Expatriate Compliance: How Living Abroad Affects Your Taxes

Category: Tax Preparation | Posted: February 20, 2016

Living abroad can be an adventure, but you could still have taxes back in the States.

Many US citizens look at an opportunity to live and work overseas as an adventure, full of excitement, an opportunity to explore new cultures, languages, foods, and people. Often, the last thing on their mind is how living abroad will affect their taxes. Who wants to think about that anyway? It can definitely be a damper on what would otherwise be a thrilling opportunity. The fact is, if you are considered a US person for tax purposes, e.g. US citizen, Green Card holder, certain work visa holders, etc. then you most likely have a US tax filing requirement, even if you are not earning anything in the United States.

This is because the US taxes its citizens and those deemed as US persons on their worldwide income, regardless of source. Furthermore, you will most likely have some type of tax filing requirement in the foreign country where you are working and living.

It’s not all bad news, though, and definitely not something that should prevent you from looking forward to and enjoying your overseas experience. There are provisions in the US tax code as well as US tax treaties with many countries around the world that help to offset (equalize) some or all of your US tax burden, especially if you are paying taxes to another country. With the IRS offering a variety of exclusions this guide for U.S. Citizens and Resident Aliens residing outside the states is a great thing to have in your back pocket. 

Also, if you physically reside outside the United States for 330 days within a 12-month period, you may be eligible to exclude a big chunk or possibly all of your foreign earnings ($100,800 for 20151). If you earned over the exclusion and paid foreign taxes on your earnings, then you may further be eligible for a prorated foreign tax credit on the earnings in excess of the exclusion.

IRS Seize Passport

Another consideration outside of your tax return filing requirement is that of disclosing ownership, joint or separate, as well as signature authority on financial accounts located outside of the United States. If you had a combined balance of US $10,000 or more during the year then you have a requirement to report those accounts, also known as FBAR (Foreign Bank Account Report2).

In conclusion, it’s not as bad as it might seem. When planning an excursion, you need to do some planning ahead of time for best chance of making it to your destination. It’s no different when it comes to understanding your tax filing requirements while living abroad. There is a lot of misinformation and confusion surrounding this topic and the requirements, making it advisable to seek the assistance of a tax advisor with experience in international taxation matters.

John Paul Krueger, EA; President & CEO
John (JP) Krueger founded Five Stone Tax Advisers with a passion to help people comply with the complexities of the IRS tax code. Along with compliance, Five Stone also helps clients pay the absolute legal minimum in taxes each year. Five Stone and its related entities have quickly become a leading global tax firm with offices in Zurich, Switzerland and Austin, Texas. Five Stone maintains an industry leading success rate in resolving tax issues for clients around the globe. Prior to starting Five Stone Tax Advisers, JP has led companies in various industries including retail, technology and financial services. At each company he managed, JP’s efforts grew revenue and net income in amounts that far exceeded industry benchmarks. While he now leads over 50 associates in the Austin office, JP’s leadership development began in the United States Marine Corps. An expert in leadership, lean operations, and tax strategies, JP maintains professional licenses including the IRS Enrolled Agent (EA) and Senior Property Tax Consultant (SPTC) designations. JP earned Bachelor’s degrees in finance and information systems management from the University of Idaho. In addition to his work as CEO of Five Stone Tax Advisers, JP also serves on the Board of Directors for Loop 1, Inc. a Global IT company and LifePastor, a community based 501c3 organization. He is also a member of C12 Group, a Christian peer advisory board. JP is married to Kellyn, a Certified Public Accountant and they have two young boys, Luke and Roman. John’s faith and family are a primary focus in his life.

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