How to File Taxes as US Citizens Living Abroad

It begins with the feeling of freedom. Freedom from the constraints of the West, the long winters, the corporate drudgery.

But as the months pass and we near April, freedom turns into the grim reminder that no matter how far we fling ourselves from America, we’re prisoners of the IRS.

We have this joke back home—us Americans—that only two things in life are certain: death and taxes.

When I first moved to Thailand I was much less experienced and much more ignorant to how things worked in the country.

I assumed that because I didn’t live in America anymore, I wouldn’t have to file taxes.

I never took into consideration that I’d still be at the mercy of the IRS while living abroad

This guide shows you if you have to file taxes as an American expat living abroad, how to file taxes for free, and how to hire an accountant.

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About Me

Before I talk about how I file my taxes, let me tell you a little bit about me.

I’ve been an expat since 2014. I moved to Thailand with my wife and our first daughter.

In 2015 we had another daughter who was born in Thailand.

And over the years I’ve taught English. But I currently work as a freelance writer and editor for companies outside of Thailand.

Each year, I have to pay US taxes on the money I earn as a freelancer, and on my investments in America.

Filing US Taxes

When I first moved to Thailand, I wasn’t sure if I had to file taxes. So I got in touch with my accountant back home.

He told me that I must file state and federal taxes while living abroad.

The IRS website clearly stated that

“If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.

A map of the United States of America showing the seven income-tax exempt states: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

In some cases, you don’t have pay state taxes while living abroad if you live in a state with no state tax, like Nevada.

But in my case, I last lived in New Jersey. So I still had to file.

Penalties for Not Filing

What would happen if I didn’t file my taxes while living abroad? My accountant told me I could have my passport revoked or be denied renewal.

My accountant told me a story about his client, an American expat who moved to Spain and opened a restaurant.

The American expat met a Spanish lady, got married, and then sold his business and wanted to bring his wife back to America with him.

My accountant told me his client hadn’t filed taxes for nine years. NINE YEARS. And the US Government wasn’t pleased.

Here’s a list of penalties you could face if you don’t file your taxes while living or working abroad:

  • a tax fine based on your average income of previous years
  • revocation of passport
  • freezing or seizing of your bank accounts
  • jail or imprisonment for severe cases

So do yourself a favor—file your taxes.

Tax Documents

When I file taxes from abroad, I send the following list of documents to my accountant. Your case may be different. So be sure to check with your accountant.

Here’s everything I send:

  • social security numbers of my family members
  • invoices of all Thailand and non-Thailand earned income for the year
  • 1099-B
  • 1099-DIV
  • 1099-INT
  • FinCEN form 114

I scan and send these documents to my accountant in late February.

This works me for because by this time, my tax paperwork for my investment accounts are usually available for download.

Once I scan and gather all my tax forms into a folder on my computer, I transfer a copy of the folder to my accountant.

He works his magic and in a day or two, sends my official taxes back to me.

I sign them, email them back to him, and he sends them to the state and IRS.

Local Taxes

You might be subject to file taxes on the country you are living.

Different countries have a different requirement when it comes to taxation. Usually, it comes down to three questions:

  • How many days do you spend per year in that country?
  • How much do you make when living in that country?
  • How much money do you have in your bank account in that country?

In many countries, you are considered as a tax resident if you spend over 180 days a year in that country. Being a tax resident means that you are subject to pay and file tax.

If you’re working abroad, there’s a very high chance that you need to file taxes in that country.

Usually, the company you work for helps you with your local taxes.

An in-depth guide to Thailand taxes.

One thing to keep in mind: America has double taxation agreements with over fifty countries in the world, which prevents you from paying your taxes twice.

But you should check with your accountant carefully.

America also has a Foreign Bank Account Reporting agreement with many countries.

Local banks must report to the IRS how much money expats have in their accounts.

If you retire abroad and collect a pension from America, you might be subject to local tax as well. It’s best to check with your accountant.

Tax Exemption

Foreign Earned Income Exclusion, or FEIE, is a good way to lower your U.S. tax.

In 2019, you can decrease your taxable income made while living outside of America by $105,900 USD.

FEIE comes with two main conditions:

  1. Your foreign earned income must not include payments from the U.S. government or related agencies, pension, or payment in a combat zone. You can find more on the IRS website.
  2. You must pass either the bona fide residence test or physical presence test.

The bona fide residence test means you need to live outside of America for at least a year while the physical presence test means you need to be physically present in other countries outside of America for at least 330 days a year.

Personal Accountants

Do I expect every American expat who needs tax help to use my tax guy? Nope.

And besides, I don’t think he’d appreciate me referring hundreds of people to him right before tax season comes to a close.

But you do have other choices. Here are just a few ways to file your US personal income taxes while living in Thailand.

IRS

The IRS has four resources available to help you file your taxes online.

  1. The Free File Fillable Forms are for people who make $66,000 or less a year.
  2. Their tax return preparation site is also free for those who qualify.
  3. The IRS also has commercial software available.
  4. Or you can file your taxes through an IRS authorized e-file provider.

I tried to use the IRS e-file system from Thailand. But I had some issues when uploading my documents.

Unless they fixed the e-file system, you may run into similar issues.

Tax Services

There are many tax services out there that can help you file your US taxes. Many of these companies are founded by US expats who have been working in the finance industry before.

You can get in touch with 1040 Abroad. It is run by American expat Olivier Wagner.

He has ten years experience in taxes and helps people from all walks of life. Olivier also has a team of accountants who work under him to help expats handle their taxes.

Although I’ve never used him for my taxes, a few of ExpatDen’s readers have. And they’ve had nothing but good things to say about him.

Now, on to You

If you’re an American expat in Thailand and need help with filing your personal US income taxes, get in touch with Olivier Wagner from 1040Abroad.

His track record with fellow American expats speaks for itself.

Photo courtesy of Sebastiaan ter Burg.

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