Does a U.S. citizen living abroad still have to file a U.S. tax return?

Filing and paying are different questions

Start with your filing status, age, income and any special filing triggers. Gross income for this purpose generally includes foreign income before the Foreign Earned Income Exclusion. A return can therefore be required even when credits or an exclusion eliminate the final income tax. Self-employment can create a filing requirement at much lower income levels than the ordinary gross-income thresholds. Citizenship-based filing also applies to dual citizens; having another passport does not cancel it.

Report the right income in U.S. dollars

Foreign wages, consulting income, bank interest, dividends, rental profits and retirement payments all need appropriate classification. Income earned abroad does not become invisible because it stays in a foreign bank account or never enters the United States. Convert foreign-currency amounts using an appropriate exchange-rate method for the item. Foreign pensions, mutual funds and companies may have U.S. treatment very different from their local treatment, so copying totals directly from a foreign tax return can miss important issues.

Compare relief methods rather than assuming

The foreign tax credit can offset U.S. tax on qualifying foreign income taxes, subject to limitations. The Foreign Earned Income Exclusion applies only to qualifying earned income when its separate requirements are met; its maximum is inflation-adjusted annually. Neither method is a blanket exclusion for investment income. You cannot claim a credit for foreign taxes allocable to income you exclude. The choice may affect other tax calculations and later years, so a low-tax result this year is not the only consideration.

Foreign reporting is a separate workstream

An FBAR may be required when the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year. Form 8938 has different thresholds and filing rules, including rules for eligible taxpayers abroad. Ownership of foreign businesses, certain gifts, trusts or pooled investments may require other forms. These reports are not all replaced by filing Form 1040, and the FBAR is filed separately with FinCEN. Confirm both income tax and information reporting requirements.

Common mistakes

• Assuming no U.S. bank deposits means no reportable income.
• Skipping a return because foreign taxes exceed the expected U.S. tax.

Filing requirements

• Prepare Form 1040 and any applicable credit, exclusion and foreign information forms.
• Check the overseas filing extension and the separate FBAR deadline.

Potential penalties

• Late tax returns and missing international reports can have different penalties; owing no income tax does not resolve every penalty exposure.

Related IRS forms

• Form 1040
• Form 1116
• Form 2555
• Form 8938
• FinCEN Form 114 (FBAR)

What to consider next

• List worldwide income, foreign taxes, accounts and business interests.
• Check each year separately if prior returns are missing.
• Have Chirino USA compare tax relief options and confirm the full filing package.