Living abroad as a US expat can be an exciting adventure, but it also comes with its own set of challenges. One of the biggest challenges is understanding and managing your US tax obligations. Many expats make mistakes on their US tax returns, which can lead to costly penalties and headaches down the line. In this blog post, we’ll go over some common US tax mistakes that expats make and how to avoid them.

Mistake #1: Failing to File US Tax Returns

The biggest mistake that US expats make is failing to file their US tax returns. Even if you live and work abroad, you are still required to file a US tax return and report your worldwide income to the IRS. Failure to file a return can result in significant penalties, interest, and even legal action.

To avoid this mistake, make sure to file your US tax return every year. If you owe taxes, you can take advantage of the Foreign Earned Income Exclusion, which allows you to exclude up to $108,700 (for 2021) of your foreign earned income from US taxation. There are also other deductions and credits available to expats that can help reduce their US tax liability.

Mistake #2: Failing to Report Foreign Bank Accounts

US citizens and green card holders are required to report any foreign bank accounts that they own or have signing authority over. This reporting requirement is separate from your US tax return and is done through a form called the FBAR (Foreign Bank Account Report).

Failing to report your foreign bank accounts can result in severe penalties, including fines and even criminal charges. To avoid this mistake, make sure to report all of your foreign bank accounts on the FBAR every year if their aggregate value exceeds $10,000 at any point during the year.

Mistake #3: Failing to Understand Local Tax Laws

When living and working abroad, you may be subject to local tax laws in addition to your US tax obligations. Failing to understand these local tax laws can lead to double taxation or other costly mistakes.

To avoid this mistake, make sure to research and understand the tax laws of the country where you are living and working. You may also want to consult with a tax professional who has experience working with US expats to help you navigate these complex tax issues.

Mistake #4: Failing to Claim Foreign Tax Credits

If you pay taxes to a foreign government on your foreign income, you may be eligible to claim a foreign tax credit on your US tax return. This credit can help reduce your US tax liability by offsetting the taxes you paid to the foreign government.

Failing to claim foreign tax credits can result in overpaying your US taxes. To avoid this mistake, make sure to claim all of the foreign tax credits that you are eligible for on your US tax return.

Mistake #5: Failing to Stay Up-to-Date with Tax Laws

US tax laws are constantly changing, and it’s important to stay up-to-date with these changes to avoid making costly mistakes on your tax return. This is especially true for US expats, who may be subject to different tax rules and regulations than those living in the US.

To avoid this mistake, make sure to stay up-to-date with the latest tax laws and regulations by reading IRS publications, consulting with a tax professional, or attending tax seminars or webinars.

In conclusion, US expats face unique tax challenges, but by avoiding common tax mistakes, they can stay on top of their US tax obligations and avoid costly penalties. To ensure that you are meeting all of your US tax obligations and taking advantage of all available tax benefits, it’s a good idea to consult with a tax professional who specializes in working with US tax laws.