The basics, explained plainly
U.S. Expat Tax Basics: What You Need to Know in 60 Seconds
U.S. citizens and green card holders owe U.S. taxes on worldwide income, no matter where they live. The good news: a stack of treaty rules, exclusions, and credits usually means most expats owe little or nothing to the IRS. Here are the answers to the questions almost every client asks us first.
Do I have to file U.S. taxes if I live abroad?
Yes, if you are a U.S. citizen or lawful permanent resident, you file U.S. federal taxes every year on your worldwide income, regardless of where you live or where the income is earned. Your foreign country's tax filings do not replace U.S. filings. The U.S. is one of two countries (with Eritrea) that taxes by citizenship rather than residency.
What is the Foreign Earned Income Exclusion (FEIE)?
FEIE (Form 2555) lets qualifying expats exclude up to $130,000 of foreign earned income for 2025 ($126,500 for 2024) from U.S. federal tax. To qualify you must pass either the Physical Presence Test (330 full days outside the U.S. in any 12-month period) or the Bona Fide Residence Test (established residence in a foreign country for an uninterrupted tax year). FEIE applies only to earned income (wages, self-employment), not to passive income like dividends or rentals.
FEIE or Foreign Tax Credit, which is better?
It depends on your country of residence and income mix. Foreign Tax Credit (Form 1116) is usually better when you live in a high-tax country (Germany, U.K., Australia, most of Europe) because the credit can offset U.S. tax dollar-for-dollar with no income cap, and unused credits carry forward 10 years. FEIE wins in low-tax or no-tax countries (UAE, Singapore, Hong Kong). For most clients we model both before filing and pick the lower-tax outcome, sometimes splitting income types between them.
When are my U.S. taxes due if I live abroad?
Filing deadline is automatically extended to June 15 for taxpayers living outside the U.S. on April 15 (interest still accrues from April 15 on any tax owed). Form 4868 extends to October 15. Form 2350 can extend further if you need additional time to qualify for FEIE under the Physical Presence Test. FBAR is due April 15 with automatic extension to October 15 (no form needed for FBAR extension).
What about state taxes?
State tax exposure depends on your prior state of domicile. California, New York, New Mexico, South Carolina, and Virginia are notoriously sticky, treating expats as residents until you formally establish domicile elsewhere. We help structure your move, file the part-year return, and document the breaks (license surrender, voter registration change, lease termination) that disconnect you from the prior state.
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