Tax Tip Tuesday: Year-End Planning for Expats

For U.S. citizens and green card holders living abroad, year-end tax planning is more than just checking a box—it’s about making smart choices to reduce tax burdens, stay compliant, and avoid costly penalties. The U.S. remains one of the few countries that taxes worldwide income regardless of residency, which makes planning especially important for expats and in-pats. As 2025 comes to a close, here are key areas to focus on.

1. Review Foreign Income and Credits

If you’ve earned wages, self-employment income, or passive income overseas, confirm that it’s properly documented. The Foreign Earned Income Exclusion (FEIE) under IRC §911 may allow you to exclude up to $126,500 (2024 limit; indexed annually), but you must meet either the Physical Presence Test or Bona Fide Residence Test. Even if you qualify, foreign tax credits (Form 1116) often provide a stronger benefit if you’ve paid tax abroad.

2. Don’t Overlook FBAR and FATCA

Expats with foreign bank or financial accounts must report them:

• FBAR (FinCEN Form 114): Required if foreign account balances exceeded $10,000 at any point during the year.

• FATCA (Form 8938): Kicks in at higher thresholds depending on filing status and residency.

  
  

Penalties for non-filing are steep, so confirming account balances before year-end is crucial.

3. Optimize Retirement and Pension Reporting

Many expats hold pensions, superannuation accounts, or foreign retirement savings. The IRS may treat these as foreign trusts, requiring Forms 3520/3520-A. Year-end is a good time to review treaty provisions, confirm contributions, and ensure required filings are prepared.

4. Plan for Exchange Rates

Income, account balances, and property transactions must be reported in U.S. dollars using Treasury year-end exchange rates. Fluctuations can affect taxable amounts, so capturing correct year-end balances can prevent discrepancies in reporting.

5. Coordinate With U.S. State Tax Obligations

Even if you’ve lived abroad for years, some states (like California or Virginia) may consider you a tax resident unless you formally cut ties. Year-end is a good time to review whether you’ve taken sufficient steps to establish nonresidency—such as moving voter registration, bank accounts, and property.

6. Entity and Business Planning

If you operate a foreign business, year-end planning is vital. U.S. owners of foreign corporations may face GILTI (Global Intangible Low-Taxed Income) under IRC §951A or Subpart F income inclusions. Year-end is the time to assess profits, retained earnings, and whether distributions or restructuring could reduce exposure.

7. Charitable Contributions and Deductions

Contributions to U.S.-recognized charities may be deductible, but donations to foreign organizations usually are not unless they meet treaty exceptions. If charitable giving is part of your year-end plan, ensure contributions are properly documented and eligible.

International taxes are complex, and expats face a unique set of year-end challenges. Planning ahead helps reduce surprises at tax time and ensures full compliance with IRS requirements. If you’re living abroad or planning an international move, reach out to info@mkhstaxgroup.com to get ahead of your 2025 filing.