Your Guide to U.S. Expat Taxes – Filing taxes with KMK

Introduction 

Living abroad as a U.S. citizen offers incredible experiences, new cultures, and, often, professional growth. However, one aspect that frequently catches expats off guard is the enduring tax obligation to the United States. Unlike most countries that tax based on residency, the U.S. taxes its citizens on their worldwide income, regardless of where they live. This means even if you haven’t set foot on American soil in years, you likely still need to file a U.S. tax return. 

Fortunately, various exclusions, credits, and reporting mechanisms are available to help expats avoid double taxation. However, staying compliant requires an understanding of the key forms, deadlines, and foreign asset reporting rules. 

In this guide, we’ll walk you through everything U.S. expats need to know about tax returns—from the basics to complex issues like FBAR, FATCA, and PFICs. 

Who Needs to File? 

Any U.S. citizen or Green Card holder must file a tax return if their gross worldwide income exceeds IRS filing thresholds. This includes income earned abroad, even if: 

• You pay taxes in another country, 

• Your income is entirely foreign-sourced, 

• You don’t owe any U.S. tax after applying exclusions or credits. 

Understanding Tax Relief Options for U.S. Citizens Abroad 

Expats can breathe a sigh of relief—there are several provisions in place to prevent double taxation and even reduce U.S. taxes owed. 

• Form 2555 – Foreign Earned Income Exclusion (FEIE) 

• Form 2555 allows you to exclude up to $126,500 (2024) of earned income from U.S. taxation. You must meet either: 

• The Physical Presence Test (330 full days outside the U.S. in 12 months) or 

• The Bona Fide Residence Test (resident of a foreign country for a full calendar year). 

You may also exclude qualified housing expenses beyond a base threshold. 

• Form 1116 – Foreign Tax Credit (FTC) 

• U.S. citizens living abroad can use the Foreign Tax Credit to reduce their U.S. taxes by claiming a credit for income taxes paid to another country—dollar for dollar. 

• You can’t claim the credit on income already excluded using the Foreign Earned Income Exclusion (FEIE), but you can use it for income above the FEIE limit or income not excluded at all. 

• The FTC is often a better option in high-tax countries, and unused credits can be carried forward to future years. 

Passive Foreign Investment Companies PFICs: A Tax Trap for Expats 

For U.S. expats, investing in foreign mutual funds, ETFs, or even specific foreign pension plans can trigger complex and punitive U.S. tax rules related to Passive Foreign Investment Companies (PFICs). A foreign company is a PFIC if 75% or more of its income is passive (e.g., dividends, interest) or 50% or more of its assets produce passive income. PFIC taxation is notoriously harsh, often taxing gains at the highest ordinary income rates, plus an interest charge, rather than preferential capital gains rates. Annual reporting on IRS Form 8621 is also a significant burden, often requiring a separate form for each PFIC, with complex calculations. Many expats are unaware of these rules until facing substantial penalties. Understanding PFICs and seeking expert tax advice is crucial for managing your investments and ensuring compliance while living abroad. 

Reporting Foreign Bank Accounts: FBAR 

US expats must file the Foreign Bank Account Report (FBAR) if they have $10,000 or more in foreign accounts (aggregate total) at any time during the year. This is filed separately from your U.S. tax returns. 

FinCEN Form 114 – FBAR 

• The deadline is April 15, with an automatic extension to October 15 

• It applies to bank accounts, brokerage accounts, foreign pension funds, and other similar accounts. 

Penalties for non-compliance are severe, even if the failure was unintentional. 

FATCA and Form 8938 

The Foreign Account Tax Compliance Act (FATCA) requires U.S. taxpayers to disclose specified foreign financial assets on Form 8938, filed with your tax return. 

Thresholds for Expats: 

• Single: > $200,000 (end of the year) or > $300,000 (anytime during the year) 

• Married Filing Jointly: > $400,000 (end of year) or > $600,000(anytime during year) 

Common reportable assets include but are not limited to, foreign bank and investment accounts, foreign pensions, stock in foreign corporations, and foreign life insurance with cash value. 

Important Deadlines for U.S. Expats Filing Taxes 

As a U.S. citizen living abroad, you have unique tax filing timelines. While the typical April 15 deadline applies to those stateside, you automatically receive a 2-month extension. This pushes your 2025 filing deadline to June 16 (as June 15 falls on a Sunday). Need a bit more breathing room? You can request an additional extension, which would push your deadline to October 15. This is particularly helpful if you’re waiting to meet the requirements for beneficial exclusions, such as the Foreign Earned Income Exclusion (FEIE). 

Important: Even with these extensions, remember that any taxes you owe are still due by the original April 15 deadline. Paying by this date helps you avoid interest charges. 

In certain situations, the IRS may grant a final extension until December 15; however, this isn’t guaranteed and requires a separate, specific request. 

Finally, if you’re self-employed or your income isn’t subject to regular withholding, remember to meet your estimated tax payment deadlines. Keeping these in mind is crucial for staying compliant. 

Read Also: US Tax Filing Deadlines Every Business Should Know 

Why Work with a KMK’s Expat Tax Professional? 

Filing as an expat is rarely straightforward. Mistakes can lead to: 

• Double taxation, 

• FBAR/FATCA penalties, 

• Missed exclusions or credits. 

A KMK’s expat tax specialist can help you: 

• Optimize FEIE vs. FTC strategies, 

• Navigate tax treaties, 

• Manage PFICs and foreign pensions, 

• Stay fully compliant with U.S. and foreign tax authorities. 

Final Thoughts 

U.S. expat taxes can feel like a maze, right? But here’s the good news: those very challenges open doors to thoughtful planning and serious savings. The key is truly grasping your obligations, filing on time, and selecting the perfect forms and strategies for your life abroad. If you’re scratching your head wondering where to start, or those international tax complexities are just too much, remember: you’re not on your own. 

Ready to simplify your expat taxes? Contact us today for expert assistance with your tax returns. Our team specializes in helping Americans living abroad.