American expatriates face complex financial challenges

Thursday, April 11, 2013

American expatriates face complex financial challenges

Many American citizens choose to live and work overseas. Uncertain economic conditions and dwindling employment opportunities are two reasons why many U.S. nationals head abroad and seek a new life in a foreign country. While venturing abroad can be both tremendously exciting and a great career move, increasingly complex financial regulations regarding payment of taxes while overseas could prove to be a headache for many American expatriates, reports The New York Times.

Labyrinthine policies
Many Americans choose to spend several years working abroad, in the belief that doing so will ultimately benefit their career. While this is certainly true for some expatriates, others fail to realize just how complicated maintaining a financial presence in both the U.S. and their new country of residence is. Payment of taxes while abroad can be particularly challenging, and some American expatriates find navigating taxation regulations a serious challenge.

For example, Americans living and working overseas are eligible for tax exemption on the first $95,100 of their annual income under the foreign-earned income exclusion clause. However, many Americans do not know that even if they qualify for this deduction, they are still legally compelled to file tax returns with the IRS. 

"Some think if you're paying taxes in Germany and the Netherlands and the taxes are higher than in the U.S., you don't have to file a return," Ian M. Comisky, a partner at law firm Blank Rome and co-author of "Tax Fraud and Evasion," told the news source. "That's not accurate. You have to file a U.S. return, and you get a credit for it."

Heightened scrutiny
The introduction of the Foreign Account Tax Compliance Act (FATCA) of 2010 made working overseas even more complicated for American expatriates. Although some individuals working abroad choose to stay in short term rental apartments and corporate housing upon arrival, many ultimately invest in foreign property to strengthen their standing in their new country of residence. However, this can result in potentially complex filing requirements under FATCA, and some Americans are simply unaware of just how intricate these regulations can be.

According to, Americans living and working overseas are required to file Form 8938: Statement of Specified Foreign Financial Assets with their regular 1040 tax return, if their income exceeds $50,000 per year. Although FATCA regulations do not stipulate disclosure of foreign property investments, they do mandate that individuals make all their foreign income, including bank accounts, stocks, investments and interest, known to the IRS. Expatriates who do not provide this information face stiff penalties, with fines of up to $50,000 applicable for non-disclosure of international financial assets.