The IRS and the US Expat
I recently filed my taxes using one of the online DIY systems. It went haywire when I entered in where I was living, how I earned my income, and basically every other “simple” question. I had to contact the help desk. Getting a real answer and someone to actually help me took 3 months, tweets, forum posts, calls, and finally a rep (well actually 5) on Facebook sorted it out over several days. This ordeal is how I stumbled upon the group US Expat Tax Questions. I started corresponding with Joshua Katz a fellow American expat and tax professional. I asked him if he would contribute a series of articles answering some common questions I find myself discussing with fellow US expat at tax time. Originally a 3-part series he offered up this post as well with some general questions people who contact his firm Universal Tax Professionals ask about filing their taxes.
I am a US citizen living outside the US. Do I need to file taxes?
Yes. If you are a US citizen and you earned income, then you need to file a tax return, regardless of whether you earned money in the US or abroad.
But will I owe taxes to the IRS?
Most likely, No. Most of our clients end up owing zero taxes. There is a Foreign Earned Income Exclusion and Foreign Tax Credit which expats can use to reduce or eliminate the amount of taxes they owe. In addition, depending on which country you live in, there may be a Tax Treaty or Totalization Agreement which can also reduce or eliminate the amount of taxes you owe.
I have two children under the age of 17, can I still receive the Child Tax Credit?
Possibly. Even if you live abroad, if you have children who live with you, it is possible to receive up to $1000 per child. The IRS will either deposit this check into your US Bank account or mail you a check. It will depend on several factors including your income and the foreign taxes you paid, but many of our clients still receive a refund.
Do you recommend paying an accountant or is it ok to prepare my own return using a tax software?
Obviously, I am biased because I am an accountant, but I almost always recommend using an accountant. Many expats who attempt to do taxes on their own end up paying more than they needed. Others end up making simple mistakes, and they end up receiving a letter from the IRS and they need to hire an accountant later. It is much cheaper to hire an accountant to prepare your taxes than hiring an accountant once you have received a letter from the IRS. We recently had a client come to us and asked us to prepare her 2016 US tax return. She not only did not know that she could receive a refund, but she had been preparing her taxes incorrectly over the past two years. In the end, she received a refund for about $2000 for 2016 and we amended her past two returns and she received another $4000.
I want to hire an expat accountant, but can I afford one?
While many expat accountants charge very high fees, our clients are always surprised to hear our price quotes. We usually charge less than their US based accountant. In addition, we charge a flat fee and always keep to our quoted price.
How long would it take your firm to prepare our return?
Initially, we request information from our clients that we need to prepare a return. This may include a pay statement or bank slip. However, once we receive all the information we usually complete the return within a few days, and it almost never takes longer than a week.
Is the filing deadline for expats the same as the deadline for taxpayers living in this US?
There is an automatic 2-month extension to file your taxes if you are living abroad which give you until June 15th (June 18th this year). However, if you owe taxes then the money needs to be paid by April. If you still need longer, you can file another extension until October 15th(October 18th this year).
Please note this is not sponsored content, as I had just finished ripping out clumps of my hair trying to find out what happened to the 2015 return, I joined a Facebook group for expat tax problems. I noticed Joshua’s answers were easy to understand and I approached him about creating a series.