Tax Season Approacheth: Tips for U.S. Expats

It was 2014, when I realized that the last time that I had filed taxes was the year that George W Bush decided he would stimulate the economy by giving everybody 300 bucks. Would this stimulate the economy? Probably not. Did I want that extra dough? Heck yeah! So, even though I was living abroad, I filed and collected.

But being abroad as an expat, most of the time, taxes were as far from my mind mentally as I was from the U.S. physically. Out of country, out of mind right? But then one day, it dawned on me that keeping paper in order with the homeland was not just the adult-like thing to do, but also necessary.

So, I figured out some numbers, and with some help was able to sort it all out. Since then, I have realized that a lot of what accountants do with tax filing is NOT magic and even a schmo like myself could do it. Short disclaimer, I am, by no means, an expert. I have provided a collection of tax filing information I have researched online as best I understand it and included a description of what has worked for me. Your individual tax situation may be different, and I recommend doing your own research and speaking to an expert if you feel that it is necessary. So let’s start the basic Q & A…

Do I need to file?
Yes. America is one of the only countries that requires their citizens to file even if they are living abroad and earning foreign income. The IRS.gov website will happily tell you “Your worldwide income is subject to U.S. income tax, regardless of where you reside.” Unless you have revoked your citizenship to the US, you should file.

Why file?
Unless you are a crazy old man with tinfoil hat paranoid about being in the “system,” there are several benefits to filing. Besides, that it is the law, it keeps your social security number active, it prevents you from incurring late penalties if you do owe money – though most people do not, it may prevent you from getting your foreign income excluded – which is key to not owing money, and also it may help you avoid any speed-bumps down the road. More here.

Also, and very important for some of us, if you plan on getting married to a foreigner and possibly filing for a green card for them someday, you will need your finances in order.

What is Foreign Earned Income Exclusion?
This means that even though as a United States citizen you are required to report to the US Government the amount of money that you have earned while living and working abroad, you will not have to pay taxes on this income unless you have earned more than $101,300 in the year 2016. Anything below $101,300, is excluded from being taxed. Note that, each year the exclusion amount is adjusted for inflation, $99,200 in 2014 and $100,800 in 2015. More here.

Is it hard?
Not really. In my mind, when you don’t know what accountants do, it seems that it may be some form of wizardry. However, in my experience, filing has been easy.

What if I make a mistake?
In my imagination, I was always scared of a scenario where I wrote the wrong number on the wrong line and then bad things happened. But then, the IRS did, in fact, make a mistake on my taxes and bad things in the form of a debt to the tune of $4,000 plus late fees happened. After a brief period of freaking out, I discovered that the IRS was quite open to listening to me and correcting the mistake and I did not have to pay the debt plus late fees because it was a mistake. Furthermore, it did not require much more paperwork.

Filing:
I will keep this simple by just stating my situation the last time that I filed taxes and what I did. Keep in mind, your tax situation may be different, based on such things as whether or not you are married, and how many assets you have.

In 2016, I filed for the year 2015. In 2015, I spent the year single. I have no affiliation with the military. I earned no money in the United States in 2015, all money was earned abroad from non US entities. I earned less than the Foreign Earned Income amount of $100,800 in 2015. I did NOT have more than 10,000 US dollars in foreign bank accounts.

To file your taxes for the previous year, you can use one of the numerous online websites that will allow you to do it for free. This is the site that I used. I followed the steps on the website and in the end, filed form 1040 and 2555EZ. It was easy as pie.

Notes on filing:

• If you do not owe taxes there is no punishment for filing late.
• There is a deadline for e-filing: October for the year previous. If you miss the deadline, you will have to paper file. Yes, by putting a physical envelope in the mail.
• For calculating income, I calculated out my salary for the year. Converting from Turkish Lira if necessary and posted it on the tax form. I was NOT required to submit documentation (foreign pay receipts) for this.
• If you do have more than 10,000 US dollars in a foreign bank account you are required to tell the IRS about this.  More info here and here.
• For one year previous, I had income for two months’ work in the United States, I still filed 1040 and 2555EZ, reported this income and included the W2 from the company I worked for in the US.

Married to a Foreign Spouse and Filing
Last year, I got married and my wife is not American. This year, we will file jointly. How romantic! We will calculate out each of our salaries for the year for the IRS. However, again, we will not have to provide documentation for our salaries for the money we have earned working in Turkey. Also, we will qualify for the Foreign Earned Income Exclusion so we won’t have to pay any taxes on our income. We will have to request a Taxpayer Identification number for my wife, as we file. This process seems manageable as well.

This is the most beneficial route for us for we have applied for a US Green Card and filing together, can be used as evidence to show that our marriage is legitimate because we let our finances mingle. An important step to the process to getting the Green Card.

Any other words of wisdom or tips we may have missed? Please let us know in the comments.