Not filing or owing US taxes can cause unnecessary uncertainty and anxiety while living abroad. Filing your US taxes even while overseas is still required for Americans. Furthermore, owing US taxes can cause problems for your passport renewal - including passport revocation in some situations.
In the complex US expat tax landscape, getting assistance from US tax professionals has never been more relevant. For over 35 years, WATAX has been providing expat tax preparation services, analysis, and tax planning for US citizens living overseas.
Let's explore the key topics for US Expats:
- Haven't Filed US Individual Expat Taxes?
If you are a US citizen or green card holder and are living outside our country, you are generally required to file a US tax return. For both US Expats and US domestics, filing the last six years of taxes should bring you into "tax compliance."
The good news is you're likely not going to owe US taxes as the combination of the Foreign Earned Income Exclusion (FEIE) ($126,500 excluded in 2024) and the Foreign Tax Credit (FTC), where you get dollar-for-dollar deduction for taxes paid overseas.
Even if you are working remotely as a "digital nomad" for a US company, you'll get to use the FEIE and FTC against your income reducing or eliminating your US tax obligation (however, you might need to pay state and local taxes depending on your company's state).
Filing 2020 and 2021 years should also net pandemic stimulus relief ($1800 and $1400 per individual). (the 2020 year stimulus runs out on May 17, 2024 and the 2021 year on April 15, 2025).
- Self-employed US Expats, Social Security taxes & S corp tricks?
If you are running your business overseas, you will enjoy the FEIE and FTC tax reduction like wage earners, but you might be required to pay into your US Social Security and Medicare taxes (FICA) trust fund. One way of not paying FICA is by paying into the Foreign Social Security equivalent thru one of the countries in the Totalization Agreement and providing proof of that when filing.
Some savvy business owners create an S Corporation and put themselves on payroll for a certain income amount, then have FICA withheld. As your payroll amount will be less than your actual profit, this should reduce your FICA taxes. Your wages usually will be tax-free underneath the FEIE. Be aware that your company profits beyond the wages will be taxed by the US (but not for FICA!).
- Are you a US owner of a foreign corporation?
To make sure US Expats weren't hiding income overseas, the 2017 TCJA law added the GILTI tax and its labyrinthian calculations to US Expat tax compliance. One catch is you ONLY have to file the GILTI tax and its form 5471 and schedules if you have a Controlled Foreign Corporation (CFC) - this determination occurs if you (and your family) own more than 50% of the company (or if you own 10% of a foreign company that is also owned by American domestic corps). If you are required to file the onerous form 5471, the GILTI tax average is about 10 to 15% of your corporate profits.
- Open up foreign bank accounts and stock holdings?
You will also need to disclose bank and stock holdings by filing FBARs for $10,000+ USD valued accounts (in aggregate of all accounts) and FATCA (Form 8938) with your 1040 form for $200,000 plus accounts.
- Are there serious penalties for delinquent US Expat tax compliance?
In a word - yes! In two words - big time!! Being FBAR, FATCA and form 5471 delinquent all constitute major five-figure $ penalties. This is why many people who haven't filed taxes participate in the Streamline Expat Programs (see below)
- Streamline Expat Disclosure Programs.
Generally speaking, non-filers of 1040s, FBARS, FATCA, form 3520 (foreign trust) and form 5471 get amnesty on penalties by providing full disclosure to the IRS. WATAX represents people in these programs monthly. Court rulings - both Supreme and Tax Court in 2023, did narrow the FBAR penalty to $10,000 and eliminated the form 5471 penalty.
