Whether you are new to filing US expat taxes or a seasoned veteran, there may be a few things you aren't aware of. So let's take a closer look at the 5 things you probably didn't know about filing US taxes--but should.
1. The Foreign Earned Income Exclusion isn't automatic.
Most expats are aware that the Foreign Earned Income Exclusion is a great way to reduce or eliminate US tax liability, but this exclusion is not automatically granted. You must actually elect it by filing Form 2555 or 2555-EZ. Once you elect it, there is no need to elect it again each year.
However, should you decide at some point in the future that you do not want to use it, you actually need to revoke it. You do so by attaching a statement to your US tax return that explains exactly what you are revoking (because you can also revoke the Foreign Housing Exclusion if you elected it previously) and why.
If you would like to elect it again within 5 years, you actually need to request that from the IRS. It is up to their discretion whether they believe any changes in your circumstances warrants a reversal of the revocation.
2. FBAR and FATCA are not the same.
FBAR (Foreign Bank Account Report) and FATCA (Foreign Account Tax Compliance Act) are similar in that they are both part of the US initiative to uncover tax cheats hiding money in offshore accounts. But their filing requirements differ.
With FBAR, you must file if your foreign bank account balances reach $10,000 or more at any point during the tax year. This is an aggregate amount of all your accounts, so if the total of all your accounts exceeds this balance, all accounts need to be reported. The filing deadline is June 30 and there is no extension.
Under FATCA, if the value of your specified foreign financial assets exceed certain thresholds, you must file Form 8938 along with your US Federal Tax Return. The filing requirements vary based on filing status and residency, but for US expats they are:
• $200,000 on the last day of the tax year or $400,000 at any point during the year for single filers
• $400,000 on the last day of the tax year or $600,000 at any point during the year for those filing married jointly
You may need to file FBAR, FATCA, both or neither!
3. You can get caught up on US tax returns without penalties
Yes, you read that right! If you didn't realize you had a filing obligation, the IRS has an amnesty program just for you. The Streamlined Filing Procedures is perfect for those whose lack of filing wasn't purposeful--meaning you weren't trying to hide from the IRS. You simply need to file the last three years' tax returns and the last six years' FBARs and you will be up to date.
The IRS has waived all late filing and FBAR penalties but there is no ‘end date' for the program or the waiving of fees. If you are behind, we suggest you get caught up sooner rather than later so you don't miss this opportunity to do so without financial implications.
4. Miscalculating days spent abroad can cost you thousands
Many expats qualify for the Foreign Earned Income Exclusion by passing the Physical Presence test. This residency test requires that you be physically present inside a foreign country for 330 full days in any 365-day period. And to the IRS, a day is a FULL 24 hour day. So time spent in the air traveling to and from the US or other countries does not count towards the 330 day requirement.
So it is important to track your travel days carefully. Simply spending one day too many in the air or in the US makes you ineligible for the Foreign Earned Income Exclusion and if you cannot exclude the bulk of your foreign income, that could lead to a hefty tax bill.
5. Self-employed expats still pay Social Security to the US
US self-employment taxes are actually your Social Security and Medicare payments. Currently the tax rate is 15.3% and most self-employed expats will need to pay estimated quarterly taxes throughout the year. If you are required to pay these but don't, you could be hit with a penalty come tax time. If you have questions about exactly what you need to pay to the US or how to calculate estimated quarterly taxes, you are encouraged to speak with an expat tax professional.
Greenback Expat Tax Services specializes in tax preparation for Americans living abroad. Our team of CPAs and IRS Enrolled Agents have decades of experience with US expat taxes. We offer low, transparent, flat fee pricing (no surprises!), a hassle-free process and money-saving results. To learn more about getting caught up on your US tax obligations, contact us today!