Living and working abroad
You earn employment or self-employment income outside the United States and need an annual U.S. return.
How we may help
- Prepare an annual U.S. individual income tax return while you live abroad.
- Organize foreign income and qualifying foreign taxes by source and income category.
- Review travel dates, tax home, residence, and physical-presence facts.
- Review foreign financial accounts for FBAR and other reporting included in the agreed scope.
- Consider foreign assets, investments, pensions, business interests, and related reporting.
- Review prior-year elections or credit carryovers and explain how available filing approaches interact.
Foreign accounts and FBAR
The Report of Foreign Bank and Financial Accounts—commonly called the FBAR—is filed separately from the federal income tax return on FinCEN Form 114. A U.S. person may have an FBAR filing requirement when they have a financial interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during the calendar year.
Whether an account produced taxable income does not determine whether it is reportable for FBAR purposes. We review account ownership, authority, locations, and annual maximum values before identifying the agreed reporting scope.
Two important ways to address double taxation
Form 1116
Foreign Tax Credit
A foreign tax credit may reduce U.S. income tax based on qualifying income taxes paid or accrued to another country. Form 1116 is generally used by individuals to calculate and claim the credit, subject to income categories, sourcing, and applicable limitations.
Form 2555
Foreign Earned Income Exclusion
Qualifying taxpayers use Form 2555 to figure the foreign earned income exclusion and, when applicable, the foreign housing exclusion or deduction. Eligibility turns on factors such as a foreign tax home and the applicable residence or physical-presence test.
These are not interchangeable shortcuts. The right approach may depend on your country’s tax rate, income mix, travel pattern, family plans, and how today’s choice affects later years. We review the interaction before recommending a filing position.
Common questions
Does filing my U.S. tax return also file the FBAR?
No. The FBAR is a separate report filed with FinCEN rather than as part of the federal income tax return. The two filings can use related account information, so both should be considered when organizing foreign financial records.
I already pay tax where I live. Do I still need to address U.S. filing?
Paying tax in another country does not by itself end a U.S. filing obligation. Depending on the facts, qualifying foreign taxes or foreign earned income provisions may affect the U.S. result, but the return and related reporting still need to be evaluated.
What if I am self-employed or work as an independent contractor?
Income from services performed abroad may be foreign earned income, but the income-tax and self-employment-tax analyses are different. The foreign earned income exclusion does not reduce self-employment tax, and other facts—including an applicable social security agreement—may matter.
Is the Foreign Tax Credit or the exclusion better for me?
There is no universal answer. Country tax rates, income categories, eligibility, prior filings, and future plans can all change the result. We compare the relevant facts instead of choosing from income alone.
What are Form 1116 and Form 2555?
Form 1116 is generally used by individuals to claim the foreign tax credit. Form 2555 is used to figure the foreign earned income exclusion and foreign housing amounts. They serve different purposes, and the available or preferable approach depends on the taxpayer’s facts.
Can you review more than one filing year?
Yes. Multiple years can be considered. If filings were missed, we first review the filing history and available compliance options, including whether the Streamlined Foreign Offshore Procedures may be appropriate. The number of years and condition of the records will be reflected in the scope and quote.
General references: IRS Foreign Tax Credit, IRS Foreign Earned Income Exclusion, and IRS FBAR guidance.