Americans Abroad: How Taxes Work for US Expats

Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisors regarding your specific situation.

There are a multitude of reasons why a U.S. citizen may move their money, assets, or even themselves and their family overseas.

Many think that since they don’t live here anymore, there’s no reason to pay taxes here anymore. Bad news, ex-pats: that couldn’t be further from the truth!

No matter where you go in the world, if you’re an American, you can’t outrun the IRS.

US Expat Taxes: What You Need To Know

All Americans, whether they live stateside or overseas, must file annual tax returns reporting income. There is quite a bit of bureaucracy to work through when you expatriate, but I’m here to help you navigate those murky reporting waters.

Responsibility #1: Report Your Assets

Do you have more than $10,000 total in foreign bank accounts? Or hold assets (stocks, company ownership, property, etc.) valued at more than $50,000? If so, you must disclose this information annually with FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) and IRS Form 8938, Statement of Specified Financial Assets.

Say you have a bank account in Armenia, a country with a reciprocal tax treaty with the U.S. That bank account holds $99,999 and earns $10,000 in interest income this year. You pay the Armenian government $1,000 in taxes on that income. Along with complying with all Armenian tax filing regulations, you would need to fill out the FinCEN Form 114 (FBAR), due June 30, to disclose the foreign bank account, and the IRS Form 8938, since the account was more than $50,000, due with the filing of your federal tax return.

In addition, you’ll need to report the $10,000 of income from the account on your federal and/or state income tax return (Form 1040) but you will receive $1,000 in tax credits from Uncle Sam because of the tax treaty between the two countries.

Responsibility #2: Pay Your Taxes

Regardless of where you earned your income, as long as you remain a U.S. citizen you are required to pay taxes on that income. The United States is unique in this regard, and it’s part of why the country’s GNP is so high.

Many countries have a tax treaty with the States, though, which can end up saving you a significant amount in U.S. taxes. If you paid foreign income taxes to the country where you earned that income, then you’ll typically have your American tax bill reduced with a tax credit for the foreign taxes you have paid.

Failing to pay these taxes can leave you in a nasty tax dispute or even get your passport revoked by the federal government!

How Do I Avoid Taxes While Abroad?

You don’t! The only way to do so is to renounce your U.S. citizenship, a costly process that can be denied if the government determines your motivation for doing so is based on tax avoidance. All U.S. citizens, regardless of where they live or conduct their business, must report and pay annual income taxes.

Taxes for those who emigrate can be quite a maze, so it’s highly recommended that you find a tax professional familiar with the laws of both your new country and the U.S. to help navigate the process.

Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisors regarding your specific situation.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.