The term "expat" is short for "Ex-Patriot," which describes a person who lives outside of their native country. If you were an American citizen living in the United Kingdom, for example, you would be considered an American expat. Just because you don't live in the U.S. anymore doesn't mean that Uncle Sam has forgotten about you, however. There are a few critical things about taxes in particular that you'll definitely need to know moving forward.

Your Expat Taxes: Breaking Things Down

If your worldwide income meets or exceeds certain filing thresholds (which are generally equal to the standard deduction for your filing status), you need to file a United States tax return as an expat — end of story. The fact that a foreign employer is paying you in another country doesn't change that fact. If you're self-employed, that threshold is just $400.

Filing requirements include a standard U.S. 1040 income tax form (if applicable), and it could involve filing full-year, part-year, or even non-resident returns depending on the specifics of your situation. Likewise, if you have a bank and/or brokerage account outside of the United States, you'll have to file a Form 114 (or Foreign Bank Account Reporting Form) as well.

The good news is that there are several ways to reduce — or even significantly eliminate — this burden. One is the Foreign Earned Income Exclusion, which allows you to exclude approximately $100,000 of income earned from services provided outside the U.S. (excluding interest, dividends, stock sales, and pension income). Another is the Foreign Tax Credit, which allows you to reduce your U.S. income tax by the amount of foreign taxes you've already paid.

Other Considerations

As stated, you'll also have to concern yourself with FBAR — or Foreign Bank Account Reporting. All American expats are required to list all their liquid or financial assets, including, but not limited to, mutual funds, stocks, and bank accounts, if the highest account balance (or the sum total of all accounts) is $10,000 or more. 

You'll also have to deal with FATCA, or the Foreign Account Tax Compliance Act. Established as part of the HIRE Act, this requires American expats to report, depending on the total value, all of their foreign financial accounts and assets come tax season.

The good news is that all American expats receive an automatic filing extension until June 15 each year, which means you don't have to start stressing out just yet, as April 15 is still a few months away. However, if you want to avoid any penalties or interest you might owe, you still need to get those payments in by April.

At Expat Tax Center, Inc., we understand that living abroad can be an adventure — but when your taxes are concerned, it isn't always a positive one. That's why we want to help you make the most of a tricky situation, not only getting all of your forms, paperwork, and other documents in order, but helping you to reduce that expat tax liability as much as possible. In the end, you'll be able to rest easy knowing that your expat income tax burden is truly taken care of. For more information, please don't hesitate to contact Expat Tax Center, Inc. today.