What is a US expat? An expat is a US citizen who is living in a foreign country. For some people it’s a US citizen that has been transferred to another country for work purposes on a temporary or semi-permanent basis. For some people they move out of the country for love. For some people it’s a move out of the country for adventure. Whatever the reason, it’s important to understand what being an expat means for your US tax filing obligations.
As a US citizen you are required to file a US tax return every year and report your worldwide income. So whether you are living in Austria, Belize, Canada, Denmark, Ethiopia, or Fiji you need to file a US tax return and report your worldwide income. That includes your investment income from a foreign country, your wage earnings from a foreign country, and any pass-through income from a foreign country, plus any US sourced income that you might have.
It’s likely you will need to file a tax return in your country of residence and it’s likely you will need to pay taxes in your country of residence. Thankfully the US tax code provides some opportunities for you to reduce the US tax burden for expats. First way is through the foreign earned income exclusion, the second way is through utilizing the foreign tax credit, and the third way is through tax treaties.
Sometimes an expat can use all three methods for reducing their US tax burden, other times one or two of the methods will apply. Each situation and each country is different, so it’s important to look into the specifics of your situation.
Another thing to mention for expats is the foreign bank account reporting or FBAR rules. An FBAR needs to be filed when you have at least $10,000 in a financial account in another country. If you are an expat and residing in a foreign country, it stands to reason those are the people most likely to have foreign bank accounts. The FBAR is a separate filing from your tax return although it also has some similarities to Form 8938. I have a few other posts that break down those requirements, but it’s critical that an expat understand and comply with any FBAR filing requirements they might have in addition to the income tax filing requirements.