Disclaimer: Taxes for Expats approached me to offer their basic service package to handle filing my US taxes for the previous year. Nothing was expected in exchange, but I was given the opportunity to email interview their founder and president, Ines Zemelman, and share her insights into filing US taxes as an expat with my audience
As we pass the two-week deadline for filing US taxes as an expat, I wanted to spread some great insight into the whole process from the founder and president of Taxes for Exapts, Ines Zemelman. There is a fair bit of information out there on filing US taxes as an expat already. However, I think this post provides more value to you guys than if I had just shared my own experiences.
My experiences with the company itself were also quite positive. I found their online interface simple and easy to use. It was especially helpful in that it saves your work and reminds you exactly where you were in the process. The tax consultants were also quite professional. They answered any, literally any, question I had, no matter how stupid it probably seemed. They were also very quick to respond to my questions and also in their basic analysis of the documents I handed over to them at the beginning of the process.
In order to give you a sort of introduction to filing your US taxes as an expat, the quasi-interview is below. I asked some pretty basic questions that I know I had during my first experience filing taxes while living abroad.
An Introduction to US Taxes as an Expat
1) What are the general obligations for US citizens living abroad when it comes to taxes? (income tax filing, FBAR, social security, etc.)
- All US citizens & Green Card holders, must, assuming you meet the minimum filing thresholds, file an annual tax return reporting their worldwide income.
- Although all must file, few will have to pay. The good news is that most expats don’t end up paying any taxes to the IRS. There are many tax deductions available which allow taxpayers to deduct more than $100,000 from their taxable income. But – they must continue to file. Failure to do so can lead to penalties.
- Financial Reporting Requirements. Aside from filing returns, you may also be subject to FBAR and FATCA (Form 8938) filing requirements. These forms do not generate tax due, but are simply informational — do not ignore these! Failure to file these informational forms may generate large penalties. FBAR is filed with the treasury and is required if the sum of your non-US accounts exceeds $10k USD at any point in the year. FATCA (form 8938) has higher thresholds (depends on where you live and what your marital status is – see our full guide link above), and is filed as part of your tax return to the IRS.
Common Mistakes Expats Make Filing US Taxes
2) In your experience, what is the most common mistake expats make tax-wise after they move abroad?
The biggest two mistakes are:
- Not filing on time
- Misunderstanding filing requirements – assuming that they do not need to file
- Filing deadlines: The first and most straightforward difference is the date when your tax return is due. If you reside abroad on tax day, April 15, you are eligible for an automatic extension to file until June 15. If you would like, you can also apply for an additional extension to file until October. Now – although you can file later with the extension, if you do wind up owing tax, interest will begin to accrue from April 15.
- Note – starting from 2017, the date for FBAR is April 15 as well.
- The aforementioned deductions are not automatic. In order to benefit from the myriad of exclusions available – the Foreign Earned Income Exclusion (FEIE), Foreign Tax Credit, Foreign Housing Exclusion, Treaty exclusions, and many more – your tax return must be prepared correctly and tax saving tools utilized properly.
- Unlike a U.S. employer which will issue a W-2, which will be sent to the IRS and to you, your foreign employer will not provide you with such a form (and even if there is a local tax declaration, it does not get forwarded to the IRS). As such, you should keep accurate records of your finances.
- Depending on where you live, and what your personal financial situation is, the complexity of your filing can vary. Factoring self-employment complications, foreign pension treatment, treatment of employer contributions, taxability of foreign passive investment corporations, totalization agreements, and digging through the dense web of tax treaties, the world of expat taxes is difficult and can make the most astute of regular CPAs throw their hands up in defeat.
Social Security and Medicaid Taxes as an Expat
3) Can you explain the Social Security and Medicaid taxes, how they impact expats?
We wrote this article that explains this: https://www.taxesforexpats.com/articles/retirement/social-security-expats-q-a.html
US Taxes for Self-Employed and Freelance Expats
4) What tips do you have for digital nomads or other self-employed people to keep themselves organized and prepared for tax season?
We have produced a very comprehensive and easy to read tax guide for Digial Nomads — https://www.taxesforexpats.com/guides/digital-nomad-guide.html
US Taxes and Starting a Company as an Expat
5) When starting your own company abroad, what generally needs to be done when filing taxes in the US, if anything?
If you choose to establish your business overseas, you will be required to abide by your host country’s reporting guidelines. Each country has its own deadline for tax returns, which can pose a challenge if differing greatly from the U.S. June 15th deadline. Always check with a tax professional in your host country to be sure of the laws and guidelines. Certain country’s guidelines will require you to file U.S. taxes while filing in your host country as well. Of course, if you are a U.S. citizen, you will always need to report your income to the IRS. But in which way you established your business will affect how you are required to report said income (Business Structures Globally and US tax filing requirement table)
As a business owner, it is especially important that you remember that U.S. citizens with foreign bank accounts are required to file FinCen 114 (FBAR) report amounts over $10,000 USD (if this amount is reached at any point during the year) by April 15 (as of 2017) each year. This rule also applies for those with signature authority over foreign bank accounts.
Why Expat Taxes?
That’s it for the tax-related answers from Ines Zemelman. Finally, I also asked her one slightly personal question. I’m always interested in how people find their careers, so I wanted to know, “why expat taxes”?
6) On a more personal note, what made you think to get into the expat tax business? Why this field of tax accounting?
It was pure happenstance. I had existing clients who moved abroad and still wanted to use my services – so had to get up to speed and learn this area.
As this was over 25 years ago, there were few other tax professionals and I ended up establishing myself in this niche. Today there are over 9 million Americans who live overseas so this is certainly a service needed by many!
And that’s it! I want to thank Ines Zemelman for her time and for reaching out to me in the first place. If you’re already living abroad and have a somewhat complex tax situation, I can definitely recommend Taxes for Expats.
If you have any further questions or want to share your knowledge or experiences with filing your US taxes as an expat, please leave a comment below! I am by no means an expert, but maybe I, or other commenters, could point you in the right direction. Thanks for reading!