Early Tax Planning for New Expats (First Year Abroad)

If you've been abroad less than one year, you may not yet qualify for the Foreign Earned Income Exclusion, and careful tracking of your presence will determine your tax treatment. Foreign account reporting obligations, however, begin immediately.

The physical presence test requires 330 days. To claim the Foreign Earned Income Exclusion under the physical presence test, you must be physically present in a foreign country for at least 330 full days during any 12-month period. Short trips back to the US count against you. At under one year, you may not yet meet this threshold.

The bona fide residence test is harder to prove early. This alternative test requires establishing genuine residency in a foreign country with the intent to stay. The IRS looks at visa type, housing arrangements, community ties, and whether you retained a US home. A few months abroad rarely satisfies this test.

FBAR and FATCA kick in immediately. Unlike the FEIE, foreign account reporting obligations have no minimum time-abroad requirement. If your foreign accounts exceed $10,000 aggregate at any point during the year, you must file an FBAR for that year.

Investment restructuring is still possible. If you recently moved and still hold foreign mutual funds, there may be time to restructure before PFIC reporting becomes a multi-year headache.

The pitfall: Assuming you qualify for the FEIE in your first year and filing based on that assumption. If the IRS later determines you didn't meet either test, the exclusion is disallowed and you owe back taxes plus interest.