It’s daunting to file your US tax return for the first time while in Australia, as if you are reading two rulebooks at a time, one from the ATO and the other from the IRS. As an expat American, even if you are paying Australian tax, you need to file a tax return with the US every year. That comes as a shock to most new expats.
This is a step-by-step guide written specifically for newbie US tax filers in Australia, with real-world guidance to help you stay compliant, avoid penalties, and understand foreign tax credits (without losing your mind).
1. Yes, You Still Need to File a US Tax Return
Perhaps the most widespread myth is that when you expatriate, you can just forget about filing with the IRS. Unfortunately, the US taxes its citizens, not residents.
If you’re an Australian citizen Green Card holder or US citizen, you’ll list your worldwide income on Form 1040 just as if you were living stateside.
2. Take Advantage of the Automatic Extension
American expats are given an automatic 2-month extension time to file from April 15 to June 15. But if you need more time, you can file Form 4868 for a filing extension to October 15.
Remember: this is an extension to file, not pay. If you owe tax, interest will continue to accrue starting April 15.
3. Know When to Claim Foreign Tax Credit (FTC) or Foreign Earned Income Exclusion (FEIE)
These are your two best tools for keeping double taxation at bay:
- Foreign Tax Credit (Form 1116): Enables you to subtract the tax already paid in Australia from your US tax bill.
- Foreign Earned Income Exclusion (Form 2555): Allows you to exclude some of your foreign income from US taxation.
|
The FTC will be more useful for most expats in Australia as Australian tax rates tend to be higher than US tax rates. |
4. Don’t Forget the FBAR
If you own foreign financial institution accounts (including Australian bank accounts, superannuation funds, and even investment accounts), and the total is US$10,000 or greater at any time during the year, you must file an FBAR (FinCEN Form 114).
It’s a separate form from your tax return and carries huge penalties for failure to comply, even for honest mistakes.
5. You Might Need to File Form 8938 (FATCA)
This form is similar to the FBAR, but the thresholds are higher, and it’s filed with your tax return. If your foreign assets exceed:
- US$200,000 for single filers abroad
- US$400,000 for married filers abroad
…you’ll need to include Form 8938 in your return.
6. Superannuation Is a Gray Area
Australian super funds (your retirement savings) are not clearly defined in US tax law. Some experts treat them as foreign grantor trusts, which might trigger complex forms like 3520 and 3520-A.
Don’t guess! Get advice before including (or excluding) your super in your return.
7. Track Your Residency for Tax Breaks
To qualify for the FEIE, you’ll need to meet either:
- The Physical Presence Test (330 days away from the US in any 12-month period), or
- The Bona Fide Residence Test (you’ve been in Australia for a complete tax year and plan to remain)
If you’re new to Australia or visited the US frequently, you may not meet the test, so maintain proper records.
8. Be Mindful of State Tax Ties
Some US states (like California and New York) are “sticky” tax homes. If you have not clearly severed ties, you could still be taxed by the state.
Make sure you have changed your driver’s license, voter registration, mail address, and other records to your foreign move.
9. Use a Tax Professional Who Has Knowledge of Both US and Australian Tax Systems
You don’t need someone who will only prepare domestic US returns. Expatriate filing has cross-border rules, international tax treaties, and other forms that most accountants are not familiar with.
A competent expat tax expert can help you steer clear of unnecessary forms or overreporting income that can be treated differently under the US-Australia tax treaty.
10. Consider the Streamlined Filing Procedures If You Haven’t Filed Yet
If you’ve been abroad in Australia for awhile but didn’t know you were supposed to report US taxes, you can bring your return current penalty-free under the IRS Streamlined Filing Compliance Procedures–provided your failure to do so was non-willful.
Final Word: Don’t Put It Off
First-time filing of US taxes while living abroad can seem daunting, but it’s within reach with the right guidance and preparation. You don’t need to wake up an overnight expert, but you do need to file in order to avoid trouble and hassle down the road.
If you’re not sure, start with a consultation from a US expat tax Australia specialist firm and avoid the guesswork.
Be the first to comment