Expatriate Taxation: Everything You Need to Know

Moving to a new country is a massive life milestone, but for Americans, the IRS remains a permanent travel companion. The United States is one of the few nations that taxes based on citizenship rather than just residency. This means that if you are a U.S. citizen or green card holder, your tax obligations follow you across every border.

Navigating these rules can be a bit of a headache, but understanding the basics is the best way to keep your finances in check and avoid unwanted letters from the government.

The Basics of U.S. Expat Taxation

Most countries only tax the money you earn within their borders. The U.S. takes a different approach by requiring you to report your worldwide income. Whether you are earning a salary in London, dividends in Canada, or rental income in Mexico City, the IRS wants to know about it.

Your Essential Filing Requirements

Strategies to Avoid Double Taxation

The good news is that the U.S. government does not actually want you to pay taxes twice on the same dollar of income. There are several powerful tools designed to lower or even eliminate your U.S. tax bill.

1. Foreign Earned Income Exclusion (FEIE)

The FEIE allows you to exclude a significant portion of your foreign earnings from U.S. taxation. For the 2025 tax year, this limit is $130,000. To qualify, you must pass either the Physical Presence Test (being outside the U.S. for 330 full days) or the Bona Fide Residence Test.

2. Foreign Tax Credit (FTC)

If you are living in a high-tax country (like much of Europe), the FTC is often the better route. This allows you to claim a dollar-for-dollar credit on your U.S. return for the income taxes you paid to your host country.

3. Foreign Housing Exclusion

Living in a world-class city can be expensive. This provision allows you to exclude certain housing-related expenses, such as rent and utilities, from your taxable income, provided they exceed a specific base amount.

Common Hurdles for Americans Abroad

While the concepts seem straightforward, the execution often gets complicated. Here are a few things that catch people off guard:

• Currency Conversion: You cannot report your income in Euros or Canadian dollars. Every transaction must be converted to U.S. dollars using an acceptable exchange rate, which requires meticulous record-keeping.

• State Taxes: Some states are “sticky.” Even if you have been gone for years, states like California, Virginia, or South Carolina might still consider you a resident for tax purposes unless you formally sever ties.

• Self-Employment Taxes: Working for yourself abroad is great until you realize you might still owe Social Security and Medicare taxes to the U.S. This is where Totalization Agreements come into play, helping you avoid paying into two different social security systems at once.

Deadlines and Extensions

Expats get a little bit of breathing room when it comes to the calendar. While the rest of the country is rushing for April 15, U.S. persons living abroad receive an automatic two-month extension to file their returns.

• June 15: The automatic deadline for expats to file and pay (though interest may accrue on unpaid tax from April).

• October 15: The final deadline if you file an additional extension request (Form 4868).

• FBAR Deadline: This technically follows the April 15 date but has an automatic extension to October 15 for everyone.

Pro Tip: Even if you do not owe any money because of exclusions and credits, you are still legally required to file a return if you meet the income thresholds.

Why Professional Help Matters

The penalties for missing an FBAR or failing to report a foreign asset can be staggering, sometimes starting at $10,000 per violation. Working with a specialist ensures that you are taking advantage of every treaty benefit and exclusion available to you.