Expat Taxes: What US Citizens Need to Know

US citizens are taxed on worldwide income regardless of where they live. Yes, even if you have not set foot in the US all year. Here is what you need to know.

KEY EXCLUSIONS AND CREDITS:

Foreign Earned Income Exclusion (FEIE): - Exclude up to ~$126,500 of foreign earned income (2024). - Must qualify via Physical Presence Test (330+ days outside US in 12 months) OR Bona Fide Residence Test (established foreign residence for a full tax year). - Does NOT apply to investment income, Social Security, or retirement distributions.

Foreign Tax Credit (FTC): - If you pay taxes to a foreign government, you can credit those against your US tax liability. - Often more beneficial than FEIE for high earners or those in high-tax countries. - You can choose FEIE or FTC (or both in some cases), but strategy matters.

REPORTING REQUIREMENTS:

FBAR (FinCEN Form 114): - Required if your foreign accounts exceed $10,000 in aggregate at any point during the year. - Filed separately from your tax return (online at bsaefiling.fincen.treas.gov). - Penalties for non-filing are severe: up to $100,000 or 50% of account balance.

FATCA (Form 8938): - Report foreign financial assets if they exceed $200,000 (single, living abroad) at year end. - Filed with your tax return.

SOCIAL SECURITY: - You continue to accrue credits if self-employed abroad (you pay self-employment tax). - Totalization agreements with ~30 countries prevent double taxation on Social Security.

STATE TAXES: - Some states (California, Virginia, New Mexico) may still claim you as a resident. - Establishing domicile in a no-income-tax state before leaving can help.

PRACTICAL ADVICE: - File on time (deadline is June 15 for Americans abroad, extendable to October 15). - Use an expat tax specialist (not your neighborhood CPA). Cost: $300-$800/year. - Recommended firms: Greenback Expat Tax Services, Bright!Tax, MyExpatTaxes. - Keep records of everything: days spent in/out of the US, foreign taxes paid, financial accounts. - Do not ignore this. The IRS does catch up, and penalties add up fast.