Preparing and filing US taxes while living in Australia can be a complicated process. Then, combine this with Australia’s tax system, and the potential for mistakes grows exponentially.
Mistakes in reporting foreign income, claiming deductions, or meeting additional requirements like FATCA and FBAR can lead to hefty penalties, double taxation, or even an audit. So, it’s very beneficial to avoid mistakes to save time and a lot of money. Here are some common mistakes to consider:
Failing to File US Taxes Altogether
The US is one of the only countries in the world that taxes its citizens on their worldwide income, regardless of where they live and many US expats are not aware of this, resulting in penalties, interest on unpaid taxes, and potential legal action by the IRS.
It is important to note that even if an individual owes no taxes due to exclusions or credits, they are still legally required to file.
How to Avoid It:
Take advantage of IRS programs, such as the Streamlined Filing Compliance Procedures, to catch up on missed filing in prior years.
Then they can file their tax return annually. Take the time to understand that tax filing obligations continue even if a US citizen permanently relocates to Australia.
Missing the Filing Deadlines
Since Australia’s tax year (July 1 to June 30) differs from the US tax year (January 1 to December 31), many US expats miss the deadlines and ultimately, confusion about extensions can lead to late filings.
Late filings can result in penalties, including the Failure-to-File Penalty (5% of unpaid taxes per month, up to 25%) and the Failure-to-Pay Penalty (0.5% of unpaid taxes per month).
How to Avoid It:
Mark the key dates of both the US and Australian tax deadlines or use tax software or hire a professional to help keep track of deadlines.
Important deadlines
- April 15, 2025: Standard US filing deadline.
- June 16, 2025: Automatic two-month extension for expats.
- October 15, 2025: Final deadline with an extension (Form 4868).
- October 31, 2025: Standard AUS filing deadline.
Forgetting to Report Foreign Income
Some expats assume they only need to report income from the US. However, the IRS requires worldwide income, including wages, rental income, dividends, and pensions earned in Australia.
Failing to report foreign income can trigger penalties, interest, or even an IRS audit. It could also prevent individuals from properly claiming credits or exclusions to offset their US tax liability.
How to Avoid It:
Keep thorough records of earnings, particularly those paid in Australian dollars, which will be converted to US dollars later. (Use IRS-approved exchange rates to report income in US dollars accurately.)
Report all sources of income earned in Australia, including wages, self-employment income, and investment income.
Ignoring FBAR and FATCA Requirements
Many US citizens are not aware of the additional requirements needed when they work or reside abroad. Requirements like the FBAR (Foreign Bank Account Report) and FATCA (Foreign Account Tax Compliance Act) are imposed by the IRS to increase awareness and transparency of foreign financial accounts and assets.
US expats must report their foreign assets when they exceed US$10,000 at any point during the year for FBAR and US$200,000 (single filers) or US$400,000 (joint filers) on financial assets for FATCA
How to Avoid It:
US expats must remember to file FinCEN Form 114 (FBAR) and Form 8938 (FATCA) with their US tax return to avoid penalties ranging from US$10,000 to up to 50% of the account value for willful violations.
Keeping track of the balances in their Australian bank accounts, superannuation accounts, and other financial assets will also be beneficial in completing these forms.
Misreporting Australian Superannuation Accounts
Australian superannuation accounts are another source of confusion for US expats. It is important to note that the US does not automatically recognize superannuation as a tax-free retirement account, which can lead to reporting errors.
So, misreporting superannuation contributions, earnings, or distributions can trigger IRS penalties or double taxation.
How to Avoid It:
Consulting a tax professional who understands the complexities of Australian superannuation and US tax law would greatly help compliance and stay updated on IRS guidance regarding superannuation.
Ignoring Currency Exchange Rates
Another factor that US expats are overlooking is converting their Australian income, expenses, and taxes into the US. dollars using the correct exchange rates. Incorrect currency conversions can result in errors on the US tax return, potentially triggering an audit or penalties.
How to Avoid It:
There is a yearly average exchange rate for income and deductions that US citizens are free to use unless the IRS requires a specific rate for a particular transaction.
Conclusion
Filing US taxes from Australia is truly a complex process with all the additional requirements and considerations. However, staying informed and proactive about these requirements and the overall filing process can help make taxes manageable.
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Contact Person: Clark Stott
Organization: Expat Tax Online
Email: hello@expattaxonline.com
Website: https://www.expattaxonline.com/
Address: AUSTIN: 5900 Balcones Drive, Ste 5037 Austin, TX 78731
