June 16, 2020

By Joshua Ashman, CPA & Nathan Mintz, Esq.

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For the average U.S. tax filer, a number of tax software choices are currently available for annual filings. TurboTax, TaxSlayer, and TaxAct are some of the more popular off-the-shelf software options in this regard.

It doesn’t take a tax expert, however, to understand this - the U.S. citizen living abroad is not the average U.S. tax filer.

In this blog, we look at some of the unique challenges faced by U.S. expat taxpayers, particularly those challenges which are left unmet by U.S. tax software of the off-the-shelf variety.

We then compare solutions available to U.S. citizens living abroad, whether filing currently or filing late to get back into compliance under an IRS amnesty program.

Unique Challenges Faced by US Expats

The U.S. citizen living abroad sits in a unique spot in the tax filing world. There are a number of reasons for this, ranging from the practical to the technical. Some key challenges include:

1. Past non-compliance

Many expats searching for a filing solution are actually filing for the first time. In many cases, the individual was not aware of his or her obligation to file and requires a special filing, such as the IRS Streamlined Procedures, to come into compliance without triggering massive penalties.

Off-the-shelf U.S. tax software solutions are not at all designed to accommodate this type of situation.

2. International tax complexity

Many expats have unique forms to file based on their activities outside the United States, whether mundane and typical (such as a foreign bank account or foreign pension) or sophisticated and savvy (such as investments or company ownership).

While off-the-shelf software solutions provide some forms needed by expats, they do not contemplate or accommodate many of the forms typically required, such as the Form 3520 (foreign trust and foreign pension ownership), the Form 5471 (foreign company ownership), the Form 8938 (FATCA), and a number of others.

3. Lack of motivation to file from abroad

With over 9 million U.S. citizens living abroad, and only a minority filing U.S. taxes, it’s clear that there are many expats who are just not motivated enough to file, even after finding out about the obligation to do so.

Feeling motivated to file can be challenging given the disconnect many expats feel to the United States (especially U.S. citizens who have never lived in the United States), and given the sense that they are out of the reach of the IRS (which is becoming less and less tenable as FATCA partnerships continue to grow between the U.S. and other countries).

4. Hard to find local help

For many expats, finding a local tax preparer to help with U.S. taxes can be very challenging. Some expats, for example, live in more remote areas of the world where U.S. tax preparers can’t be found at all, while other expats live in urban areas where U.S. tax help is available, but usually at steep prices.

For these reasons, more and more expats are turning to online U.S. tax firms for help with U.S. tax preparation.

US Tax Software – Breaking Down the Choices

When it comes to expat-focused solutions, the following are the basic types of help available:

1. Local tax service

If you reside in a country that has a lot of U.S. expats, you may find tax firms in larger cities that offer U.S. tax services.

While having a firm that is local can be convenient, it can also be the most expensive option. Larger firms tend to charge higher fees, which can be difficult to justify if you are an expat with a simpler tax profile.

2. Online tax service using third-party contractors

The more recent and popular trend is the online tax service that utilizes third-party contractors. These companies typically use a tax software that acts as an online information-gathering tool to gather your information, which is then handed over to a third-party preparer who prepares your tax return.

While this option may be more affordable than a typical local firm, it comes with the risk of handing your sensitive information over to a third party, and lacks the accountability of a firm that has a vertical structure and review process. Third-party contractors are also typically unable to properly handle more sensitive situations, such as late filings, or more sophisticated needs, such as tax planning or structuring.

3. Online tax service using in-house professionals

In contrast to the above, this third option combines the convenience and affordability of an online service and information-gathering software with the professionalism and accountability of a firm with in-house CPAs and tax attorneys.

This is what we consider the “sweet spot” for U.S. expats and forms the basis of our Expat Tax Professionals offering. ETP can accommodate any U.S. expat with circumstances ranging from the simple to the complex.

Whether you are a US citizen or non-resident alien, a current filer or a late filer, and whether you have a simple financial profile or a complex investment portfolio, Expat Tax Professionals provides expert support from our in-house professionals at every step to tax compliance.

Expat EZ – US Tax Software Solution for Simple Filers

More recently, our firm announced a new offering, which takes online service to a new level of convenience and affordability for the taxpayer with simpler circumstances.

This unprecedented fourth option is Expat EZ, which utilizes a self-directed approach for filers who do not need the guidance of a CPA and would prefer to limit the CPA’s role purely to the preparation of the tax return.

The Expat EZ information-gathering software simplifies the process to accommodate taxpayers with very basic U.S. expat items to report on their tax return. This makes the tax return process faster and cheaper, while maintaining accuracy and reliability.

For more information on Expat EZ, you are welcome to visit our Expat EZ webpage:

Choosing Your US Tax Software

With many options available for U.S. expats, choosing the right option is important and can make all the difference for your tax filing experience.

It’s best to carefully research your options and find the solution that best fits your needs.

If you are a late filer or are a current filer looking for a new solution, please feel free to contact us for more information on how we can help you.

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