Tax Software for Expatriates

Alternatives and Concerns

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According to the IRS, "If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside."

This article answers the following common question of many expatriates.

"Dear Tax Guide, I am a U..S citizen living and working abroad. I file a Form 2555 to claim the Foreign Earned Income Exclusion. Which tax preparation software can I use to prepare my 1040?"

Tax Prep Software for Expats

That's an excellent question. Not all tax prep programs support Form 2555 and Form 2555-EZ. The top two tax software programs, however, do support Form 2555 (foreign income exclusion) and Form 1116 (to claim the Foreign Tax Credit). TaxAct and TurboTax (Basic and Live versions) support the foreign income forms.

Free Tax Prep Software for Expats

If your adjusted gross income is $66,000 or less (and this limit is subject to change), the IRS has a list of free software options that are only available through Free File at IRS.gov.

Addresses for Mailed Returns

Not every expat is going to be able to use software to prepare their taxes. Should you need to submit a hard copy return, please remember that your return must be postmarked by the due date and must bear sufficient postage so that it is delivered and not returned. If you are a U.S. citizen or resident alien (Green Card holder) and you live in a foreign country, mail your U.S. tax return to:

Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215
United States

If you are including estimated tax payments and are including Form 1040-ES, mail your return to:

Internal Revenue Service
P.O. Box 1300
Charlotte, NC 28201-1300
United States

If you are going to mail your tax return by an IRS-approved private delivery service (FedEx, DHL, or UPS), use the IRS street address:

Internal Revenue Submission Processing Center
3651 South Interregional Highway 35
Austin, TX 78741

Some Considerations

There are several tax pitfalls that you should be aware of. One is qualifying for the Foreign Earned Income Exclusion using the bona fide or physical presence tests. This can be a tricky area, particularly for expats who just moved overseas.

Second, some expats are better off taking the Foreign Tax Credit (Form 1116) instead of the exclusion on Form 2555. However, once you start using one method, you cannot switch to the other method without first asking the IRS for permission to change your accounting methods. You may want to consult with a tax professional who has plenty of experience in preparing expat and international tax returns.

Of course, each taxpayer who files, or is claimed as a dependent on a U.S. tax return, will need a social security number (SSN) or individual taxpayer identification number (ITIN). You could owe taxes in two countries—your country of residence and the United States. Your U.S. taxes are based on worldwide income.