End-of-year tax planning is essential for American expat tax planning, as U.S. citizens living abroad face unique tax challenges and obligations. From determining residency status to maximizing credits and deductions, proactive planning can help you minimize liability and stay compliant.
Here’s your updated checklist to prepare for 2025.
Why End-of-Year Tax Planning Matters for U.S. Expats
U.S. expats must report and pay taxes on their worldwide income regardless of where they live. While the IRS provides up to three filing extensions beyond the April 15th deadline, it’s important for expats to establish a new filing routine once they’re set up in their new country.
Setting that routine will require understanding the tax filing deadlines of your new country and potentially connecting with a foreign tax preparer who has worked with American clients. You should also take care to ensure that you or your U.S. CPA are filing the necessary extensions to ensure a smooth filing in both countries.
Let’s look at a quick example
If you live in Switzerland, you would most likely complete your Swiss income tax return around the same time as the April 15th U.S. tax return deadline.
Since your U.S. CPA will need your foreign return to complete the U.S. filing, most expats elect to take the extension to October 15th, ensuring ample time for both Switzerland to process their Swiss return and their U.S. CPA to file their U.S. return.
2024 End-of-Year Tax Planning Checklist
The below list isn’t just for U.S. expats – it can also be used for Americans planning to move abroad in 2025. Have a read and if you have any questions about how to contextualize the information for your particular situation at the end, feel free to let us know.
Determine Your Tax Residency Status
If you have been living abroad in the same country for over a year, your tax residency is likely in that country. However, if you moved abroad during the year, you may want to work with a cross-border accountant to determine your tax residency for that year. While tax residency has no bearing on your obligation to file a U.S. tax return, it does have bearing on the filing strategy used by your U.S. CPA and foreign tax provider.
A few notes to get you started:
- If you are a U.S. citizen or green card holder, you are automatically considered a U.S. tax resident and must file a U.S. tax return, even if you live abroad.
- Expats meeting the substantial presence test may also be considered tax residents.
- If you are not a tax resident but have U.S.-sourced income (e.g., from a business), you may still need to file a return.
Action Item: Confirm your residency status and understand what filing obligations apply to you.
Maximize Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion (FEIE) allows expats to exclude up to $130,000 of earned income (2025 threshold) if they meet the bona fide residence or physical presence test.
This expat provision is typically best suited for Americans residing in countries with lower tax rates than those in the U.S.
Review Your Income and Deductions
Take time to review your income and deductions:
- Track qualified deductions and exclusions to reduce taxable income.
- Use this review to estimate your U.S. tax liability and determine if estimated payments are needed.
Make Estimated Tax Payments
If you expect to owe taxes, ensure you make estimated tax payments before year-end to avoid underpayment penalties.
- Even if you do not owe taxes domestically, expats often still need to make estimated payments.
- Adjust your withholding or make a lump sum payment by the deadline.
- The final estimated tax payment for 2024 is due on January 15, 2025 and can be paid online through your IRS account
Contribute to a Retirement Account
Contributing to retirement accounts can help optimize your tax position:
- Traditional IRA contributions may be tax-deductible, while Roth IRA contributions grow tax-free. How U.S. retirement account contributions are treated when you’re a tax resident in a foreign country will vary by country, so it’s important to carefully research your retirement savings strategy.
- Carefully review any foreign accounts you have acquired since moving abroad. U.S. expats need to tread extremely cautiously with respect to foreign savings, retirement, and investment accounts as standard best practices for foreign nationals in that country could trigger punitive filing and financial penalties for U.S. expats as a result of the IRS’ broad classification of what constitutes a passive foreign investment company (PFIC).
Tip: When making contributions to U.S. retirement accounts, you have until April 15th of the following year to make those toward the previous year’s contributions. As a current example, if you have not yet contributed the maximum of $7000 to your IRA, you have until April 15, 2025, to do so.
Evaluate Foreign Bank Account Reporting (FBAR)
If you have foreign bank accounts exceeding $10,000 at any point in the year, you must file an FBAR (FinCEN Form 114). This form is purely informational and straightforward to file, but its roots in preventing tax evasion make it critical to file lest you incur steep penalties.
Moreover, reviewing your foreign bank accounts is good practice for U.S. expats, particularly those who move abroad for work and may receive their salaries in foreign currency in a local bank account.
Plan for State Tax Obligations
Address lingering state residency issues to avoid unnecessary tax obligations. Certain U.S. states have stricter rules on residency for expats, even if you have moved abroad.
Strategies for Effective End-of-Year Tax Planning
On your own or with a cross-border financial planner, you should take stock of your U.S. investments. After reviewing the winners and losers and contextualizing that information against your overall portfolio health, you can implement tax-saving strategies such as loss harvesting to offset gains.
This is also the time to consider making charitable donations to reduce taxable income, and organize your personal storage files for the upcoming tax year.
By applying these end-of-year tax planning tips, you can optimize savings and simplify next year’s filing.
Looking Ahead to 2025: Will There Be a New U.S. Tax Plan for Expats?
President-elect Donald Trump made headlines on the campaign trail when he announced an interest in revising the current filing requirement for Americans living abroad. As media outlets rushed to discuss the implications, the international tax and financial community looked on closely, but not without skepticism (if we’re being honest).
Why We’re Skeptical
Any potential “Trump tax plan for expats” would require a sustained legislative effort to change the current rules, which are both complex and highly sophisticated thanks to decades of bipartisan work to make it difficult for wealthy U.S. taxpayers to avoid paying what they owe to the IRS.
While citizenship-based taxation and many provisions such as the FBAR and FATCA filings requirements make life challenging for everyday Americans, the reality is that providing relief for Americans living abroad has not historically been a priority for the U.S. government.
Of course, Trump’s reentrance to the White House in January 2025 will be a historic event, but, until and if he and his administration successfully draft and pass legislation that changes the rules, U.S. expats would do well to carry on with their tax planning as usual.
Recapping: Common Mistakes U.S. Expats Make During Tax Season
- Failing to file FBARs or report foreign income.
- Overlooking state tax obligations when moving abroad.
- Missing opportunities to claim exclusions, deductions, or foreign tax credits.
Final Thoughts on End-of-Year Tax Planning for Expats
End-of-year planning is critical to reducing tax liability and ensuring compliance. From reviewing your residency to contributing to retirement accounts, these steps help you start 2025 on the right financial footing.
If you need personalized guidance with American expat tax planning, consult an experienced professional. We specialize in serving expats in Switzerland and Germany. Schedule a free consultation today.