to deal with US taxes as an expat. One of the biggest things I learned was that I had to report all my earnings worldwide, not just my US earnings. It’s a hard truth. Every American living abroad MUST report their global income if it’s over the tax filing threshold – which is very low.
For example, you’ll need to file a tax return if you’re a single filer and have worldwide gross income of at least $12,400. Or if you are married to a non-US spouse, and your gross income was at least $5 (yup, you read that correctly!) you need to file a tax return too.
So that contract in London? Have to declare. My weekly column online in New Zealand? That too. My monthly facials? Nope, Liz. You can’t claim that.
Plus, if you have had $10,000 or more total from all of your foreign financial accounts at any time during the year, you’ll need to file an FBAR (Foreign Bank Account Report). This goes for checking, savings, investment accounts and any bank account you have signature authority over. The FBAR is a really important form that can cost you hefty penalties if you don’t file it as an expat. So if you’re not sure if you ever had that much money in your foreign bank accounts, be safe and just file an FBAR (also included in the MyExpatTaxes software!).
2. You probably don’t have to pay US taxes
Guys, I had a confession. Please don’t laugh at me.
Since becoming a New Zealand resident for yonks, I have heard all these stories about Americans having to pay double tax, both in the US and in their adopted homes. Since I already pay over 30% in NZ taxes (full disclosure, I support because I reap ALL the excellent benefits), I dreaded having to fork any more coin over to the tax man in the US.
BUT I was so wrong!
Here’s what the IRS has to say about US taxes as an expat :
“If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.
The US and Eritrea are the only two countries that tax their citizens no matter where they are in the world. Depending on your situation as an American expat, you probably don’t have to pay US taxes thanks to the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit.
For example, for the FEIE expats can exclude up to $107,600 of foreign-sourced income from US taxation in 2021. Yet, this type of income needs to be earned from sources outside the US.
The US also created tax treaties with certain countries that help reduce tax rates or exempt expats from US income taxes on certain income. Check to see if your country is on the list.
Of course, this might change once I make my millions. But for now, it’s one of the many tips and tricks I’ve picked up from working with MyExpatTaxes on filing my US taxes this year. You’re welcome.
3. You can claim Stimulus checks you previously weren’t eligible for
If for some reason you didn’t qualify for the IRS economic income payment (a.k.a Stimulus checks) in 2020, it’s possible to do so this year.
To get the checks from 2020, Americans abroad should have filed a 2018/2019 tax return. Or you must register on the IRS Non-Filer portal including info on where the send the check. Each stimulus check is valued at $1,200, but could be lower due to each person’s income levels and family situation.
Early this year in 2021, $600 checks were released for US citizens (including those abroad), and expats could have received these checks by direct deposit or check.
However if for reason you didn’t qualify or apply for the first and second stimulus check as an expat, you may be able to claim the full amounts this year. How does that work? You’ll need to file a 2020 tax return, reporting your worldwide income from that year. Then, your stimulus check eligibility will be re-evaluated this year, based on your 2020 income and whether it’s below the adjusted gross income (AGI) that allows you to get a check.
And the tricky part is – let’s say you’re not even making an income while living abroad but want the stimulus checks. You would be termed a ‘’Non-Filer’’ but the IRS closed their Non-filer registration portal last year, so in order to receive a stimulus check this year you need to file a 2020 tax return!
Wait there’s more. It’s also suggested you have a US bank account to receive the stimulus payment. If you live abroad, receiving paper checks by mail can be tricky. Foreign addresses and different alphabets may not work on the IRS system. Having an online US bank account like Transferwise will be your best bet.
4. You get more time than everyone else to file
April 15th generally lives in our collective culture as a day of dread – the deadline for US taxes. But there’s a BUT!
American expats are lucky. We actually get an automatic extension to June 15th. You can even fill out a form for a free tax extension till October 15th. The keyword here is “file.” If you owe tax (which you very well might not), you usually have to pay that tax by April 15th, but the IRS moved it to May 17th this year because of the pandemic.
Secondly, they have extended the FBAR deadline – to October 15. It’s a six-month extension for expats.
And if you really need more time to file US expat taxes, you can request an even greater extension for the December 15 deadline. This is the very last day to file taxes as an American abroad. But doing so is a little more complicated. You need to go old school and send a letter to the IRS. Included in this letter must be the tax return you need an extension for, plus a reason why the IRS should grant you the extension. You’ll need to also track this letter and have an IRS employee sign off on it to ensure it’s arrived. Otherwise, you won’t receive a confirmation the extension has been granted.
Another confession – I’m the queen of requesting extensions. But not for any longer! I’m getting all caught up with MyExpatTaxes. The weight of the world on my shoulders is lighter.
5. You can make up the years you haven’t filed
If you forgot to file US taxes or are panicking – realizing you have tax returns to make up – no worries. As long as the IRS didn’t contact you yet, expats can make up years of filing, penalty-free through the Streamlined Procedure. It’s a tax amnesty program set up by the IRS to help American citizens make up lost years of filing.
To be eligible for the Streamlined Procedure, you have to:
- Not have been living in the US for the last three years
- Lived outside the US for 330 days
- Haven’t filed a tax return in the last three years, or any amended/delinquent returns.
- Haven’t filed the FBAR in 6 years
You can claim those missed tax returns without getting on the IRS’ naughty list and be eligible for stimulus checks.
6. It’s not as scary as you might think
If you’re anything like me, you procrastinate hard on the big hairy tasks. The things you might not like the answers to are at the bottom of the list. While I’ve certainly grown up a lot in the 11 years since starting this blog, I still find it hard to tackle the messy or scary things. It’s human nature to put those things off.
I swear to god one of the biggest lessons I’ve learned as an adult is outsourcing things when I can and can’t afford it to experts. Have you ever tried to call the IRS? Let me tell you; it’s the pits.
How many hours and days or even years have I spent stressing over taxes and trying to figure them out? It is not a good use of my precious time, especially when I’m running two businesses and trying to implement good work/life boundaries at home.
But I’m here to tell you, once you start to wrap your head around filing US taxes as an expat, it’s not that bad, especially when having support from the professional tax experts at MyExpatTaxes, which is worth its weight in gold. To get started with them, you sign up and follow a series of questions, confirm the results, calculations and submit. You can go through the DIY software for free first and then pay their $180 base plan when convinced. If you need more professional help, you can upgrade to higher levels of support.
From this easy DIY software to help you file yourself to someone holding your hand the whole way through becoming tax compliant (one day!), MyExpatTaxes offers a range of help with your taxes.
Don’t forget to use my code YA10 for 10% off or click on this link and your discount will be automatically applied!
Finally, we get to April, and I’m ready to go!
Are you facing US taxes as an expat this year? How’s it going for you? Any tips? Spill!