Do U.S. Citizens Abroad Still Have to Pay Taxes?

Yes, they do. Living overseas will not stop you from reporting and paying your taxes to the Internal Revenue Service (IRS) because you are taxed on your worldwide income.

Therefore, whether your income is derived from work, business ownership, rent, or investments, you must report your income to the IRS on a tax return, even if you already pay taxes in another country like Ireland.

To further reduce or eliminate U.S. tax on some types of income, you should explore whether your country has an active tax treaty with the United States. These treaties often allow reduced withholding rates or exemptions for income like pensions, interest, and dividends. A comprehensive list is available on the IRS page for U.S. income tax treaties, and Publication 901 offers deeper insight into how these apply to your specific country.

Avoidance of Double Taxation

Not-so-good news: The IRS does not want you taxed on the same income twice. You have two main tools to avoid double taxation:

1. Foreign Earned Income Exclusion (FEIE)

As you reside and work outside the United States, you might be able to exclude up to $130,000 of your foreign income from U.S. tax in 2025. Visit the IRS Foreign Earned Income Exclusion page for details and qualification requirements.

You qualify if you satisfy either:

• Spent at least 330 days outside the United States during any period of 12 months, or
• Are a bona fide resident abroad.

2. Foreign Tax Credit (FTC)

If you’ve already paid income taxes in a foreign country, the FTC permits you to subtract your U.S. tax liability by that amount. It’s especially useful if you live in a high-taxed country, like Australia, the UK, or Germany.

Tip: You can use both, but not for the same income. For example, leave your salary under FEIE and use FTC to rental income or income over the FEIE limit.

Key Tax Filing Requirements for Expats

Following are the main forms and submissions you’ll probably encounter:

• Form 1040 – This is your main U.S. tax return. Everyone uses this.
• Form 2555 – If you want to ignore foreign earnings under the Foreign Earned Income Exclusion.
• Form 1116 – You’ll need this to report the Foreign Tax Credit if you’ve paid taxes in another country.
• Form 8938 – You’ll use this if you own foreign financial assets worth more than certain amounts (e.g., investments or accounts).
• FBAR (FinCEN Form 114) – You’ll use this if your foreign bank accounts total more than $10,000 at any time during the year.

For self-employed: Schedule C and Schedule SE to report your income and calculate self-employment tax.

Deadlines and Extensions for 2025

This is what your calendar should be like:

1. April 15 – This is the regular tax deadline. Even though you’re an expat, taxes owed are still due by this date. Additionally, this is the FBAR deadline.
2. June 16 – Expats get two additional months to file their return automatically—without needing to request it.
3. October 15 – If you need more time to file your US tax return, you can file for an extension using Form 4868. On the other hand, this is the automatic extension deadline of filing FBAR.
4. December 15 – You do have a last-minute option, but you must write to the IRS to get permission for an extension.

Common Mistakes Expats Make

Even seasoned expats err sometimes. Here are some common pitfalls to avoid:

• Skipping the FBAR – Too many people overlook reporting foreign accounts.
• Not reporting foreign income – Even if taxed abroad, it must be reported.
• Missing deadlines – Extensions are a good idea, but payments are still due April 15.
• Assuming you don’t need to file – If you make more than the filing threshold, you must file—even if you owe nothing.

Tips for Staying Compliant

Navigating U.S. taxes while abroad isn’t easy. But with some savvy practices, you can cruise. Here’s how:

• Keep track of income, expenses, and foreign taxes paid.
• Utilize expat tax software or hire a professional familiar with international tax laws.
• Seek out totalization agreements – These would allow you to pay Social Security tax once
• Don’t overlook self-employment tax – Even when you qualify for FEIE, you do pay self-employment tax except when exempt.

Final Thoughts

As a U.S. citizen expat, taxes might be a hassle but don’t have to be overwhelming. You can get in compliance and steer clear of costly mistakes with the proper tools and information, and maybe a little guidance from a tax professional at Expat Tax Online.

Tax obligations of U.S. expats in Australia

As a U.S. citizen or a Green Card holder, you’re required to file and pay taxes to the IRS—even if you now live in Australia. This includes reporting income from jobs, pensions, and even investments. In fact, filing US taxes in Australia can be one of the most complex parts of expat life because both countries tax worldwide income.

Reporting your investment and income can include a lot of work depending on your chosen investment. You will also need to be careful and accurate because one missed tax form could cost you as much as USD $10,000.

Let’s go through the basics so you can make smart investments and stay out of trouble with the IRS.

Purchasing Property in Australia

Yes, Americans can purchase property in Australia, but there are guidelines to abide by:

Approval First

If you’re not an Australian permanent resident, you’ll probably need approval from the Foreign Investment Review Board (FIRB) prior to buying residential property. This is a typical procedure for foreign buyers.

Tax Implications

1. In Australia: You will pay capital gains tax when you sell and income tax if you are renting it out.
2. In the U.S.: The IRS wants you to report rental income and capital gains even if you have already paid tax in Australia.

And this is a catch: Australia might not charge you capital gains tax on your principal residence, but the U.S. could. If you make more than $250,000 (single) or $500,000 (married filing jointly), you may have to pay U.S. tax.

Superannuation: Australia’s Retirement System

The Australia’s Super or Superannuation is equivalent of a retirement system. It’s an excellent method of saving for the future, but for American citizens, it’s not as easy as it appears.

How It Works

Your employer puts money into your super fund, and you can put in extra voluntarily. It accrues tax-free in Australia and is normally tax-free when you take it out.

What the IRS Thinks

This is where the problem comes in: the IRS doesn’t treat super as a 401(k). Rather, it commonly views it as a foreign trust, which results in:

• You might have to report Form 3520 and 3520-A annually.
• If your super holds investments like ETFs or managed funds, you might also need to file Form 8621 for each one.

And if you roll over your super to a new account, the IRS may treat it as two separate transactions: a withdrawal and a new contribution. That could trigger unexpected taxes.

What You Can Do

• Know what type of super fund you have (corporate vs. self-managed).
• Report correctly and growth contributions.
• Seek assistance from a tax professional familiar with both U.S. and Australian regulations—such as the experts at Expat US Tax.

Australia’s Trusts: A Tax Minefield for U.S. Expats

Trusts are frequent in Australia, particularly among families and small companies. But for American citizens, they can prove to be a minefield.

IRS Perspective

The vast majority of Australian trusts are considered to be foreign grantor trusts by the IRS. That implies:

• All the income in the trust is taxed to the person who benefits from it.
• You’ll need to report annually on Forms 3520 and 3520-A.

If the trust has foreign mutual funds or unit trusts, they could be treated as PFICs, which have additional reporting and possibly draconian tax treatment.

Common Pitfalls

1. Double taxation: You could end up paying tax twice if you’re not careful.
2. Missed filings: Failing to report a trust can result in more than $10,000 in penalties.

Pro Tip

Consult a cross-border tax professional before establishing or investing in a trust. Guessing isn’t worth the risk when there’s the IRS involved.

U.S. Tax Reporting for Australian Investments

Here’s a brief checklist of forms you may need:

• Form 1040 – Your principal U.S. tax return.
• Schedule E – For rental income.
• Form 8938 – For foreign assets above specific thresholds.
• FBAR (FinCEN Form 114) – In case your foreign accounts exceed $10,000.
• Form 3520/3520-A – For foreign trusts and superannuation.
• Form 8621 – For PFICs such as managed funds or unit trusts.

Final Thoughts

Investing in Australia as a U.S. citizen can be rewarding—but it’s not without its challenges. From property to superannuation to trusts, each investment comes with its own set of tax rules. And the IRS wants to know about all of them.

The best part? You don’t need to do it on your own. Expat US Tax offers expertise in keeping Americans abroad compliant and making the most of their financial opportunities. Whether you are beginning or already well into your investment career, expert advice can save you time, money, and stress.