So you finally made the move to leave the US. You've always been very tax savvy and know how to use the online tax filing sites well. Things will be very different:
As everyone knows, US persons still have to file tax returns, as the taxation in the US is citizenship-based. Here are some special forms many US expats need to file (and some to leave out):
1) First off, reporting foreign income. If you will be getting a job abroad, it won't be on a US W-2 like you're used to.
You'll receive an end of year summary, issued for your country of residence's tax authority. For instance, an Israeli 106 form, UK P60, Canadian T4.
The total income needs to be converted into USD at the yearly average rate, and entered into your tax return as wages. This income can be used as basis for income-based credits, such as the child tax credit.
2) You can't claim the EIC (Earned Income Credit) if you resided abroad most of the year. So make sure not to claim it.
3) You may need to file Form 1116, Foreign tax credit, or Form 2555, Foreign income exclusion. If you live in a high tax country (higher than the US), it usually is more worthwhile to file the Form 1116 instead of the 2555.
In certain instances, both may need to be filed to come out with the best outcome. Note that income excluded using the foreign income exclusion can't be used as basis for income-based credits, such as the child tax credit.
4) Self-employment tax: If you are self employed, you will still need to pay this tax, except for if you reside in a country with a "totalization agreement" with the US, which means that if you pay social security tax to that country, you won't have to pay to the US.
If you reside in such a country, you'll need to get a certificate confirming that you pay social security tax to your country of residence. This will have to be attached to the tax return.
5) FBAR reports (Foreign bank account reports): If you had over $10,000 USD or equivalent in any non-US bank accounts (including Canada!), you will need to report the maximum balance in each account.
This includes pension and brokerage accounts, etc. This form is due even if you had the $10k spread between a few accounts. If you and your spouse both have separate individual accounts, two separate reports are required to be filed.
6) Form 8938, FATCA reporting: If you reside abroad, and don't file jointly, this form will need to be filled out if you had over $200,000 on the last day of the tax year or more than $300,000 at any time during the year.
For joint filers: if you had more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year. These amounts also include equity in foreign corporations, etc.
7) Form 5471, Report of Foreign Corporations. Officers, directors or shareholders in certain foreign corporations must file Form 5471 as part of their expat tax return.
Confused yet? Maybe it's time to call an expat tax accountant.
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