US Expat Taxes
As you’re probably aware, as a US citizen, you’re required to file taxes on your worldwide income every year – whether or not you’re living in the States. On the upside, as an expat living abroad on Tax Day, you receive an automatic two-month extension on your taxes – making the deadline 15 June. You can also request an extension until 17 October, if you need more time. However, you will want to note that any income taxes owed to the IRS are still due by Tax Day (which was 17 April this year), or you’ll accrue interest until the amount is paid in full.
Additionally, as an expat, you’re eligible for certain credits, deductions and exclusions that help lower your taxable income. These are the most popular ones:
- Foreign Earned Income Exclusion (FEIE): This will allow you to exclude the first $100,800 of foreign earned income from your 2015 US tax return. You will need to use the Physical Presence Test or the Bona Fide Residence Test in order to use the FEIE.
- Foreign Tax Credit (FTC): This will reduce your US tax liability dollar for dollar based on taxes paid in your host country. This cannot be used on income you’ve excluded with the FEIE.
- Foreign Housing Exclusion: This can be used in conjunction with the FEIE, increasing the FEIE by the amount of your qualified housing expenses. You’ll use the following calculation:
Housing Expense Limitation – Base Housing Cost = Maximum Housing Exclusion
Don’t miss out on these options when preparing your US taxes – they can help reduce or eliminate your US tax liability.
Foreign Bank Account Reporting (FBAR)
In addition to your US expat taxes, your FBAR reporting is also due in June if you meet the filing threshold. If your foreign bank account(s) exceed $10,000 at any point during the calendar year, you will be required to file an FBAR. This is true for any US citizen, regardless of age, and US companies who exceed the monetary threshold.
Which foreign accounts need to be included on your FBAR? These include:
- Foreign bank account balances
- Foreign mutual funds
- Foreign securities or stock held in a financial account at a foreign financial institution
- Financial account(s) held at a foreign branch of a US bank
- Foreign-issued life insurance or annuity contract with a cash value
The FBAR deadline for the 2015 reporting year is 30 June– and there are no extensions available. The deadline will be changing for 2016 filing and beyond to the same day as Federal taxes – 15 April. As an expat, you’ll receive an automatic two-month extension and you can request an additional extension until 15 October. It’s very important to stay on top of the deadlines for FBAR reporting, as there are quite severe penalties for late filing or failing to file.
How to Prepare for the June Deadlines
Navigating your expat taxes can certainly be tricky, so consulting with an expat tax professional is always a good idea. Whether you handle your taxes on your own or work with a pro, the first step is always to gather the necessary documents and review your foreign bank accounts to see if filing an FBAR is required. Having a plan is essential when it comes to completing your taxes ahead of the deadline and being able to save the most money.! For more tips on how to prepare for filing your taxes, check out our blog.