Top 5 Mistakes to Avoid When Filing US Expatriate Taxes

As long as you’re living and working as a U.S. citizen, staying on top of your tax obligations is easy. Your employer sends a W2 form for each employee, withholds the applicable taxes from your salary, and remits the payment to the IRS. However, if you’ve recently moved to another country, remember that you’ll continue to pay taxes back home. When filing US expatriate taxes, get together the relevant information that can help you take advantage of the several benefits available to expats. You’ll find that you can lower the final payable amount. Here are some of the typical mistakes that people living abroad can do to optimize their US expat taxes by getting assistance from an expat tax CPA. 

tax consulting

1. Risking the “Under-Withholding” Penalty

US law requires you to pay quarterly estimated payments that become due every three months. You’ll pay an estimated amount on the 15th day of April, June, September, and January. If you miss making these payments, you could incur penalties. The IRS expects you to pay 100% of your tax obligations for the previous year and 90% of the tax liability for the current year during the ongoing fiscal year. 

2. Miscalculating the Time You Lived Abroad

At the time of filing US expatriate taxes, you can lower your liability by using the Foreign Earned Income Exclusion (FEIE). This exclusion is applicable only if you have lived in a foreign country for a full 330 days out of the 365 days of a year. Many expats make the mistake of including the travel time they spent within this 330-day interval. The time you spend on international territory during travel, arrival, and departure cannot be counted toward the Physical Presence Test tally of 330 days.  Miscalculations like these can add up thousands of dollars in US expatriate taxes. 

3. Neglecting to Comply with FBAR and FATCA Requirements

The Foreign Account Tax Compliance Act (FATCA) is designed to ensure that taxpayers declare the income they earn from offshore financial accounts. If your foreign financial assets exceed a particular limit, you must file the FATCA Form 8938. Of course, these thresholds depend on various criteria such as your residency and filing status. Not filing the necessary requirements could result in penalties. 

Foreign Bank Account Report (FBAR) is yet another form that you must complete and submit to the IRS. This form also lists the bank and any other financial accounts that you hold in foreign countries. Check with your tax consultant for detailed information about filing these forms since the regulations can be complex. 

4. Not Getting Adequate Healthcare Coverage

Regardless of whether you’re living abroad or in the US, the Affordable Care Act (ACA) makes it mandatory for you to be covered by health insurance for the entire year. The policy you have must meet the “minimum insurance requirements” as outlined by the law. As an expat, you’ll qualify for exemption thanks to FEIE regulations. However, make sure to include information about the exemption in detail when filing US expatriate taxes. 

If you don’t have this coverage, expect to pay $95 per adult and $47.5 per child in the family or 1% of your annual income by way of penalties. Expats who were uninsured for only a few months will pay pro-rata fines. You can find more information at the Healthcare.gov site. 

5. Overlooking Payments to the US IRA

The Individual Retirement Arrangement (IRA) allows US citizens who pay taxes to set aside money for their retirement free of applicable taxes. As a result, you’ll lower the taxes you pay each year. Expats can also contribute to their US funds if they earn salaries or wages on a regular basis. 

Filing US expatriate taxes can be a confusing process for people who are living abroad. Rely on the advice provided by an expert tax consultant and stay compliant with the taxation regulations.

Scroll to Top