5 Ways to Prepare US Taxes as an American Abroad

It’s that time of year – tax year 2023 in 2024 – when many Americans, both in the US and abroad, may be feeling a mixture of emotions and asking, what preparations should I be making for US taxes as an American abroad. Especially for those living abroad, you may not even know it’s a necessity to file and prepare US taxes (as long as you meet the filing threshold) every year. Within every US passport is the fact that reporting your total worldwide income to the IRS once a year is a must. 

This is where we step in. We at MyExpatTaxes take the stress of US taxes by making the US filing process much simpler and smoother for every American abroad. Our expat tax software is user-friendly and compact with every file and form you need to make your tax compliant.

Now, with tax season 2023 (in the year 2024) up and in full swing, it’s important that you, as an American abroad, are fully prepared to handle your US taxes. Knowing what to expect and when to act is going to save you a lot of money and time.  

Here are five things to prepare for your US taxes for the coming tax year:

1. Confirm Your Filing Status for US Taxes

The easiest way to start your preparations for US taxes abroad is by checking the tax filling threshold. Every year the tax filing threshold changes. This year, the single filing status jumped up to $13,850 minimum. Other aspects like the married filing separately category has stayed the same – being at $5 for eligibility to file.

Please fill your US expat taxes this year IF at the end of the year 2023 you were:

Single:

• Under 65 and gross income at least $13,850
• Over 65, and gross income was at least $15,700

Married Filing Jointly:

• Under 65 (both spouses), and gross income was at least $27,700
• 65 or older (one spouse), and gross income was at least $29,200
• 65 or older (both spouses), and gross income was at least $30,700

Married Filing Separately:

• At any age, and gross income was at least $5 (yes, five us dollars – no typo here)

Head of Household:

• Under 65, and gross income was at least $20,800
• 65 or older, and gross income was at least $22,650

Qualifying widow(er):

• Under 65, and gross income was at least $27,700
• 65 or older, and gross income was at least $29,200

Gross income for an American abroad is the total pay that you receive from your employer before taxes and other deductions. Your gross pay also includes sources, not just cash – but any property or services received. For example, gross income can include not only your salary and wages but pensions, dividends, interest, and rental income.

Once you know which filing status you fall into, you’re good to move onto the next part in preparation for your US taxes abroad.

2. Check If You Need to File an FBAR

The FBAR for Americans abroad stands for Foreign Bank Account Report. The benefit of having the FBAR is that it prevents your foreign bank account from being taxed. It is purely an informational form for the IRS to have on file.

One point having a bank account overseas is that it is important you check periodically if all of your overseas accounts at any one time of the year has over $10,000 combined. If so, you need to fill out the FBAR form. This even means if you had $10,050 for just one day during the tax year, you’ll need to file an FBAR. It’s that precise. 

Something to also keep in mind is that the FBAR is not owned by the IRS, but a department of the US treasury called the Financial Crimes Enforcement Network (FinCEN).

To file the FBAR form successfully, Americans abroad will have to complete Form 114 (the Report of Foreign Bank and Financial Accounts). This can look daunting, which is why we at MyExpatTaxes added FBAR support in our expat tax software for a flat fee with your federal tax return.

3. Pay Owed Taxes By April 15th

Regardless of where any American abroad lives around the world, your tax status follows you. This means if you still owe US taxes while living in Thailand, for example, you’ll need to pay before the April 15th deadline. There are no automatic extensions for expats when it comes to paying US taxes – only for filing.

There are 3 penalties to know for late taxes: interest on the tax due, failure to file, and failure to pay.

Every time you owe US taxes and you don’t pay the IRS in full, you will be tacked with interest, calculated on the amount you owe. As for the failure to file, for every month your tax return is late you will get 5% added for each month the return is late, up to 25%. If you fail to pay your taxes on time, you will be penalized with 5% interest for each month with what you did not pay yet to the IRS, until you pay in full. 

Filing Extensions for US Expats – MyExpatTaxes

The US is one of two countries in the world that places the same tax regime on its citizens abroad. However, problems can come up when it comes to US taxes while living abroad. The United States is doing what it can to try and prevent Americans abroad from getting double taxed.

There are specific expat tax benefits and treaties between the US and several countries to prevent double taxation for US citizens abroad. Two treaty types are the Country-Specific Tax Treaties (Concerning Income Tax) and Totalization Agreements (Concerning Social Security Benefits and Tax).

Additionally, the Foreign Tax Credit and Foreign Earned Income Exclusion are tax benefits that help cut down on added stress and unnecessary monies for the IRS.

4. Determine Which Expat Tax Benefits to Take Advantage of 

A lot of time goes into preparations for filing US taxes abroad, but it will be less stressful once you hear about the expat benefits. The IRS has standard benefits that US expats can enjoy in general, regardless of the country (but some exceptions do apply…)

• Foreign Tax Credit: If you pay income taxes in your host country, you most likely can take a $ for $ credit for your owed US taxes. If you’re living in a country where the income tax rate is higher than the US (most European countries like Austria), then you will probably have more foreign tax credits than you can use.
• Foreign Earned Income Exclusion (FEIE): Exclude up to (approximately) $100K USD of foreign earned income per year if you are a bona fide resident abroad or have been physically out of the US for 330 full days.

For American families abroad, they can take advantage of the Child Tax Credit. It’s for parents who can get up to $2,000 for each qualified child to take off their next tax bill (if they owe US taxes). Otherwise, that credit is refundable. The Child Tax Credit can be applied to children under 17 who have a valid US Social Security number. 

Additionally, there is the Foreign Housing Exclusion, which is an expat tax benefit Americans abroad can take advantage of. This exclusion allows you to take away (deduct) excess housing expenses from employer-provided amounts over 16% of the Foreign Earned Income Exclusion (FEIE) of that tax year. To get such a benefit, you will need to be qualified for the FEIE and pass the physical presence test or bona fide resident test.

5. Know if You Need the Streamlined Procedure

Did you miss a year or two (or more) of filing your US taxes? You will need to catch up on back taxes, and we have a solution for you. The Streamlined Procedure is a tax amnesty program that allows you to get back on track without facing penalties. It’s safe, legal, and created by the IRS for Americans abroad. 

Keep in mind that to utilize the service, your actions must be innocent. This means there should be no background of deliberately not filing, and it must come with the intent of not knowing you had to file. For the IRS, being innocent is a result of ”good faith misunderstanding of the requirements of the law.” e

To use the Streamlined Procedure, you’ll need to check that:

• You were physically living outside the United States at least 330 days
• Have not yet filed federal tax returns within the last three years
• You did not have an abode (home) in the US for the last three years
• Have not filed delinquent or amended tax returns (ie: filed irresponsibly, carelessly, falsely)
• Have not filed the FBAR in six years

If you meet all the requirements, there is no way you will be subject to file-to-pay or failure-to-file penalties. Which also prevents you from dealing with fines of up to $10k.

Plus, if you realized you do need to use the Streamlined Procedure, our MyExpatTaxes can help you with that for an affordable price overall for every form you missed, and for an additional fee you can receive personal service so we can walk you through everything and ensure everything is done correctly.

Your Investment to MyExpatTaxes 

We have an award-winning expat tax software made exclusively for Americans abroad which in other words, makes your preparations much more simple. MyExpatTaxes is founded by an expat that understands your struggles. Therefore, with this software, we take complicated tax forms and vocabulary and put it into a software that is easy-to-use, affordable and smooth to do.

We offer three types of support according to your financial and tax needs. Our team wants to make sure we can answer any questions you have and serve you in the best way possible. 

In order to use our expat tax software, you’ll need to pay the Base plan, plus have basic computer skills. You’ll have to dedicate at least 30 minutes of your time to walk through our program unless you need more personalized help, then we can support you with that.

Once you become a customer, you’ll be set for life in receiving exclusive discounts and access into our affiliate program, where you can become even more financially empowered.

We look forward to meeting you.