All American citizens and Green Card holders are required to file US taxes, including those who live abroad. This requirement often throws up complications for US expats, who may be paid in a different currency, and may have to file foreign taxes too. Filing US taxes from abroad is more complex in many other ways, too. For example, expats often have to file additional forms to reduce their US tax bill. These typically include Form 2555 to claim the Foreign Earned Income Exclusion, or Form 1116 to claim the Foreign Tax Credit. The Foreign Tax Credit allows expats to claim US tax credits to offset foreign income taxes they’ve paid, while the Foreign Earned Income Exclusion allows expats who can demonstrate that they live abroad in one of two IRS prescribed ways to exclude up to around $100,000 of their earned income from US tax. While most US expats don’t benefit from the international tax treaties that the US has signed with around 60 other countries, those that do have to file Form 8833 to claim any relevant tax treaty provisions. Expats also often have additional reporting requirements. These include reporting their foreign business interests, and sometimes their foreign financial assets, depending on their value. The most common additional reporting requirement for expats though is having to file an FBAR (Foreign Bank Account Report), for expats with foreign bank and investment accounts. While FBAR reporting doesn’t imply any new or additional US tax liability, penalties for not doing so are steep, and the IRS is able to enforce them as it is receiving information from almost all foreign banks and other financial firms. It is largely due to these additional filing and reporting requirements that expats most often choose to engage a US expat tax filing firm to assist them with their US tax filing. By using a reputable, high quality US expat tax filing firm, expats avoid penalties, and most don’t end up owing any US tax once they file and claim the most beneficial IRS provisions, depending on their situation. US expat tax filing firms have the experience and expertise to get this right. When choosing a tax filing firm to help them file their US taxes from abroad, expats should ask probing questions, ensure that pricing is transparent and that they will have consistent access to an expat specialist CPA (rather than a lesser qualified tax preparer such as an EA), and consider client reviews.
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