The IRS changes the US tax laws every year and these changes can impact your overseas expat taxes.  These changes generally will affect the exclusions and deductions, deadlines and tax rates that individuals will face when it comes time to file their overseas expat tax return and can be difficult to keep up with.  While no single taxpayer can reasonably be responsible for knowing every change in tax law in any given year, being aware of the important tax changes is critical to staying compliant with the IRS, saving money on your US taxes and effectively planning for your financial future.

The Exclusions and Deductions

The IRS adjusts the Foreign Earned Income Exclusion and the Foreign Housing Exclusion annually to keep up with inflation worldwide.  For the 2011 tax year, the IRS introduced modest increases to both which allow expatriates to exclude more of their foreign earned income than when compared with the 2010 tax year.  

The Foreign Earned Income Exclusion has been increased from $91,500 in the 2010 tax year to $92,900 in the 2011 tax year.  For married taxpayers, the exclusion is increased to $185,800 from 2010’s $183,000. Note that any income that is not earned income is not eligible for these exclusions.   

The Foreign Housing Exclusion has also increased to $27,870 from $27.450 in 2010.  The foreign housing exclusion is based on the Foreign Earned Income Exclusion, but for certain high cost areas such as London, Paris, Hong Kong, and about 400 other places the limit can be significantly higher.  The changes from both of these exclusions could result in a significantly lower tax burden on your overseas expat taxes. 

2011 Overseas Tax Return Deadlines

The IRS typically uses April 15th as tax day, but when there are weekends and holidays involved, the tax day can be pushed back a few days.  This is exactly the case in 2012, meaning that 2011 expat tax returns are going to have slightly different tax due dates than they normally would.  The filing deadlines for expat tax returns for the 2011 tax year are as follows:

• US Federal Income Tax Return – April 17th
• State Tax Returns for Expats (if applicable) – April 17th
• Automatic filing extension for expats – June 15th
• FBAR (Report of Foreign Bank and Financial Accounts) filing deadline: June 30th
• For expats with approved extensions - October 15th

If you plan on filing for an October 15th extension, be sure to file for the necessary forms before the expat tax due date listed above.  Take note that even if you are taking advantage of the automatic extension for expats, taxes are to be paid on April 17th. 

Foreign Bank Accounts

While overseas tax returns have always had additional requirements such as the FBAR, the IRS introduced a new filing requirement for the 2011 tax year for individuals with significant accounts overseas.  The IRS requires all taxpayers to file Form 8938 if the accounts overseas are above the thresholds.  The thresholds are much higher than the FBAR filed with the Treasury Department, but will still introduce a new filing requirement for those individuals with significant funds overseas. 

2011 Overseas Tax Return

There are some other small changes that expats should be aware of regarding their overseas expat taxes in 2011. 

• For the first time, employers were required to report health care benefits for employees.  This will not directly affect your taxable income, but it will be included on your W-2 or other foreign income statements and must be reported to the IRS. 
• Capital gains are still going to be taxed at the lower rates from the 2010 tax year. 
• The personal exemption has increased to $3,700 in the 2011 tax year, a modest increase of $50.
• If you rent property at home or abroad, plumbers, lawn care or other services costing more than $600 must be reported via Form 1099-B due to the new health care bills. 

Changes on Your Overseas Tax Return

If you are unclear about how these changes will affect your 2011 overseas expat taxes, we strongly recommend discussing your tax situation and the changes for the tax year with an expert expat tax advisor.