We're quickly approaching the month of June, which is a big month for US expats! Why is it such a big month? Well, for starters, your expatriate tax return is due. Additionally, if you meet the filing threshold, your Foreign Bank Account Reporting (FBAR) is also due at the end of the month. Read on for everything you need to know in order to be prepared!
Expatriate Tax Returns
As an expat, you must file taxes on your worldwide income each year - no avoiding taxation just because you aren't living in the US! Fortunately for expats living abroad on Tax Day, the filing deadline is extended two months automatically, to June 15th. You can also request an additional extension until October 15th. It is important to note, though, that any taxes owed are still due by Tax Day (which happened to be April 18th this year), or you'll accrue interest on the amount owed until payment is received.
Another benefit for expats is the ability to utilize credits, deductions and exclusions to lower your taxable income. Here are a few of the most popular ones:
- Foreign Earned Income Exclusion (FEIE) - This allows you to exclude the first $100,800 of foreign wages from your 2015 US expat tax return.
- You'll have to qualify for either the Physical Presence Test or the Bona Fide Residence Test in order to use the FEIE.
- Foreign Tax Credit (FTC) - This gives you tax credits with the US government based on the taxes you've paid in your host country.
- The credits reduce your US tax liability dollar for dollar, and you cannot use the FTC for taxes on income you've excluded with the FEIE.
- Foreign Housing Exclusion - This can be used in addition to the FEIE, increasing the FEIE by the amount of your qualified housing expenses. You'll follow this calculation to determine your exclusion or deduction:
- Housing Expense Limitation - Base Housing Cost = Maximum Housing Exclusion
Make sure you're taking advantage of these options so you can save big on your US expat taxes this year!
Foreign Bank Account Reporting (FBAR)
If you have any foreign bank accounts, it's important to know the requirements for FBAR reporting to be sure you file if you meet the threshold. If your foreign bank account(s) exceed $10,000 at any point during the calendar year, you must file an FBAR. This is true for all US citizens, regardless of age, as well as US companies who exceed the monetary threshold.
You'll need to include any type of foreign account on your FBAR, including:
- 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 2015 reporting is June 30th and there are no extensions available, so it's very important to meet the deadline. For 2016 filing and beyond, the deadline will be changing to the same due date as Federal taxes - April 15th. However, as an expat, you'll receive an automatic extension until June 15th and can request an additional extension until October 15th. Staying on top of the FBAR reporting deadline is critical, as there are penalties for late filing and they can be quite severe.
How Should I Prepare for June Deadlines?
Since expat taxes can be tricky, it's always a good idea to consult with a tax professional for advice and help with filing. Whether you handle your taxes on your own or you have a professional's help, you should first gather all of the necessary tax documents and review your foreign bank accounts to see if you need to also file an FBAR. Planning ahead is key to completing your taxes before the deadline and saving the maximum amount! Check out our blog for more tips on what you need to prepare for filing your taxes.