Quick Guide to US Expat Tax Return Filing Requirements

U.S. expats, including citizens and green card holders, must continue to file U.S. Federal income tax returns, even if they live outside the U.S. and have no U.S. income. The regular due date is extended, and special tax breaks are available to many expats. Extensions of time are available to make it easier to qualify for the foreign earned income exclusion on Form 2555. State tax returns may not be due at all.

Moving outside the U.S. does not get rid of your U.S. tax return filing obligation. If you are a citizen or permanent resident (“green card” holder), you must continue to file each year if you have more income than certain minimums. For 2010, you must file a return if your gross income from all sources was more than $9,350 if you’re single, or $18,700 for married filing joint. Other amounts apply in other situations. You must also file a return in order to claim the foreign earned income exclusion, the foreign tax credit, or any other credit.

Who. Filing a return does not mean you owe tax. As an expat, you may qualify for the foreign earned income exclusion on Form 2555 of $91,500 plus the housing amount. This exclusion means you can earn a salary outside the U.S. of over $100,000 and pay no U.S. tax. In addition, if you paid foreign income taxes, you can claim a foreign tax credit up to the part of your U.S. tax due on foreign source income. The credit is reduced if you also claim the exclusion.

When. Federal tax returns are due for people living outside the U.S. on June 15, not April 15. You need do nothing to get this extra time; just show your foreign address on the return. If you need additional time, an automatic extension until October 15 is available by filing the very simple Form 4868. You can get the form online at http://www.irs.gov/app/picklist/list/formsInstructions.html. If you need additional time to qualify for the foreign earned income exclusion, the IRS grants an extension until the following February 15 by filing Form 2350.

Where. Expats file returns at different addresses. If no payment is due, file by mail or delivery service with IRS, Austin, TX 73301-0215 USA. If a payment is due, file with IRS, P.O. Box 1303, Charlotte, NC 28201-1303, USA. You can also file through the nearest U.S. Embassy or Consulate, but sometimes the personnel there do not know how to do it.

How. As always, you can prepare your own return on a paper forms by mail or electronically file with computer software like H&R Block Tax Cut or TurboTax. In addition, if your total income is less than $58,000, you can file electronically free with the IRS. Paper and electronic forms are available from the above IRS site. If you need help with your return, most professionals can e-file your return. I provide e-filing for my clients at no extra charge. With e-file, you know your return was accepted by the IRS for processing within a day or two. In addition, e-filing with direct deposit means you generally get any tax refund in less than 10 days.

States. Once you move out of the U.S., you likely cease to be a resident of your old state. As a nonresident, you should not need to file a return unless you earn money in that state. Income in the state includes salary or business income earned there, or interest in a partnership or S corporation with operations in the state. New York and a few states may try to claim that if you come back within five years you never left, but their success in such claims is limited. Renting out your old home will likely trigger a state income tax filing requirement. State filing requirements vary; check your state’s income tax website or ask your tax return preparer. Don’t miss out on tax benefits that can eliminate your U.S. income tax. File your return on time. Get the professional help you need from Steve Fox, CPA.

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