As a US citizen or green card holder residing and working abroad, say in Singapore, we expats (and yes, I'm one too) are still required to file our US tax returns and potentially pay US taxes. The thing is, not every accountant is up to speed with the specific needs of US expatriates' tax returns (Form 1040). So, how do you know if your accountant, or a prospective one, is up to the task? Here are three key questions to ask:
1. If I do not file an extension, when are my tax return and tax payment (if any) due?
Normally, you might hear April as the deadline, but for expats, it's actually June. Expats have an automatic 2-month extension to file their returns if, on the regular tax filing in April, the expat is residing and working overseas, or is in the military on duty outside the US. The automatic 2-month extension does not require you to file anything (unlike the automatic extension to October). See the IRS website explaining the automatic 2-month extension here. They get bonus points if they know that expats also have until June to file the request (Form 4868) for an automatic extension to October.
I only included the month because the date of the filing could change if the due date falls on a Saturday, Sunday, or legal holiday.
But, this only extends the filing deadline, not the payment deadline; any tax due is still payable by April as outlined in the "time to pay not extended" section on the IRS website here.
2. If I own a foreign mutual fund, what form(s), if any, do I have to file?
First, owning foreign mutual funds often involves dealing with Passive Foreign Investment Companies (PFICs). Your accountant should recognize this and know about filing Form 8621.
Second, they should mention Form 8938 for reporting specified foreign financial assets and be aware of the filing thresholds outlined here by the IRS. While the foreign mutual fund itself may not be reported on Form 8938 if it's reported under Form 8621 (they would also have to indicate on Form 8938 how many specified foreign financial assets are reported on Form 8621), it's important they still know about it, especially because of the US$10,000 penalty for failing to timely file a complete and correct Form 8938.
Third, the accountant should mention FBAR, Report of Foreign Bank and Financial Accounts. While it may be debatable as to whether you need to report this on the FBAR, a conservative approach would be to report it because the FBAR is simply an informational disclosure with no tax consequences. But, unless you have to also file Form 8938, I would generally not pay an accountant to file my FBARs because it is a relatively simple filing that you file online here. The threshold for filing FBARs is lower than the income threshold for Form 8938.
3. If I'm married but my spouse does not work, can I still claim double the foreign earned income exclusion?
The answer is no.
If you are working in Singapore (or abroad generally) as an employee or an independent contractor, you may claim the foreign earned income exclusion or "FEIE." Generally, the FEIE excludes a certain amount of your "earned" income from US income tax. This amount is US$126,500 for 2024 (the exclusion amount adjusts annually for inflation). This means if you earn under that amount for 2024 (assuming you were working in Singapore for the whole calendar), you would not owe any US income taxes. As a married couple, both you and your spouse can claim the FEIE, but each of you must be earning income to do so. The FEIE applies separately to each spouse's income. For instance, if you earn $200,000 and your spouse earns $50,000, you cannot use any of your spouse's unused FEIE amount to reduce your own taxable income. Each spouse's FEIE only applies to their own earnings. See the IRS webpage explaining FEIE here.
Also, if the accountant seems unsure about choosing the FEIE over foreign tax credits for someone working in Singapore, that is generally a red flag. In Singapore, due to lower tax rates compared to the US, the FEIE is often more beneficial than foreign tax credits. This is because the foreign tax credit generated by paying Singapore income taxes would not cover the entire US income tax liability. Therefore, it would be better to forego the foreign tax credits generated to the extent it is covered by the FEIE.
If you're working outside of the US but not in Singapore, the decision between the FEIE or foreign tax credits depends on whether the foreign country that you're working in has a higher or lower effective tax rate than the US.
Connect
Want to chat more about US tax? Find a time to connect with Tim here.
--- DISCLAIMER: EVERYTHING YOU READ ON THIS BLOG IS PURELY FOR YOUR INFORMATION AND ENTERTAINMENT. IT IS NOT MEANT TO REPLACE PROFESSIONAL LEGAL, TAX, OR ACCOUNTING ADVICE. SO, BEFORE YOU MAKE ANY BIG MOVES BASED ON WHAT YOU'VE READ HERE, PLEASE CHAT WITH YOUR OWN LEGAL, TAX, OR ACCOUNTING ADVISOR TO GET THE REAL DEAL ADVICE TAILORED JUST FOR YOU.
Comments