If you’re an American living in Japan, then you may know June is a big month when it comes to your expat taxes. Your expatriate tax return is due, along with your Foreign Bank Account Reporting (FBAR), if you meet the filing threshold. Being prepared is always a good idea, especially when it comes to taxes – so read on for everything you need to know!
What to Know About Expat Taxation
As you know, your US income taxes must be completed no matter where you’re living – and you are required to report your worldwide income. A benefit unique to US expats living abroad on Tax Day (which was April 18th this year), though, is the tax due date: your tax return isn’t due until June 15th, giving you two additional months to finalize it. Note: if you owe any taxes, your payment is still due by Tax Day or interest will accrue until the payment is made.
Another tax benefit for US expats: the credits, deductions and exclusions that are available to you and can dramatically lower your taxable income! Here are a few that you might want to consider:
Foreign Earned Income Exclusion (FEIE) – You are able to exclude the first $100,800 of foreign income from your 2015 US tax return. You must qualify using either the Physical Presence Test or the Bona Fide Residence test in order to take this exclusion.
Foreign Tax Credit (FTC) – You can use this tax credit provided by the US government based on the taxes you’ve paid in your resident country. This credit reduces your US tax liability on a dollar for dollar basis, and cannot be used on income you’ve excluded with the FEIE.
Foreign Housing Exclusion – You can use this exclusion to increase the FEIE by the amount of your qualified housing expenses. You’ll need to follow the calculation below in order to determine your exclusion or deduction:
Housing Expense Limitation – Base Housing Cost = Maximum Housing Exclusion
Don’t miss out on any of these options, as they can help you save big on your US expat taxes!
What to Know About Foreign Bank Account Reporting (FBAR)
If you’re a US expat with any foreign bank accounts, being aware of the FBAR reporting requirement is critical. If any of your foreign accounts exceed $10,000 at any point during the calendar year, you’ll be required to file an FBAR. All US citizens who meet this threshold must comply, regardless of age. US companies are also required to file FBARs if the $10,000 threshold is exceeded.
So what types of accounts must be reported on your FBAR? Check out this list for details:
- Foreign bank account balances
- Foreign mutual funds
- Foreign stock or securities held in a financial account at a foreign financial institution
- Financial account(s) held at a foreign branch of a US bank
- Foreign-issued life insurance or annuity contract with a cash value
For 2015 filing, the FBAR reporting deadline is June 30th. There are no extensions available, so meeting the deadline is very important in order to avoid penalties! For 2016 filing and beyond, there will be a new deadline – the same day Federal taxes are due (April 15th). As an expat, though, you’ll automatically receive a two-month extension and can request an additional extension until October 15th. This will allow you more time, if needed, to get your FBARs filed in a timely manner in order to prevent late filing penalties, which can be quite severe!
Next Steps to Take
Now that you’re aware of the tax and FBAR filing requirements coming up for US expats, it’s a good time to begin gathering the required tax documents and check on the balances in your foreign bank accounts. Here’s a helpful list of documents you may need in order to file your taxes. Because US expat taxes tend to be a bit tricky, it’s recommended to consult with a tax professional so you can be sure you take advantage of every credit, deduction and exclusion available to you. Be sure to check out our blog for more expat tax tips and the latest tax news!
This post was written by David McKeegan, co-founder of Greenback Expat Tax Services. Greenback specializes in the preparation of US expat taxes for Americans living abroad. Greenback offers straightforward pricing, a simple, hassle-free process, and CPAs and IRS Enrolled Agents who have extensive experience in the field of expat tax preparation. For more information about FBAR, expat taxes or Greenback, please visit www.greenbacktaxservices.com.