So, you’ve taken a job in South Korea, your first year has come and gone, and now you are living your best life. Then you start a new contract. The month of March comes around, and you hear all your American friends talking about how they are stressing about filing their taxes back home. The first thought that might pop into your brain is, wait… I have to file taxes in the US even though I don’t live there? The answer is an overwhelming yes.
Introduction to US Taxes Abroad
The US is one of only two countries (US and China) that taxes its citizens living abroad. According to the US government, it is to deter tax evasion and make sure that the citizens abroad pay for the benefits of their citizenship. So, how do you go about filing your taxes abroad? The answer isn’t straightforward.
Despite dealing with filing US taxes from abroad, on and off for a decade, it remains a challenge. I am writing this article to hopefully assist expats in the future when that stressful time of year comes around.
So, If I still haven’t bored you with all this talk about taxes, then buckle up. Grab a cup of coffee, and prepare to learn about how to file your taxes while living abroad!
Required Documents for Filing US Taxes
One of the quickest ways to confuse yourself while trying to find information about filing taxes is by searching the IRS website.
This website is full of the information you don’t need. Plus, the terminology is confusing and it’s extremely difficult to understand which forms you actually need. This happened to me when I first moved abroad as well. Hence, the need for this article.
IRS Form 1040: US Individual Income Tax Return
This is the standard form that all US residents and citizens need to file.
The document is used to report data such as income, deductions, exclusions, and any exemptions and credits you may be entitled to. If you have filed taxes before, this form will be very familiar to you. However, if by chance, you haven’t, it is an easy form to fill out. When completed correctly, this form only takes five-to-ten minutes to complete.
Click Here to download form 1040.
Note: On the web page there is a bunch of irrelevant information. Just download the PDF titled “Form 1040” and fill it out.
IRS Form 2555: Foreign Earned Income Credit Form
This document is only for individuals LIVING abroad and is arguably one of the most important for expats.
The Foreign Earned Income Form can be completed by meeting the requirements of one of the two tests the IRS has set forth. These tests are called the Bona Fide Residence Test and the Physical Residence Test. These tests are what the IRS uses to calculate whether or not you can claim exclusions on your taxes. This form is important because if you pass one of these tests you can exclude your foreign earned income from your taxable income with the help of the Foreign Earned Income Exclusion.
Click Here to view IRS form 2555.
Individuals Not Eligible for Foreign Earned Income Exclusion
When attempting to file your taxes, the above two forms are the bare essentials that you will need to file. They will cover ninety percent of Americans living abroad. But, what about the individuals who don’t qualify or fail to meet the required stipulations for the Foreign Earned Income Exclusion? What other forms might one need to file?
The answer to these questions is the FinCEN 114, the Report of Foreign Bank and Foreign Accounts. As well as Form 1116, or the Foreign Tax Credit form.
These are specifically for individuals who don’t meet the criteria for Foreign Earned Income Exclusion. They are relatively simple to complete if you have the appropriate documents prepared.
Form FinCEN 114/ FBAR: Report of Foreign Bank and Foreign Accounts
If you are an English Teacher living abroad, the chances of you ever completing this form are very slim.
This form is for individuals who have bank accounts in foreign countries that have a value of over $10,000. If you are unlucky enough to have this amount of money in your bank account, you will have to provide this form to the IRS with your 1040.
Click Here to download an FBAR form.
Form 1116: Foreign Tax Credit
The final form you may need to file your taxes is IRS Form 1116, or the foreign tax credit form.
This form is for individuals who may not meet the requirements to qualify for the foreign tax credit exclusion. This form must also be submitted with your 1040 and other documents.
Click Here to download IRS form 1116.
Submitting Your US Taxes
Okay…. You’ve gathered all your documents, but what do you do now?
The answer is simple, you file your taxes. There are several different ways to file and submit your taxes. You can choose to do it yourself or file them online via:
I personally use turbo tax because it is simple and easy, and the customer service is great. I highly recommend their services.
However, if you are more independent and want to do things yourself, I suggest gathering the documents and filing your taxes on the IRS Website. You can also paper-file your return and mail it to the below address:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
As a citizen of the United States of America, you can delay filing your taxes until June. So, don’t rush while gathering your documents because there are methods to assist you.
So, after all that, you can click submit and finish your taxes. Congratulations!!! You did it!!! Now take a step away from the computer, and wait for the message of acceptance from the IRS. Once you receive the message, just forget about it. You don’t have to do anything else.
The IRS will contact you by post, and you will have a chance to fix a mistake.