Your U.S. tax abroad is decided before the return is filed.
The return records decisions: which double-tax shield you elect, how your investments are wrapped, what your business looks like to the IRS, and whether your old state has actually let go. Get those right and the annual filing is routine. Get them wrong and no amount of good preparation fixes it in April. I work the decisions — the return is the output.
- FEIE vs. FTC — an election, not a default
- PFIC — how foreign funds are wrapped
- 5471 / 8858 — what your company looks like to the IRS
- Totalization — whose social system you pay
- State domicile — the door you left open
Three decisions do most of the work.
Almost everything in an expat return traces back to three levers. Most preparers fill in forms downstream of them. The value is upstream.
1 · The income lever — exclusion or credit
Two answers to the same double-tax problem, and the choice compounds.
- The exclusion (FEIE) shelters the first $130,000 of foreign salary (2025) — but blocks IRA contributions, kills the refundable Child Tax Credit, and revoking it locks you out for five years.
- The credit (FTC) offsets U.S. tax dollar-for-dollar with foreign tax — in high-tax countries it usually wins, and excess credits carry forward ten years.
- Both on one return is often the real answer, each covering different income.
I model both paths on your actual numbers before electing anything — because the election is the strategy.
Run the quick estimate yourself, or have me model both paths on your actual numbers.
2 · The investment lever — what your money is wrapped in
The wrapper decides the tax more than the returns do.
- Most non-U.S. funds are PFICs — including Golden Visa funds and ordinary European ETFs. The default regime: highest ordinary rates, an interest charge, and Form 8621 per fund, per year.
- The fix is electable — but only in year one, and only if the fund publishes the required statement. Most European funds don’t.
- Same trap, quieter forms: assurance vie, unit-linked policies, and local tax-advantaged accounts the U.S. doesn’t recognize.
The right answer is cheapest before you subscribe. Your immigration attorney handles the visa perfectly — this is the piece that isn’t their job.
3 · The structure lever — your business, seen from the IRS
Work for yourself abroad and two systems claim you at once. Two questions decide the outcome:
- Is there a totalization agreement? Portugal and Canada: one social system, with a certificate. Mexico: no agreement — the full 15.3% U.S. self-employment tax applies, and the exclusion doesn’t touch it.
- What is your company to the IRS? A unipessoal Lda can be a corporation, partnership, or disregarded entity depending on an election — deciding between Form 5471 with GILTI exposure, 8865, or 8858.
- The penalties for guessing wrong start at five figures per form, per year.
The structure gets decided deliberately, once — not discovered at filing time.
Where you live changes the answer.
Portugal
The credit usually beats the exclusion at Portuguese rates. NHR is closed to new applicants — the successor regime (IFICI) covers qualifying professional income but not pensions, so the planning that worked in 2022 doesn’t transfer. The recurring issue I see: Golden Visa fund subscriptions signed without anyone flagging PFIC, and unipessoal Lda structures left on the default classification. Both are cheapest to fix early, and one of them is fixable only early.
Mexico
No totalization agreement — the single most expensive surprise for self-employed Americans in Mexico, because U.S. self-employment tax applies in full regardless of the exclusion. The good news is structural: the fideicomiso that holds your coastal property is not a foreign trust to the IRS, so the reporting scare stories about it are wrong. Residency under Mexico’s center-of-vital-interests test deserves attention before you trigger it, not after.
Canada
A credit country almost every time — Canadian rates generate excess credits that carry forward. The traps are account-level: the TFSA is tax-free in Canada and fully taxable in the U.S., Canadian mutual funds and ETFs are PFICs even inside a TFSA, while the RRSP enjoys treaty protection. Same investor, three accounts, three completely different U.S. answers — which is the whole argument for deciding account structure deliberately.
The reporting layer: disclosure, not tax.
Alongside the return sits a stack of information filings — FBAR for foreign accounts over $10,000 aggregate, Form 8938 above its thresholds, Form 8621 for the funds, 5471/8858 for the entities, 3520 for foreign gifts and trusts. None of them is a tax. All of them carry penalties for silence. The strategy here is unglamorous and effective: build the complete map of accounts, entities, and holdings once, and the filings become mechanical — the same inventory feeding the same forms every year, nothing discovered in a panic. That map is part of every engagement I run.
Moving abroad? The first-year moves matter most.
The expensive mistakes happen in year one, mostly by omission:
- Close the state door properly. California, Virginia, South Carolina, and New Mexico in particular keep taxing until domicile is actually broken — leases, licenses, registrations, the works. Leaving is a fact pattern, not a feeling.
- Time the move against the tests. The physical-presence window and the bona-fide-residence calendar decide when the exclusion starts working — a move dated thoughtfully can be worth a five-figure difference in the first year.
- Restructure investments before you leave, not after. U.S.-domiciled funds are fine to keep; opening the local bank’s "investment product" after arrival is how PFIC problems start.
- Stop the double withholding. A U.S. employer keeps withholding unless you hand them Form 673; the self-employed need the totalization answer before the first estimated payment.
- Decide the entity shape before revenue. The classification election is clean when the company is new and messy when it isn’t.
I run this as a fixed-scope pre-move engagement. It’s the cheapest tax planning you’ll ever buy, because everything above is harder in year two.
Behind from abroad? There’s a defined path.
If you’ve just learned Americans abroad still file, you’re in the most common situation in expat tax, and the IRS has its own route back: the Streamlined Filing Compliance Procedures — three years of returns, six of FBARs, and for most non-willful filers abroad, no penalty. It’s careful work with real qualification questions, and I’ll tell you honestly whether it’s your best route or overkill. Estimate your situation with the streamlined tool → or book a consult and we’ll assess it properly.
How working together goes.
It starts with a consult, not a form. We map your situation — income, accounts, entities, country — and I come back with the plan: which elections, what restructuring if any, what the disclosure stack looks like, and what the return will cost. Then the return itself is execution. Most clients stay on an annual rhythm where the strategy conversation happens before year-end, when the moves are still available, and filing season just records them.
Why this practice for expat work
- Strategy first. The election, the wrapper, the entity shape — decided deliberately, then executed. The return is the output, not the product.
- The main event. Cross-border is the core of this practice, not the annual exception. PFIC, GILTI, §962, treaty positions — this is the water I swim in.
- Remote by design. The practice runs across time zones as its normal state, with a document system built for it.
Questions Americans abroad actually ask
Do I still file U.S. taxes if I live abroad and pay tax locally?
Yes. The U.S. taxes citizens and green-card holders on worldwide income wherever they live. The FEIE, foreign tax credits, and treaties usually eliminate double tax — but the filing obligation, and the disclosure stack, remain.
Which is better — the exclusion or the foreign tax credit?
It depends on your country’s rates, your income mix, and your credits — and the choice is sticky: revoking the exclusion locks you out for five years. High-tax countries usually favor the credit; the honest answer comes from modeling both on your numbers, which is exactly what I do before electing.
Are foreign mutual funds really a problem?
Usually, yes. Most non-U.S. funds — including Golden Visa funds and ordinary European ETFs — are PFICs, with a punitive default regime and a narrow election window. The fix is structural: choose the wrapper before you invest, or act in the first year if you already have.
I’m self-employed abroad — do I owe U.S. Social Security too?
It depends entirely on whether your country has a totalization agreement. Portugal and Canada: one system, with a certificate. Mexico and many others: both systems, and the exclusion doesn’t reduce it. This is the most commonly missed five-figure item in expat returns.
Does Portugal’s NHR (or IFICI) change my U.S. taxes?
Not directly — the U.S. taxes you regardless of Portuguese incentives. What it changes is the interaction: a low Portuguese rate means less foreign tax to credit, which can shift the FEIE/FTC answer and leave U.S. residual tax where none was expected. The two systems have to be planned together.
I’m years behind. How bad is it?
Usually far less bad than the search results suggest. For non-willful Americans abroad, the streamlined program is typically penalty-free. The work is in qualifying properly — start with a consult, not a panic.