U.S. Expat Tax Guide / FAQ

Who Needs to File?

All U.S. citizens and Green Card-holders are required to file a U.S. Federal Income Tax Return every year if their income is over the minimum threshold.

How Do I Get Started?

You don’t have to do much to take advantage of our straightforward and reliable tax preparation services.

Here is how it works: we send you a tax questionnaire for quoting purposes. You don’t have to worry about how long it has been since you last filed a tax return or how complex you think your situation might be. Believe us when we say we have seen everything. Once we receive the completed questionnaire, we send you a quote and a straightforward summary of what we will need to do and other information we need. You then just have to give us the green light and begin to relax as all of your filings with the IRS are completed and up to date.

What Are Your Fees?

Our fees are highly competitive and represent excellent value for money. We offer itemized, hourly billing for consulting (e.g. tax equalization calculations for employment agreements), as well as cost effective fixed rate package plans. Visit our Quote Form for a free quote and/or to arrange a free consultation with one of our tax experts.

What if I owe more than I can pay?

Even if a taxpayer doesn’t have enough money to pay, returns should be filed to avoid further penalties for failure to file. Contact us and we can assist in finding a solution to the problem.

What penalties do I face?

While many people are familiar with the penalties associated with non-disclosure of foreign bank and financial accounts, it is important to be aware of other types of penalties. Failure to file your U.S. tax on time can result in the loss of some of the tax benefits available to American expats. Also there are additional IRS forms that must be filed specifically, for which penalties start at $10,000 and go up from there.

What information do I need to prepare for my tax return?

We will send you a comprehensive Tax Organizer used to collect information to prepare your return, and then follow up to request any additional information needed to complete your return. Your tax preparer will send you a draft of the completed return for your review, and then send instructions on how to sign and submit to the IRS. As a general “homework” list to get started, your preparer will likely ask you to produce the following:

-Your most recently filed tax return (both Federal and State) (if not prepared by us)

-Form W-2(s) or foreign equivalent of salary statements (if available), showing all taxable wages and foreign income taxes paid, preferably government or company issued documents;

-Form 1099(s) or foreign equivalent showing other income from non-salary sources, e.g. dividends, interest etc., preferably government or company issued documents;

-Form 1098-E, from student loans if any;

-Information on transactions that may have incurred capital gains/losses e.g. sale of
real estate or securities;

-Any other tax documents that may be applicable.

I have not filed for more than five years. What are my options now?

The best thing to do now is to file your income taxes right away and pay all penalties and interests before they increase. The situation is more common than you might think. You should start with an expat tax expert to identify how many years of back taxes you are to file and what documentation you need to complete the reports and returns needed to comply with the U.S. tax authorities.

Our tax consultants will be able to review your situation to test eligibility for Streamlined Offshore Filing Procedures. If eligible, you will only need to file taxes for the past three years but must also file Foreign Bank Account Reports (FBAR) for the past six years.

All U.S. citizens or a Green Card holders have a tax filing and FBAR obligation, wherever they live or work worldwide. Tax paid in the country of residence can often be used to offset taxes owed in the U.S. However, as each individual’s situation is different, it is always best to seek the advice of a professional tax preparer to help ensure full compliance with all applicable U.S. tax laws.

What is the Foreign Earned Income Exclusion (FEIE) for the tax year 2020 (due in 2021)?

The foreign earned-income exclusion amount for 2021 (due 2022) is $108,700. 2020 was $107,600, up from the previous year’s $105,900.

As an American expat living and working abroad, when am I required to file annual tax returns and when are my taxes due?

Americans living abroad benefit from an automatic two-month extension. This means you must file your return by June 15. However, any taxes due are calculated by the standard return date on April 15 and interest is charged on any taxes due but not paid by that date.

Do you offer consultation or tax planning services?

We are able to provide consulting services covering a wide range of concerns for non-resident U.S. tax filers, including tax equalization calculations, FATCA compliance, global tax planning strategies, and many other important tax considerations for Americans living and working abroad.

What proof-of-residency information do expatriates need to provide for their U.S. tax declarations?

Under the current tax system, taxpayers assess their own situation and determine by themselves if they are eligible for foreign earned income exclusions. If they are, they make the election for exclusion by completing the relevant form (there is no need to submit any prove with the election).

I neglected to report my worldwide income on previous returns. What should I do?

If such situation occurs, you should file an amended return to avoid penalties from the IRS for incorrectly reporting your income. Depending on the situation, you may not end up owing any taxes after the credits and deductions applicable to expatriates have been applied to your return.

What are FinCEN (Form 114) and FBAR forms?

FBAR (Foreign Bank and Financial Accounts) refers to FinCEN (Financial Crimes Enforcement Network) Form 114, which is used to report financial accounts held outside the United States. Account types include bank and brokerage accounts, mutual funds, unit trusts, or other types of financial accounts.

According to the IRS’ website: “An FBAR must be filed for each calendar year that the person has a financial interest in, or signature authority over, foreign financial account(s) when the aggregate balance exceeds the $10,000 threshold at any time during the year. FinCEN Form 114/FBAR must be submitted electronically to the Financial Crimes Enforcement Network, a bureau of the United States Department of the Treasury.

When filing my US tax returns, am I able to quote foreign currencies, or must I report everything in USD? If the latter, what exchange rates should I use?

All figures must be translated into and reported in U.S. dollars. The IRS provides annual average exchange rates for reference. Exchange rates for individual dates are also available at Oanda.com

What do I do if I haven’t filed FBAR for several years?

We can only recommend that you just file it as soon as possible. This is what many previously delinquent filers are doing. They may have only recently been made aware of the FBAR filing requirements, did not know they were required to file, or they were unfamiliar with the kinds of accounts they had to file for. The reasons vary, but they are now scrambling to get back on the grid.

The process involves filing your delinquent FBARs electronically via the Department of Treasury’s FinCEN (Financial Crimes Enforcement Network), along with an explanation why the reports are being filed late. According to the IRS website: “The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.”

If I qualify as a non-resident American and I file in my country of residence, am I still required to file a tax return in the U.S.?

Yes. Regardless of your residential status, you are required to file annual tax returns in the U.S. However, depending on your situation, you may be eligible for foreign tax credits, partial foreign income exemption, etc. In summary, if you have foreign source income that is taxed in both the foreign country and the US, you may use the foreign tax paid to calculate a credit against the US tax charged on such income. Foreign tax credit calculation is a complicated process. You should seek professional help on this issue.

I need to apply for an ITIN for my non-resident alien spouse. Is this a service you provide?

Yes, absolutely. To get started, simply visit our Quote Form to request this service. Important: If you need an ITIN for an upcoming tax return, it is best to get started as soon as possible — it can take six weeks or more to obtain an ITIN, depending on your location and other factors.

I haven’t filed U.S. taxes for years. Do I need to prepare a return for every year I have not filed?

First, if you are a non-resident tax filer and behind on your taxes, we highly recommend that you start the filing process immediately. FATCA and the fact new international information sharing agreements in place have made it much easier and faster for the U.S. Treasury Department to get financial records for individuals and organizations overseas. This means that it is likely the IRS will try to contact you before you reach out to them.

Your next decision is how many years for which you need to prepare your tax returns.The number of years to file will depend on the facts and circumstances of your particular situation, and our tax professionals will be happy to review your situation and recommend possible courses of action (i.e. we can review your situation to test eligibility for Streamlined Filing Procedures, in which case only past 3 years of back filing tax returns and 6 years of FBAR are required).

I am currently living and working in China, and my employer is not sure what information they need to provide in lieu of a W-2 Form. What information will I need for U.S. tax reporting purposes?

For your employment income in China, you should retain your monthly payslips which should show your income and Chinese tax withholding amounts. If payslips are not available, you may ask your employer to prepare a written confirmation to confirm your annual income and tax withheld/paid.

What are “totalization agreements,” and do they cover income as well as social security/pension payments?

“Totalization agreements” are formal agreements between the U.S. and foreign countries to avoid double taxation of income through social security taxes. The agreements only apply to the imposition of social security tax. If you are self-employed, your self-employment income is eligible for foreign earned income exclusions if you can satisfy the required conditions, but you are still subject to U.S. self-employment tax (i.e. social security tax). However, if you are residing in a country that has a totalization agreement with the U.S. and are subject to social security tax in that country on your self-employment income, you can be exempt from U.S. self-employment tax. There are over two dozen countries with signed agreements with the U.S.

What are the criteria for eligibility or requirements for the Streamlined Filing Compliance Procedures?

While this is not intended to be a comprehensive list of criteria, the following conditions must be met in order to be eligible for the Streamlined Filing Compliance Procedures (for non-US residents):

(1) During at least one of the most recent three income tax years for which, the return due dates have passed, you must be present in a foreign country for at least 330 days and you have not have a permanent abode in the U.S.
(2) You must have income from foreign financial assets that have not been reported to U.S. income tax and you may have requirements for filing a report of foreign bank and financial accounts that you have not complied with.
(3) The non-compliance is not due to a willful conduct.

If I have not filed federal tax returns for several years, will I have to pay any penalties when filing?

Not necessarily. If you have not filed and do not have any taxable income (e.g. under the threshold of the Foreign Income Exclusion for all tax years), then neither penalties nor interest will be applied. If you do owe tax, then you may be eligible for the Streamlined Foreign Offshore Procedures, under which you would be able to avoid non filing and/or late filing penalties. You would then only have to file for three years (but you would still owe interest on any unpaid tax).

If I am under the Foreign Income Exclusion threshold, why not just prepare my own taxes, either manually or using some free online software?

It is certainly possible to prepare you own tax return and to save money in doing so. But the risks are great, indeed, including having to pay steep penalties for unintentionally providing incorrect information or neglecting to submit certain forms required for expat specific tax returns. There is also the risk of not knowing you need to prepare certain forms that must be filed independently of your federal tax returns, which can carry severe penalties for non-compliance (such as FinCEN Form 114/FBAR). The U.S. tax code is extremely complex, and as one example, we have included an excerpt* from a recent inquiry received by a panicked tax filer:

“I’m hoping you can help me regarding a letter I received from the IRS. I attempted to do my taxes by myself. It seems I made a mistake on my Form 2555/2555-EZ, and just received a bill for $4,000. I should not have to pay anything given the amount I made last year was low enough to qualify for the foreign income exclusion. Is there anyway I can correct this? Please help!”
*Some details changed to protect the individual’s identity.

Do I have to pay capital gains tax if I sell a property at a profit in mainland China?

Question: We recently sold our home in China at a considerable profit. Will we have capital gains tax obligations on the U.S. side?

Answer: In addition to potential capital gain exclusions on sale of primary residences, the U.S.-PRC Tax Treaty stipulates that capital gains derived from the sale of real estate (i.e. real property) may only be subject to capital gains tax in the contracting state (in this case, China). However, tax treaty wording can be quite complicated and often requires a tax professional’s input to determine whether or not it is applicable under each set of individual circumstances.