U.S. Citizens and Resident Aliens Abroad – Filing Requirements
If you are a U.S. citizen or resident alien/green card holder, living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States. Your income, filing status, and age generally determine whether you must file a return.
Deadline for US Treasury to receive FBAR form, with an automatic extension to 15 October
Note that if there is federal tax due on the return, interest accrues on the tax liability as of the regular filing deadline.
Due to the U.S.’s “Citizenship-Based Taxation” philosophy American citizens are required to file tax returns no matter where they are located in the world. The IRS Form 1040 is the standard tax form that U.S. taxpayers use to file their annual income tax return. The form is divided into sections where you report your income and deductions to determine the amount of tax you owe or the refund you can expect to receive.
Depending on individual circumstances, the tax return might include:
These forms are for calculating your Foreign Earned Income Exclusion (FEIE) and to calculate your Foreign Housing Exclusion or Deduction. If you meet certain foreign residency requirements under the Bona Fide Resident Test or Physical Presence Test, you may be able to exclude up to $104,100 of earned income and a portion of your foreign housing expenses from U.S. income tax.
BONA FIDE RESIDENCE TEST: You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. You can use the bona fide residence test to qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction if you are either a U.S. citizen or a U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect.
PHYSICAL PRESENCE TEST: You meet the physical presence test if you are physically present in a foreign country or countries for 330 full days during a period of 12 consecutive months. The 330 qualifying days do not have to be consecutive. The physical presence test applies to both U.S. citizens and resident aliens
Note that this exclusion does not apply to self-employment taxes. If you are self-employed abroad, you are still subject to U.S. Social Security taxes unless you live in one of the 25 countries with which the U.S. has a Social Security Totalization Agreement. The FEIE is generally advantageous to use when income tax rates in the foreign country are lower than in the U.S. and/or your total earned income is below the exclusion threshold.
This is the Foreign Tax Credit form and it is used to claim a credit against your U.S. income tax for income taxes paid in the foreign country. This credit applies both to foreign earned income (wages, self-employment income, etc.) and unearned income (interest, dividends, capital gains, rents, etc.). This is generally the most beneficial form to use for residents of countries with high income tax rates, those with children eligible for the additional child tax credit and those interested in contributing to U.S. retirement plans (traditional and Roth IRAs, SEPs, solo 401(k)s, etc.)
This form is independent of the tax return and represents a separate filing requirement. The FBAR applies to any U.S. person who owns, or has beneficial interest or signature authority over foreign financial accounts that exceed $10,000 in the aggregate in value at any time during the year. If you have any foreign bank accounts, this also has to be disclosed on Part III ofForm 1040 Schedule B, whether the FBAR is required to be filed or not. FinCEN 114 must be e-filed and cannot be mailed, with the absolute filing deadline on June 30, with no extension possible. Starting with the 2016 tax year, the FBAR filing deadline will be synchronized with the federal tax return filing deadline.
This form, also known as the Fatca form, is used to report Specified Foreign Financial Assets and the income derived from them. There is some overlap with the FinCEN 114 Form (FBAR), but the filing thresholds are higher, and depend on the taxpayer’s residency and marriage status, with different thresholds for the highest value reached during the year and on the last day of the year.
The Single filing thresholds are:
The Married filing jointly thresholds are:
Specified foreign assets include (but are not limited to):
Specified foreign assets would include your foreign bank accounts, but not assets such as your home.
If you received a gift or inheritance from a foreign person, even though it will generally not be taxable in the U.S., depending on the amount, you may have to report it in Form3520. This form is also used to report transactions that you had with foreign trusts. If you are grantor in a foreign trust, you are likely required to file Form 3520-A in addition to form 3520.
If you run your own business in a foreign country, you may have established a company to conduct your business. Depending on the entity’s classification for U.S. tax purposes, which will be a corporation by default or will depend on the classification election made throughForm 8832, you may be required to file Form 8858 if the entity is disregarded; Form 5471 if the entity is classified as a corporation; or Form 8865 if classified as a partnership. Transactions between you and your foreign company may have to be reported on Form 926.
If you live in a country with which the U.S. has an income tax convention, you may be entitled to certain treaty benefits with respect to your foreign retirement accounts, re-sourcing of certain U.S. source income to avoid double taxation, taxation of foreign social security, etc. The treaty-based positions taken in your return may have to be disclosed in Form 8833.
If you have a brokerage account or other investments (including some foreign retirement accounts) in a foreign country, these investments may be classified as Passive Foreign Investment Companies (PFICs), which are subject to special tax rules that are generally unfavorable in nature. Most foreign mutual funds and ETFs are classified as PFICS. Each PFIC you own must be reported on a separate Form 8621.
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