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 must file our U.S. income taxes.
When I first moved to Thailand, I was much less experienced on how things worked in the country. I assumed that because I didn’t live in the U.S. 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.
That said, this guide will help you determine if you have to file taxes as an American expat living abroad, how to file them using free or paid options, and which services are available.
In case you want to file tax on your own, check out a tax filing software such as TurboTax,.
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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.
Over the years I’ve taught English and worked as an English-language sports commentator. However, not long ago I set up an LLC in America for my freelance writing and editing career.
Each year, I have to pay U.S. taxes on the money I earn as a freelancer and on my investments in America.
Filing US Taxes
When I first moved abroad, 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 backs this up:
“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.“
In some cases, you don’t have pay state taxes while living abroad if you live in a state with no state tax such as:
- South Dakota
But in my case, I last lived in New Jersey. So, I still had to file.
Penalties for Not Filing
What happens if you don’t file taxes while living abroad? My accountant told me that you could have your passport revoked or be denied renewal when the time comes.
My accountant also told me a story about his client, a U.S. expat who moved to Spain and opened a restaurant.
The American expat met a Spanish woman, 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, and the IRS wasn’t going to let him off the hook. They denied his wife a U.S. visa until he paid all those back-taxes.
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.
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.
- social security numbers of my family members
- invoices of all earned income for the year
- expenses for the tax year
- financials for investments
I scan and send these documents to my accountant in late February. 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.
You might be subject to file taxes for the country you are living in. Different countries have different requirements when it comes to taxes.
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’re considered 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 taxes.
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.
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.
Also, America 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.
You can also check our specific tax guides for:
Foreign Earned Income Exclusion, or FEIE, is a good way to lower your U.S. tax.
Currently, you can decrease your taxable income made while living outside of America by US$105,900.
FEIE comes with two main conditions:
- 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.
- You must pass either the residence test or physical presence test.
The residence test means you need to live outside of the U.S. 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.
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 U.S. income taxes while living abroad.
The IRS has four resources available to help you file your taxes online.
- The Free File Fillable Forms are for people who make US$66,000 or less a year.
- Their tax return preparation site is also free for those who qualify.
- The IRS also has commercial software available.
- 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.
If you have a problem calling the IRS, you can use a service from Claimyr. It basically calls the IRS on your behalf and calls you when someone picks up the phone.
It’s a great way to help you file your tax before the deadline on April 18th. Use this link to get $5 off your first call.
Tax Filing Software
If you want to file your taxes yourself, you have plenty of tax filing software available. One of the more popular options is TurboTax, which has been around in one form or another since 1984.
TurboTax gives you plenty of filing options to choose from, which means individuals, business owners, and corporations alike will find the plan they need and be guided through the filing process.
Moreover, if you don’t want to file your taxes by yourself, you can get help from one of TurboTax’s many expert accountants.
There are many tax services out there that can help you file your U.S. taxes. Many of these companies are founded by expats who come from the finance industry.
One of them is 1040 Abroad, 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.
Now, on to You
If you’re an American citizen living abroad and need help with filing your U.S. income taxes, check out TurboTax.
TurboTax is one of the most versatile and easy-to-use tax filing softwares out there. However, if you’d rather not go through the process alone, you can get help from one of TurboTax’s expert accountants.
Photo courtesy of Sebastiaan ter Burg.
3 thoughts on “The Complete Guide to Filing US Taxes from Abroad”
Actually there are not only North Americans on this planet (I know, a surprising thing for people of “God’s own country”).
Would there be advice for people from other, less important countries, too?
Yes. We are working on that. The article should be live within next month. Stay tuned!
Hi John, thanks for the article, I found very interesting.
One question, in your blog I see that you are using Transferwise Borderless as a bank account.
I was wondering how do you include the earnings in your TrWs account when filing taxes at the IRS.
– Does TrWs provide all the necessary documents to file taxes (just like any other US bank)?
– Did you have any problems to declare TrWs funds in your tax declaration?
Thx in advance,