US Tax Compliance While Living Abroad

If you're a US citizen or resident living outside the United States, you have ongoing federal tax reporting requirements that are separate from foreign country taxes. This guide covers filing deadlines, election choices, and common filing gaps.

Annual filing is not optional. US citizens must file federal returns reporting worldwide income regardless of where they live. You get an automatic extension to June 15, but interest on any tax owed still accrues from April 15. FBAR (FinCEN 114) is due April 15 with automatic extension to October 15.

FEIE vs. Foreign Tax Credit election. The Foreign Earned Income Exclusion lets you exclude up to $126,500 (2024) of foreign earned income. The Foreign Tax Credit gives a dollar-for-dollar credit for foreign taxes paid. In high-tax countries, FTC is usually better. Your CPA should model both annually because the optimal choice can shift as income changes.

Foreign housing exclusion. Beyond the FEIE, you may deduct qualifying housing expenses above a base amount, subject to location-specific caps. This is frequently overlooked.

Tax treaty benefits. The US has treaties with roughly 60 countries that can reduce withholding rates and resolve dual-residency conflicts. Benefits must be actively claimed on Form 8833.

State tax implications. Some states continue taxing you unless you formally severed residency. California is especially aggressive about claiming former residents.

The pitfall: Filing US returns but skipping FBAR or FATCA forms is a common and expensive mistake. These are separate filings with separate penalties, and the IRS matches them against data received from foreign banks under FATCA information-sharing agreements.