Last updated on December 18th, 2022 at 11:21 pm

This article is sponsored content 

written by Ines Zemelman – founder of Taxes for Expats

As technology advances, the world gets smaller. More and more people are choosing to take the leap of leaving their country and expanding their view of the world. Living abroad gives a person a different viewpoint that allows them to grow and realize their full potential. But even while living abroad American expats must think about the taxes they owe to the US. This article will introduce you to a few of the things expats must think about before filing their US taxes.

Automatic Extension

Although most Americans must file their taxes by April 15th, expats get an automatic extension until June 15th. American expats can request a further extension until October 15th (Oct 17 in 2018)

Tools To Reduce Or Eliminate Tax

There are two exemptions that are most common for expats – the Foreign Tax Credit and the Foreign Earned Income Exclusion (FEIE).

If you’ve paid taxes to another country besides the US, you can claim a credit for that tax paid by filing Form 1116. Excess credit is allowed to be carried to future years.

If you can prove your foreign residency, you can claim the FEIE on Form 2555. This exempts an expat from taxes on up to $104,000 in foreign income.

Finally, there is a Foreign Housing Exclusion available, also reducing your potential tax obligation.

You can still submit late returns

The IRS realized that many US expats did not know about the filing requirements, so they began a program called Streamlined Foreign Offshore Procedure. This allows taxpayers to submit their delinquent tax returns with no fear of penalty.

Aside from amnesty, the biggest perk of this program is the limited amount of filing required. To participate in this program, even if you’ve never filed, you would only have to submit three years of past returns and six years of FinCEN 114 (FBAR) reports. The key to be eligible for this program is to be A) living abroad and B) your failure to file these forms was not willful.

Although you may not owe tax (if your return is filed correctly, using some of the tools described above), failure to file FBAR and other informational forms can carry high penalties; this program allows you to request amnesty – a true olive branch from the IRS.

You may have state tax obligations

Depending on your state of prior residence, and your intention (have you fully ceased all ties with the state, do you still own a home and/or receive income from a US source?), you may still have to file a state tax return.

Here is an example from the CO Dept of revenue (each state is different and some are far stricter)

From the CO Dept of Revenue:

Living Out of the Country

Individuals who abandon their Colorado domicile and become permanent residents of a foreign country no longer have to file Colorado returns. However, they would have to file a Colorado tax return as a nonresident if they had Colorado-source income (e.g., rental income). Such individuals bear the burden of proving their abandonment of Colorado residency. Continued Colorado residency will be presumed if the individual has not severed all Colorado connections; for example, if the individual still carries a Colorado driver license, votes in Colorado by absentee ballot, and/or still owns a home in Colorado, or returns to Colorado.

In plain english, if you do not have ties or income from CO, you may avoid filing a CO state return, yet you should be prepared to provide proof your abandonment of CO residency, should the CO state tax department ever contact you.

In Summary

Taxes for American expats are complicated. The consequences of making a mistake are severe, so seek professional tax assistance. Your best line of defense is to enlist the help of the tax professionals at Taxes for Expats to ensure you comply with all of the tax laws.

Disclosure: This article is sponsored content written by Ines Zemelmen, founder of Taxes for Expats.