US Expat Tax Filing from Abroad

US Expats residing outside the country face specific, often complicated, tax obligations that demand close attention. Understanding these obligations is critical for all US expats, regardless of their international experience. This FAQ discusses the key tax questions frequently raised by Americans overseas and provides clear guidance to navigate US expat tax requirements effectively.

As an American Expat, do I still have to file a US tax return?

Yes, absolutely. Managing taxation as a US expat is essential, given that the United States, employs a citizenship-based rather than a residence-based tax regime. Consequently, US citizens and lawful permanent residents are required to file a US federal income tax return each year, regardless of where you live or how long you've been abroad.

You're required to file if your worldwide income exceeds the standard filing thresholds, which for 2025 are:

• Single filers under 65: $15,000
• Married filing jointly (both under 65): $30,000
• Married filing separately: $5
• Self-employed: $400 in net earnings

This obligation continues even if you haven't set foot in the US for decades, earn all your income abroad, and pay taxes in your country of residence. The good news? Various provisions exist to prevent double taxation, which we'll discuss in a moment.

What are the tax filing deadlines for US Expats?

American expats receive an automatic two-month extension for filing their federal tax returns. Your standard deadline moves from April 15th to June 15th without needing to file any extension forms. However, this extension applies only to filing—not to payment of taxes owed.

If you need more time beyond June 15th, you can file Form 4868 to request an extension until October 15th. Remember, interest accrues on any unpaid taxes from the original April 15th deadline, even with the automatic extension.

What about state taxes while living abroad?

State tax obligations for US expats depend entirely on your last state of residence and your current ties to that state. Unlike the universal federal tax rules, state has its own criteria for determining tax residency.

Tax-free states for expats: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming, have no income tax. Establishing residency in one of these states before moving abroad can help state taxation.

Sticky states: California, New Mexico, New York, South Carolina, and Virginia are notoriously aggressive about maintaining tax claims on former residents. California, for example, may continue claiming you as a resident unless you prove you've permanently left with no intention to return.

How can US Expats avoid double taxation?

When dealing with US expat taxes, the IRS provides two primary mechanisms to prevent double taxation on foreign income: the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). Additionally, tax treaties between the US and many countries provide further protection. Understanding these tools is essential for minimizing your tax burden as an expat.

The Foreign Earned Income Exclusion (FEIE - Form 2555)

The FEIE allows qualifying American Expats to exclude up to $130,000 (2025 limit, adjusted annually by the IRS) of foreign earned income.

To qualify for the FEIE, you must meet one of two tests:

Physical Presence Test

You must be physically present in a foreign country or countries for at least 330 full days during any consecutive 12-month period. Key points:

• The 330 days don't need to be consecutive
• The 12-month period can begin on any day of the year
• Days spent traveling over international waters don't count
• Brief trips to the US are allowed but count against your 330 days

Bona Fide Residence Test

You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year (January 1 - December 31). This test considers:

• Your intention to remain abroad indefinitely
• The nature and length of your stay
• Your establishment of a home abroad
• Your participation in the local community
• Your local tax status and obligations

The Foreign Tax Credit (FTC - Form 1116)

The Foreign Tax Credit provides a dollar-for-dollar reduction of your US tax liability for income taxes paid to foreign governments. Unlike the FEIE, the FTC:

• Has no income limit—you can claim it on all foreign-source income
• Covers both earned and passive income
• Can be carried back one year and forward ten years if unused
• Allows you to contribute to IRAs and claim other tax benefits

The FTC is calculated separately for different categories of income (general category vs. passive category) and is limited to the US tax that would be due on the foreign income. This prevents using foreign taxes to offset US tax on US-source income.

FEIE vs. FTC: Which one should I choose?

The choice between FEIE and FTC depends on your specific situation. Here's a comprehensive comparison to help you decide:

What about my non-US spouse and children?

Having a foreign spouse and children complicates US expat taxes, but it also creates opportunities for tax optimization:

Filing Status Options

• Married Filing Separately: Keeps your foreign spouse out of the US tax system entirely. However, you lose many tax benefits and face higher tax rates.
• Married Filing Jointly with 6013(g) Election: Treats your foreign spouse as a US tax resident, requiring them to report worldwide income but allowing access to joint filing benefits, higher standard deduction, and better tax brackets.
• Head of Household: May be available if you have qualifying children and meet specific requirements while married to a non-resident alien.

ITIN Requirements

If you want to claim your foreign spouse or children as dependents, they'll need an Individual Taxpayer Identification Number (ITIN). This requires submitting Form W-7 with supporting documentation, including:

• Certified copies of passports or birth certificates
• Proof of foreign status
• Documentation establishing the relationship

Child Tax Credit for US Expats

You can claim the Child Tax Credit ($2,000 per qualifying child in 2025) even while living abroad, but there are restrictions:

• Children must have US Social Security Numbers (not just ITINs) for the full credit
• The refundable portion may be limited if using FEIE
• FTC users generally have better access to the refundable portion

What if I'm self-employed abroad?

Self-employment abroad creates unique challenges for American expats. While the FEIE can eliminate federal income tax on up to $130,000 of self-employment income, it does NOT eliminate self-employment tax (Social Security and Medicare), which is 15.3% on net earnings up to $176,100 (2025 limit) plus 2.9% on amounts above.

Totalization Agreements

The US has totalization agreements with 30 countries to prevent double social security taxation.

To claim exemption under a totalization agreement, you'll need a certificate of coverage from the foreign country's social security administration.

Foreign Business Structures

How you structure your foreign business significantly impacts your US tax obligations:

• Sole Proprietorship: Simplest but offers no protection from self-employment tax
• Foreign Corporation: May defer US tax but triggers complex Form 5471 reporting
• Foreign Partnership: Requires Form 8865 and may not provide tax benefits
• Disregarded Entity: Foreign LLC treated as sole proprietorship for US tax purposes

Do I need to report my foreign bank accounts? (FBAR & FATCA)

Yes, if your foreign financial accounts exceed certain thresholds, you must report them to the US government through two separate requirements:

FBAR (FinCEN Form 114)

You must file an FBAR if the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year. This includes:

• Bank accounts (checking, savings, CDs)
• Investment accounts
• Retirement accounts
• Accounts where you have signature authority (even if not yours)
• Digital currency held by foreign exchanges

The FBAR is filed electronically through FinCEN's BSA E-Filing System by April 15th.

FATCA (Form 8938)

Form 8938 is filed with your tax return if foreign financial assets exceed these thresholds:

Do I need to report my foreign investments? (PFICs)

Passive Foreign Investment Companies (PFICs) are one of the most punitive areas of US tax law for US expats. Most foreign mutual funds, ETFs, and many foreign retirement accounts are classified as PFICs, subjecting them to:

• Extremely high tax rates (up to 37% plus interest charges)
• Complex Form 8621 reporting for each PFIC
• No favorable capital gains treatment
• Retroactive interest charges on distributions

Common PFIC investments US expats unknowingly hold include:

• Foreign mutual funds and ETFs
• Foreign pension plans (UK ISAs, Canadian RRSPs/TFSAs, Australian Super)
• Foreign investment-linked insurance products
• Money market funds in foreign banks

Strategies to manage PFIC taxation include making QEF or Mark-to-Market elections, investing in US-based funds instead, or holding individual foreign stocks directly. Learn more about PFIC planning strategies →

What if I own a foreign Corporation? (Form 5471)

US citizens and residents who own 10% or more of a foreign corporation must file Form 5471, one of the most complex international tax forms. This includes:

• Direct ownership of foreign company shares
• Indirect ownership through other entities
• Constructive ownership through family members

Form 5471 requires extensive disclosures including income statements, balance sheets, and detailed transaction reporting. The penalties for non-filing are severe: $10,000 per form per year, with additional $10,000 penalties for each 30 days late (maximum $60,000), plus potential criminal penalties.

Additional complications arise from Subpart F income, GILTI (Global Intangible Low-Taxed Income), and the requirement to track previously taxed earnings and profits. Explore our Form 5471 compliance services →

What if I received a gift or inheritance from abroad? (Form 3520)

Form 3520 reporting is required when you receive:

• Gifts from foreign persons exceeding $100,000 in a year
• Gifts from foreign corporations or partnerships exceeding $19,570 (for 2024, adjusted annually)
• Any distribution from a foreign trust
• Bequests from foreign estates (generally not reportable, but documentation is crucial)

The penalty for late filing is 5% of the gift amount per month, up to 25% total. For distributions from foreign trusts, the penalty can be 35% of the distribution. These penalties apply even if no tax is owed on the gift or inheritance itself.

For official information, refer to the IRS page on Gifts from Foreign Person.

Learn about our Form 3520 services →

What if I still own a US-based business?

Maintaining US business interests while managing US expat taxes requires careful planning:

Tax Implications

• Income from US businesses is not foreign-source, so FEIE doesn't apply
• You may owe state taxes where the business operates
• Self-employment tax applies to partnership and sole proprietorship income
• S-Corporation status may be affected if you become a non-resident

Compliance Requirements

• Continue filing all business tax returns (1065, 1120S, 1120)
• Maintain US business bank accounts and EIN
• File state tax returns where business has nexus
• Consider tax treaty benefits for reducing US withholding

Learn more about our partnership tax services → | Explore S-Corporation planning →

I haven't filed for a few years. What should I do?

Don't panic. You're not alone—many US expats discover their filing obligations years after moving abroad. The IRS offers several paths to compliance, and taking action now is always better than waiting. The best approach depends on how many years you've missed and your specific circumstances.

Forgot to file for the last 1-2 years?

If you've only missed one or two years, the solution is straightforward: file the delinquent returns as soon as possible. Include a brief letter explaining the delay (overseas residence, unaware of requirement, etc.).

What to Expect

• If you owe no tax: The IRS typically processes the returns without penalties
• If you owe tax: Expect penalties and interest from the original due date
• Failure to file penalty: 5% per month, maximum 25% of tax owed
• Failure to pay penalty: 0.5% per month, maximum 25% of tax owed
• Interest: Compounds daily at current IRS rates

Include all required international forms (2555 for FEIE, 1116 for FTC, 8938 for FATCA) and file any delinquent FBARs through the FinCEN website with a reasonable cause statement. Get help with late filing →

Forgot to file for 3+ years?

For US expats who haven't filed for three or more years, the IRS offers the Streamlined Foreign Offshore Procedures

Streamlined Foreign Offshore Procedures

This program allows qualifying US expats to come into compliance with reduced or eliminated penalties:

Requirements:

• File the last 3 years of delinquent tax returns
• File the last 6 years of delinquent FBARs
• Certify that the failure to file was non-willful
• Pass the non-residency test (330+ days outside US in one of the last 3 years)

Benefits:

• No penalties on late tax returns
• No FBAR penalties
• No Form 8938 penalties
• Only pay tax, if any, plus interest

What is "Non-Willful" Conduct?

Non-willful conduct includes negligence, inadvertence, mistake, or good faith misunderstanding of the law. Examples include:

• Genuinely not knowing about US filing requirements
• Incorrectly believing you didn't need to file due to foreign tax payments
• Relying on incorrect professional advice
• Confusion about filing requirements for foreign accounts

The IRS reviews non-willfulness based on your education, tax compliance history, and efforts to comply once aware of obligations. Learn more about Streamlined Procedures →

Can I renounce my US citizenship to avoid taxes?

Yes, you can renounce US citizenship or abandon your green card to end US tax obligations, but this is an irreversible decision with profound consequences. The process, known as expatriation, requires careful planning to avoid the potentially devastating "exit tax" and ensure a smooth transition.

The Expatriation Process

Expatriation involves two parallel tracks:

Immigration Track:

1. Schedule appointment at US embassy/consulate (wait times vary: 1-18 months)
2. Attend appointment and take oath of renunciation
3. Pay $2,350 renunciation fee
4. Receive Certificate of Loss of Nationality (CLN)

Tax Track:

1. Ensure tax compliance for 5 years before expatriation
2. File dual-status tax return for expatriation year
3. Complete Form 8854 (Expatriation Statement)
4. Calculate and pay any exit tax owed

The Exit Tax: Are You a "Covered Expatriate"?

You're subject to the exit tax if you meet ANY of these three tests:

Exit Tax Calculation

Covered expatriates are subject to a "mark-to-market" tax regime:

• All property treated as sold for fair market value day before expatriation
• Pay tax on net gain exceeding $890,000 (2025 exemption)
• Deferred compensation and IRAs subject to 30% withholding
• Future gifts/bequests to US persons subject to 40% tax

Pre-Expatriation Planning Strategies

If considering expatriation, advance planning can significantly reduce or eliminate the exit tax:

• Asset reduction: Gift assets to reduce net worth below $2 million
• Basis step-up: Realize gains before becoming covered expatriate
• Trust planning: Certain irrevocable trusts may help
• Timing: Expatriate early in the year to minimize final year income
• Compliance catch-up: Use Streamlined Procedures if needed

Special Relief for "Accidental Americans"

The IRS offers relief procedures for certain individuals who weren't aware of their US citizenship or tax obligations:

• Born in US but left as infant
• Never held US passport or exercised citizenship rights
• Minimal US connections
• Tax liability under $25,000 for past 5 years

These individuals may qualify for simplified compliance and expatriation procedures with reduced penalties.

Disclaimer: The information in this page is provided for general reference only and should not be considered professional tax advice. Before making any decisions or taking action based on this information, you should seek appropriate professional guidance. While efforts have been made to ensure accuracy and completeness, no guarantee is provided, and we accept no responsibility or liability for any outcomes resulting from reliance on the information provided on this page.