I am sure filing your taxes is not on your top ten list of fun things to do in your free time and trying to figure out how to file your taxes when you live outside of the United States is most definitely not how you would want to spend a day off, right?
The aim of this post is to demystify as much as I can the basics of what expats need to do when it comes to filing taxes. This is by no means to be taken as tax advice, as I am not a professional. However, I have learned some useful things as a United States citizen living outside of the U.S. regarding filing taxes.
- It is best to file, even if you earn very little. As United States citizens, our worldwide income is subject to the U.S. income tax, regardless of where we live. I earn in a foreign currency and I pay taxes on that income already, so I can claim the foreign income exclusion.
- There is an extension available. Information from the IRS website explains that there is a two-month extension available if you live outside the U.S., though you must pay any tax due by April 15 or interest will be charged starting from April 15. All you have to do for the extension is “attach a statement to your return explaining…which… situations…qualified you for the extension.” IRS
- You can file your own taxes. Expat tax services are expensive, particularly if you earn in a foreign currency (which is the case with me). If you really feel like you need a CPA to help you out, I recommend someone like Don Nelson as he has answered (for free) some of my general questions, and has pointed me in the right direction.
- Not all online tax filing services are created equal. Last year I used a tax filing service called TurboTax. I paid $90 USD to use their software and as I live outside of the U.S. I could not e-file, meaning I had to print my return and mail it. A little expensive in my opinion. This year I was about to do the same, but I decided to look at the IRS website one more time. That was when I discovered OnLine Taxes with a free federal return for everyone and $9.95USD for state taxes.
- Use tax filing software like TurboTax as a sandbox. The benefit of TurboTax is that it will walk you through all the steps you need to follow, which includes the names of the forms you need to fill out. When I realized how much I would have to pay TurboTax ($120 USD), I went through the process using OnLine Taxes, which is FREE for federal filing and I got a federal refund.
In summary, do not be afraid to ask questions, and to use the free programs available that you can find on the IRS website. It might take you a little more time, but that might also mean you save money in the end, or as in my case, get money back. Which makes me ¡muy feliz!, almost as happy as watching dancing avocados.