In 2022, an estimated 4.4 million U.S. citizens lived abroad. If you are a U.S. citizen or permanent resident, chances are you still need to file federal income tax returns if your gross income exceeds a certain amount.
“There’s this idea that Americans can just pick up their little laptops and move their office, you know, to the coast of Spain without telling anyone and unfortunately, it doesn’t actually work like that,” Arielle Tucker, CPA and IRS Enrolled Agent and host of the podcast Passport to Wealth, tells CNBC Make It.
The U.S. and Eritrea are the only two countries in the world where taxes aren’t based on residency, and most countries have their own tax rules that, if you ignore, might end up costing you.
These are some of the options American expats have, including deductions, credits, and exclusions.
The first step is finding an expert
All the experts CNBC Make It spoke to suggest that one of the first steps people should take, besides researching the tax treaty between the country they want to travel to and the U.S., is to find an accountant who has experience filing federal taxes in both places.
“It’s not something that every tax preparer does. It’s an important step to take to find somebody with the expertise,” H. Jude Boudreaux, Senior Financial Planner at The Planning Center, says.
Tucker suggests looking at and interviewing a handful of foreign accountants and making sure they have other American clients as well.
“Having someone who’s somewhat familiar with the U.S. system and what the U.S. documents look like, I think, is a really important hack for getting your stuff done in a timely manner,” she says.
Avoiding double taxation on your income
Experts recommend claiming the Foreign Earned Income Exclusion or the Foreign Income Tax Credit as the best way to avoid double taxation on foreign income.
The foreign earned income exclusion allows individuals to exclude a certain amount of income earned abroad for the tax year. For 2025, the maximum exclusion is $130,000 per taxpayer and that number varies every year depending on inflation.
To claim the benefit of the foreign earned income exclusion, you must be one of the following, according to the IRS:
A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax yearA U.S. resident alien who is a citizen or national of a country where the United States has an income tax treaty orA U.S. citizen or a U.S. resident who is physically present for at least 330 full days during any period of 12 consecutive months.
Tucker says the foreign earned income is a use-it-or-lose-it benefit and can only be used during the current tax year.
“The important words to note there is earned income. That’s not passive income, that’s not investment income, it’s only earned income. That’s for people who can say ‘I’m self-employed’ or ‘I have a wage income,'” she says.
It’s also important to note that the foreign earned income exclusion is only applicable if you’ve been in a country for at least 330 days or a full calendar year, so if you stay for less time than that, you can’t take advantage of it.
Freelancers and self-employed Americans working abroad should also be aware that the Foreign Earned Income Exclusion doesn’t cover self-employment taxes. That means even if you qualify to exclude your foreign income from federal income tax, you may still owe Social Security and Medicare taxes to the U.S. government.
This often catches digital nomads and remote contractors off guard. If you’re contributing to a foreign social security system in a country that has a totalization agreement with the U.S., you may be able to avoid double taxation on those contributions. Otherwise, it’s important to plan ahead and budget for these additional tax obligations.
Another option for people is the foreign tax credit. It allows American expats to claim a credit for foreign taxes that are imposed by another country.
Tucker describes it as a way to reduce or eliminate double taxation between the U.S. and the foreign country in which you’re living.
“It’s a dollar-for-dollar credit that is a really powerful tool because you can build that credit up and it carries forward. If you are globally mobile, you can take your foreign tax credit with you,” she says.
The foreign tax credit is also only applicable if you’re moving to a country that has a higher tax rate than the U.S. If a U.S. expat moves to a low-tax or no-tax country, then there is no foreign tax credit that can be applied, Tucker adds.
Remember due dates
In the U.S., individual income taxes are typically due April 15 unless the date falls on a holiday or weekend. On the other hand, a lot of countries in Europe have a deadline in May.
Those filing in the U.S. also have the option of filing for an extension until October 15. U.S. expats abroad get an automatic extension until June 15.
Guillaume Decalf, CEO and Founder of Oui Financial, suggests filing for an extension in the U.S. and then filing taxes in your country of residence first.
“You’re going to deduct the taxes you pay in your country of residence from the taxes in the U.S. If you do the opposite, then you can’t take into consideration whatever you might be able to deduct, and then you have to redo it all over again,” he says.
In addition to remembering when to file, Tucker says it’s important to remember that it’s an extension to file, not an extension to pay.
“A lot of expats mix this up because they think they’ve got an extension. If you live in a low-tax country and you make a lot of income, if you’re not paying attention to your tax deadline, you’re going to owe interest,” she says.
Want to stand out, grow your network, and get more job opportunities? Sign up for Smarter by CNBC Make It’s new online course, How to Build a Standout Personal Brand: Online, In Person, and At Work. Learn how to showcase your skills, build a stellar reputation, and create a digital presence that AI can’t replicate.
Plus, sign up for CNBC Make It’s newsletter to get tips and tricks for success at work, with money and in life, and request to join our exclusive community on LinkedIn to connect with experts and peers.
