Working Abroad? Additional Tax Considerations
Updated: Jul 29
Filing US tax returns when you live and work abroad can add significant complexity to the process, and you may have learned that the hard way. But the process doesn’t have to be difficult. We have been preparing US tax returns for clients who live and work in dozens of countries for thirteen years, and are here to make things as easy as possible so that you can file complete and accurate tax returns.
Let’s take a look at some things you will need to know if you are filing taxes from abroad.
How a specialized tax professional can help
A professional with a specialization in cross-border tax preparation can help you:
● Gather all the documents needed to ensure a complete and accurate tax return,
● Maximize all tax deductions and/or credits you are eligible for, and
● Relax knowing that your tax returns are in highly experienced hands.
When you live and work abroad, your US tax return is not necessarily complete if your global tax liabilities are not being monitored, for example. If your tax preparer is not requesting and reviewing your foreign tax returns, it is highly likely that important information is being missed.
Equally as important, your preparer won’t be reviewing your situation to make sure that any potential double taxation (i.e. when the same income is subject to taxation in both the US and the foreign jurisdiction) is being mitigated to the extent legally possible.
The most important tax deductions and credits to know about
It’s essential that our clients know that we apply every legal tax deduction and credit applicable to their situation. As a US citizen working abroad, there are two primary deductions and credits available for expatriates that play a significant role in minimizing your global tax liability:
1) Foreign Earned Income Exclusion and Foreign Housing Exclusion, and
2) Foreign Tax Credits.
Equally important is to understand how the two work in tandem so that you minimize your long-term tax obligations on a global basis. We’ll explain how the exclusions and credit work and how you can use them to your tax advantage. For example, we’ll tell you when it makes the most sense to take each independently, and when it's better to claim one instead of the other.
List of documents needed for US citizens working abroad
In addition to all the usual documents you’d gather for your tax preparer, you’ll want to gather some or all of the documents listed below. After our initial discussion, we’ll provide a list of what we need that is tailored to your situation.
A detailed breakdown of your compensation (employment income). Different components of compensation are treated differently under the sourcing regulations, i.e. as US or foreign. This means we need to understand each component to determine the extent to which they should be considered US or foreign source, which drives your eligibility for using the exclusions and credits discussed above.
A comprehensive travel calendar, listing all the dates you worked in the current tax year and prior tax years, and where you were working each day.
A list and vesting schedule of any long-term incentive compensation. This includes Restricted Stock Units (RSUs), stock options, and any other multi-year bonus. You will need to provide a schedule for each individual tranche which vested or was exercised during the year. This allows us to determine the source of the compensation and report it correctly for the Foreign Earned Income Exclusion and Foreign Tax Credits. Additionally, it lets us determine if you've met any filing threshold for non-resident state returns.
Copies of any foreign income tax returns you filed, and any subsequent tax assessments you received. Reviewing this documentation allows us to make sure that the proper tax payments are credited and that you have appropriate supporting documentation in case of an audit.
A precise list of all foreign accounts in which you had a financial interest or signature authority. For each, we need the bank name, address, account number, and the highest account balance during the year (in your local currency). These are reported in two places: 1) the Foreign Bank Account Report (Form 114) which is submitted to the US Treasury Department, and 2) the Statement of Specified Foreign Financial Assets (Form 8938), which is included with your tax return. Each has different filing thresholds.
Why Americans who work abroad trust us with their taxes
The taxation of Americans living and working abroad is such a specialized area that those who prepare their own returns can't be confident they’re maximizing every available benefit, are completely compliant, or won’t be subject to an audit by the IRS because they inadvertently took an incorrect filing position.
Get in touch with us to learn more about our services and how we could help you.