I was on my second bottle of Fino at the feria of Jerez when the sobering topic of expat taxes came up. While chatting to a fellow American expat, who just happened to be banker, I learned the consequences of tax evasion could not just affect me, but my family as well.
At this point we were in the end of May and I had missed the filing deadline in April. Oops! In all honesty I wasn’t sure if I even wanted to file taxes in the U.S.; I never planned on moving home and over 30% of my income goes towards taxes here in Spain. Did I really want to risk paying additional money to a country I’m not living in?
After the encounter at feria I did a bit more research on what could happen if I didn’t file tax returns in the U.S. Apart from getting fined out the wazoo, there are some other consequences I hadn’t really considered before, such as…
- You could prevent your spouse from obtaining a visa if you ever want to visit or move back to the U.S.
- If you move back after years of living abroad (and not paying taxes) and suddenly start filing taxes again (if you get a new job for example) then you’ll probably get flagged for investigation by the IRS.
- If your future kids ever want to go to university in the States you may need to rely on government assistance programs, but if you don’t have tax returns this might not be possible.
- If your family leaves you money in trusts or wills…things could get complicated when you come to collect and haven’t been filing tax returns for the last X years.
- Also, in the future it’s possible the government may require tax returns in order to renew your passport. GAH!
Obviously there are some serious repercussions but what could I do…I had missed the filing deadline right? Not quite! As fate would have it, not long after this encounter Taxes for Expats reached out to me about doing a blog post. Below you’ll find more information on my personal experience using their service as well as useful tips and insight I picked up as a result of going through the filing process.
Filing taxes as an expat
I was worried I would owe additional money to the U.S. but it seems expats rarely end up paying extra (unless you’re making over $100k a year). What you owe depends on factors like your annual salary, the taxes paid in your country of residence, and how much time you spend in the U.S. each year. Take me for example:
- I have a Spanish work contract, I’m a legal Spanish resident and I pay taxes in Spain.
- I earn less than $101,300 a year (below the FEIE 2016 limit).
- I spent over 330 days outside the U.S. in 2016 (Physical Presence Test).
- I’m not subject to the Affordable Healthcare Act because I have full healthcare coverage as a bona fide resident here in Spain.
All of these factors qualify me for tax breaks like Foreign Earned Income Exclusion & Foreign Tax Credit (which I had no idea even existed prior to this experience). So basically I owe nothing, but because I earn over $10,300 a year (minimum filing requirement) I still need to file a tax return.
I think the main difference between filing as a U.S. resident vs. expat involves the forms you file and the tax breaks you qualify for. For example, U.S. residents include a W-2 or 1099 form in their tax return, but these documents don’t exist in other countries. For reference, the documents I included in my tax return were:
- Form 1040: U.S. Individual Income Tax Return
- Form 1116: Foreign Tax Credit
- Form 8965: Health Coverage Exemptions
Don’t forget if you have a foreign bank account with over $10k you’ll also need to file an FBAR (Foreign Bank Account Report)—you can file it yourself through the website linked above (it’s easy I promise).
My experience using Taxes for Expats
Apart from the fact that filing taxes as an expat for the first time can be overwhelming, you might also be unaware of tax breaks available to you. For this reason you should consider using a service like Taxes for Expats—not only to ensure you’re filing correctly but also to make sure you’re not overpaying on your return!
After creating my account on the site I was introduced via email to my CPA (Certified Public Accountant), Susan, who was assigned to my case. As part of the service, you can contact your CPA at any time via email and set up a phone consultation if necessary. Susan asked me to fill out the tax questionnaire provided on the site—which asks questions like how much you make, taxes you’ve paid in your resident country, marital status, etc. Once I submitted the questionnaire Susan followed up with a few more questions and prepared the tax return within a few days. After reviewing and signing off on the return she then filed the documents for me. And that was it—easy peasy!
Right about now you may be wondering what happened to the April filing deadline…for U.S. residents the filing deadline is usually in April, if you’re an expat you can extend the deadline to June, BUT if you’re an expat and you don’t owe anything on your return then you can file even later—essentially only when a taxpayer owes tax does the deadline date become significant (although it’s always good to file before the deadline).
So what do I wish I had known?
Filing taxes as an expat really isn’t so bad after all (especially when you have a CPA to help!)—I had been stressing about it for so long and in the end it was far less painful than expected. There are a few things I wish I had known prior to this experience because they would have made the task less daunting:
- The fact that expat tax breaks like Foreign Earned Income Exclusion and Foreign Tax Credit exist (eliminating worries about double taxation).
- Knowing that I’m able to file my return after April and it’s unlikely there will be a penalty.
- Knowing I’m not liable for additional healthcare costs in the States was also a big relief.
Now that I’ve gone through this experience with the help of a professional I feel much more confident about filing my tax return next year. For anyone who is new to this I would strongly recommend getting help the first time you file as an expat too.
DISCLAIMER: This post is sponsored by Taxes for Expats. Thank you for supporting companies that make Kate‘s Travel Tips possible! All photography, writing and opinions are my own. To reserve this service for yourself head over to the Taxes for Expats website now. If you have any questions about using this service feel free to reach out using my contact form or post a comment below.