Money/Tax Compliance

From Trans World Express

As a US person, you are bound by the IRS for filing taxes regardless of your income; you may also need to report about financial assets (e.g. bank accounts) depending on certain thresholds. Be aware that you are still considered a US person for tax purposes as long as you are a US citizen, even when no longer living in the US. See: https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad

Below information is based on the general thresholds named by the IRS, but note that these thresholds can vary per country based on specific tax treaties. Your income and age may also be a factor. We recommend you to take this page and its references as a starting point for orientation, but please involve professional financial support to figure out how to handle your specific tax situation.

Federal tax return

The IRS information can be found here: https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-where-and-when-to-file-and-pay

You will be taxed for your worldwide income. However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023) - which means you only need to file, but not pay taxes. Other exclusions based on foreign housing may also be possible. For more information: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion

Filing taxes must be done annually before April 15th of the following year. However if you live outside the US and Puerto Rico, as is your main place of business, you can get an automatic 2 month extension. This can be useful and even necessary for you to first file local taxes within the country where you reside/work and await those returns as additional documentation to the IRS that you're already paying local taxes.

FBAR: Foreign Bank and Financial Accounts

The IRS information on FBAR can be found here: https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar

Filing an FBAR is required when you have one or multiple foreign bank accounts with a total value exceeding $10,000 (general threshold but can vary per country) at any time during the calendar year reported. Note that the amount counted towards this threshold is cumulative across all foreign bank accounts that you own.

If this threshold is exceeded, you must report all of your foreign bank accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) on Financial Crimes Enforcement Network (FinCEN) Form 114. You file the FBAR electronically through FinCEN’s BSA E-Filing System, not with your federal tax return.

The FBAR must be filed annually before April 15th, but if you fail to meet that due date, there is an automatic extension until October 15th (no request necessary). Certain circumstances may allow even further extensions. Late FBAR filing may result in a penalty.

FATCA: Foreign Account Tax Compliance Act

FATCA is aimed at catching tax evasion by US persons with foreign financial assets. The IRS has a summary of information for individual US tax payers here: https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-us-taxpayers

FATCA applies when your foreign financial assets - not just bank accounts, but also other assets such as stock - have an aggregate value of more than the threshold, at minimum $200,000 when you live abroad, but this may be higher depending on filing with a spouse or country-specific tax treaties. If your assets exceed the reporting threshold applicable to your situation, you are required to report information about those assets on Form 8938, which must be attached to your annual income tax return.

There are several exceptions to filing FATCA that are good to check if they are applicable to you. If you should report FATCA and fail to do so, you may be subject to penalties: at minimum a $10,000 failure to file penalty, but more if you continue to fail after IRS notification. Note that FATCA is in addition to FBAR: filing one does not absolve you from filing the other.

GILTI: Global Intangible Low-taxed income

The global intangible low-taxed income (GILTI) tax applies to U.S. companies that own more than 50% of a foreign corporation and individual shareholders who own more than 10% of any stock in that corporation.

While this doesn't apply to everyone, it may apply to you if you move your small business (because, yes, the US really does consider a business in Ireland to be a controlled foreign corporation even if you, yourself, live there) to some places with lower tax rated such as Ireland, Cyprus, Bulgaria, and Hungary, to name a few. Links are provided below with additional information, but if you believe that this tax may apply to you or your business, it is recommended that you contact a tax professional, because GILTI tax is extremely complicated and poorly understood.

IRS information on GILTI tax and filing: https://www.irs.gov/forms-pubs/about-form-8992

A well written guide on the tax (Sadly it is not an official government source): https://tax.thomsonreuters.com/en/glossary/global-intangible-low-taxed-income#four

FEIE: The Foreign Earned Income Exclusion

The FEIE (Foreign Earned Income Exclusion) is a tax exemption that applies to income (generally salary or income taxed like a salary_ earned while living full time outside the US. it is a relatively generous exemption, that covers a majority of income for most people.

The IRS Guide to the FEIE: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion

Student Loans as an Expat:

The bad news is that as an expat, you still have to pay your student loans. The good news is that, as an expat, you can often reduce the payment due to $0.00 if you are on (or elect be on) an income based repayment plan. This is because your AGI determines your repayment level, and the FEIE will usually reduce your AGi to $0.

This will not apply to all loans (private loans are generally not covered), or all income (such as investment income, nor will it stop interest from accumulating on unsubsidized Stafford loans ( subsidized Stafford loan interest will pause, however), but it definitely worth looking into if you have student loans, as it applies to majority of people who hold student loans.

Professional tax services

For more information, please read the relevant IRS pages and consult a professional tax service to help guide you through your specific tax situation, as there are many different aspects that come into play for which tax forms you need when.

Some tax services that come recommended through firsthand experience by US citizens abroad are:

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