Tax essentials for US expats: Forms and compliance tips

Navigating US tax forms can be daunting, especially when you add foreign tax obligations to the mix. Below are some of the key forms you’ll need to know about as a US citizen living and working abroad.

1. Form 1040 – Your Annual US Tax Return

Form 1040 is likely one you're already familiar with. It’s the core document for reporting your income, deductions, and tax credits to the IRS. This form calculates your taxable income and determines whether you owe additional taxes or are eligible for a refund. As an expat, you'll often need to attach additional foreign-related forms, as outlined below, when submitting your tax return.

2. Form 2555 – Foreign Earned Income Exclusion (FEIE)

Form 2555 helps you determine how much of your foreign-earned income can be excluded from US taxation, with a maximum exclusion of $120,000 for 2024. The form includes details such as your foreign income, your overseas employer’s address, and any foreign housing expenses paid by your employer. If eligible, this exclusion can significantly reduce your US tax liability.

3. Form 1116 – Foreign Tax Credit (FTC)

If you’re paying taxes to a foreign government, Form 1116 is crucial. It calculates the amount of foreign tax paid that can be credited against your US tax liability on the same income, potentially reducing or even eliminating your US tax bill for the year. You may need to file multiple Form 1116s if you have different types of foreign income.

4. Form 8938 – Statement of Specified Foreign Assets

To comply with the Foreign Account Tax Compliance Act (FATCA), US citizens must report certain foreign financial assets on Form 8938 if they exceed specific thresholds. This form details your foreign bank accounts, their balances, and any income earned from them. The figures on Form 8938 should match the income you report on Schedule B of your Form 1040 (for interest and dividends).

5. FinCEN Form 114 – Foreign Bank Account Report (FBAR)

The FBAR is perhaps the most talked-about form for US expats. This form, overseen by the Financial Crimes Enforcement Network (FinCEN), must be filed if the total balance of your foreign bank accounts exceeds $10,000 at any point during the year. It’s important to note that even minors must file this form if they meet the threshold. Failure to file the FBAR can result in hefty penalties.