Common Expat Tax Forms
Table of Contents
For Americans abroad, some things are going to be the same at tax time and others are going to be different. If you live and work abroad, you may be subject to both US taxes and taxes in your home country. Let’s start out with what stays the same.
Form 1040
Whether you live in the US or abroad, all your individual income for the year ends up on Form 1040. This reports your name, Social Security number, and household information to the IRS. The Form 1040 is typically a simple double-sided page that gives an overview of your income for the year, as well as any deductions and credits. It’s the schedules and forms attached to Form 1040 that get into deeper detail about each item on Form 1040. Here are some you might see as an expat.
IRS Form 2555: Foreign Earned Income Exclusion
IRS Form 2555 shows how much of your income you can exclude from US taxation. If you live and work abroad for at least a year, you may be eligible for the Foreign Earned Income Exclusion. This allows you to exclude up to $112,000 of your foreign-earned income from US taxation. This creates greater equity for income that is already taxed in your country of residence.
If you have US-source income such as dividends, interest, or rental income, this money cannot be excluded from total income under the FEIE.
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IRS Form 1116: Foreign Tax Credit
The Foreign Tax Credit allows you to take credit for any foreign taxes paid on income that would have been taxable as US income. It can be combined with the FEIE, but you cannot “double-dip” on the exclusion and the credit. This means that if you chose to exclude the $112,000 of your income from US taxation, you may not claim the Foreign Tax Credit on any foreign taxes you paid on that $112,000. However, if you had additional foreign income above $112,000, you may use the Foreign Tax Credit to offset foreign taxes paid on this income.
IRS Form 8938: Statement of Specified Foreign Assets
You may hear this form referred to as FATCA, or Foreign Account Tax Compliance Act after the legislation that created this requirement. This is not a form that calculates tax. Instead, it is an information form that lists your bank accounts and foreign assets. You are required to attach this form to your tax return if your bank account or asset balance exceeds a certain threshold: $300,000 if single or $600,000 if married filing jointly. Form 8938 shows the balance of each account as well as any income you should have earned from the account in the year. This form is a supporting form for Form 1040, Schedule B, which is where interest and dividend income appear in your income reporting.
IRS Form 8858: Foreign Disregarded Entities & Foreign Branches
There are two common reasons for filing Form 8858.
If you’re self-employed or earning money from the gig economy, you’ll need to report the income on Form 8858. That’s assuming you’re physically outside of the United States while you perform the work, even if you’re working for a US company or an individual within the US.
The second reason is to report income from rental properties that are located outside of the United States.
IRS Form 5471: Information Return of US Persons for Certain Foreign Corporations
This is another information form. If you are a US citizen who owns more than 10% of a foreign corporation, you are required to disclose your interest or ownership in the foreign company. This usually involves attaching financial documents from the corporation. This can be filed with your tax return, but could also be filed separately as it does not calculate any actual tax due.
The information on this form should match your reported investment income on your tax return, on Schedules B and D of Form 1040.
FinCEN Reporting Requirements
This is not strictly an IRS requirement, but tax preparers will still ask you about it. If you owned a foreign bank account that had a balance of more than $ 10,000 USD, or the exchange equivalent, at any point during the year, you are required to file FinCEN Form 114 – Foreign Bank Account Reporting. This is not an IRS form; FinCEN is part of the US Treasury Department. This requirement applies to all persons, including minors.
US-based Income for Expat Americans
Most of the information in this article refers to Americans who live and work abroad for foreign employer. However, if you have income from a US source but a foreign address, you may mistakenly have the 30% statutory withholding tax applied to your US source income. This is because dividends from US corporations that are paid to foreign shareholders are subject to this tax. However, if you are a US citizen or resident alien living abroad, this should not apply to you. To correct this error, notify the payor of the withholding with a Form W-9. If this income was withheld from you in error, you can claim the withholding as a tax credit on your return.
Note on Exchange Rates
All income on your US tax forms must be reported in $USD. If you earn money in a different currency, or keep a foreign bank account in a different currency, you will need to convert it into $USD for tax purposes. The IRS states that “you must immediately translate into dollars all items of income, expense, etc. (including taxes)that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Use the exchange rate prevailing when you receive, pay, or accrue the item.” Due to this requirement, it is often easiest for American expats to maintain a US bank account and convert their foreign currency to $USD upon deposit.
For more information about living abroad, earning foreign income, and paying US taxes, see IRS Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad. Our tax experts at Expat Tax Online are always available to assist with your individual situation. Contact us for a consultation today.
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