As a US citizen, whether you’re living in the United States or abroad, managing your taxes can be challenging. If you’re living overseas, this challenge intensifies due to the unique tax laws that apply to expatriates. Two types of tax professionals are commonly sought for assistance: a US local accountant and a US expat tax accountant. While both are trained to handle US taxes, each has specialized knowledge suited to different situations. So, which one do you need?
What is a US Local Accountant?
A US local accountant is a tax professional who primarily serves clients within the United States. They are typically well-versed in the tax laws and regulations applicable to US citizens living in the country. Local accountants usually help with a wide range of tax-related matters, including:
- Individual tax returns (Form 1040)
- Business tax returns (Forms 1120 for corporations, 1065 for partnerships, etc.)
- Deductions and credits available to US citizens living in the US
- State and local tax issues
While a local accountant’s knowledge is comprehensive regarding US federal tax laws, they may not be familiar with the specific nuances of expatriate taxation, especially when it comes to dealing with foreign income, tax treaties, or tax filing requirements abroad.
What is a US Expat Tax Accountant?
A US expat tax accountant specializes in helping US citizens living abroad navigate the complexities of the US tax system as it applies to expatriates. US expat tax accountants are experts in the special rules and regulations that affect US taxpayers who live and work outside the United States. This includes, but is not limited to:
- Foreign Earned Income Exclusion (FEIE) – US expat tax accountants can help determine whether you qualify for the FEIE and how to apply it, reducing your taxable income if you meet certain criteria.
- Foreign Tax Credit (FTC) – If you’re paying taxes in another country, a US expat accountant can help you take advantage of the FTC to avoid double taxation.
- Tax Treaties – US expat tax accountants are familiar with tax treaties between the US and other countries, which can impact your US tax liability.
- Filing Requirements – Expatriates have different filing requirements compared to US residents. Expat tax accountants are knowledgeable about Form 2555 for the FEIE, Form 1116 for the FTC, Form 8938 for foreign assets, and FBAR reporting for foreign bank accounts.
- Social Security and Medicare taxes for expatriates – Understanding how these taxes work if you’re working in a foreign country, and whether you are exempt based on international agreements.
US expat tax accountants are particularly adept at handling the complex web of foreign income and tax treaties, ensuring that their clients comply with both US tax laws and the tax laws of the country they reside in.
Key Differences Between US Local Accountants and Expat Tax Accountants
| Area of Expertise | US Local Accountant | US Expat Tax Accountant |
| General Focus | Primarily focuses on US-based tax issues, including state and local taxes. | Specializes in taxes for US citizens living abroad, handling international tax laws. |
| Foreign Income | May not be familiar with how foreign income is taxed or reported under US tax law. | Expert in foreign income exclusion, reporting, and deductions. |
| Tax Treaties | May not be familiar with specific tax treaties between the US and other countries. | Knowledgeable in US tax treaties with specific countries and how they impact your taxes. |
| Tax Forms for Expats | May not be familiar with expatriate-specific forms such as Forms 2555, 8938, and FBAR. | Fully knowledgeable in expat-specific forms and filing requirements. |
| Foreign Tax Credit (FTC) | May not be well-versed in using the FTC to reduce double taxation. | Highly skilled in applying the Foreign Tax Credit and ensuring you don’t pay taxes twice on the same income. |
| Tax Filing Deadlines | May not be aware of special deadlines for expatriates, like the automatic 2-month extension for US citizens abroad. | Well-versed in the unique filing deadlines for expats, such as the June 15th extension and October 15th final deadline. |
When Should You Hire a US Local Accountant?
A US local accountant is a great choice if:
- You live and work in the United States – If you’re a US citizen residing in the country and only need help with domestic tax issues, a local accountant can handle your tax filings efficiently.
- You’re running a business in the US – Local accountants have extensive experience in business tax matters in the US, including state tax issues, corporate filings, and deductions that are applicable to US-based businesses.
- You have simple domestic tax issues – If you don’t have foreign income or complex international tax issues, a local accountant may be the ideal choice to handle your taxes.
- You’re dealing with state-specific tax concerns – If you live in a state with unique tax laws, such as California or New York, local accountants can help you navigate state-specific regulations.
When Should You Hire a US Expat Tax Accountant?
A US expat tax accountant is a must-have if:
- You live abroad – If you’re a US citizen residing in another country, you must comply with both US tax laws and the tax laws of your host country. A US expat tax accountant is well-versed in handling the complexities of both.
- You have foreign income – If you have income from foreign sources (employment, investments, business interests), a US expat tax accountant can help you correctly report that income and reduce your US tax liability through exclusions and credits.
- You want to avoid double taxation – They are experts in the Foreign Tax Credit (FTC) and can help ensure that you don’t end up paying taxes to both the US and your country of residence on the same income.
- You’re dealing with US tax treaties – They are familiar with international tax treaties and can help you navigate any tax-saving provisions available between the US and your host country.
- You need to comply with US expat filing requirements – US citizens abroad have unique filing requirements that include forms like Form 8938 for foreign assets and FBAR for foreign bank accounts. An expat tax accountant can ensure that you meet these requirements and avoid penalties.
How to Choose Between a US Local Accountant and a US Expat Tax Accountant
Choosing the right accountant ultimately depends on your situation. Here are some tips for deciding which one to hire:
- If you are living abroad, a US expat tax accountant is essential for ensuring compliance with both US and foreign tax laws, taking advantage of available exclusions, credits, and tax treaties.
- If you are living in the US and only need help with domestic tax filings or state-specific issues, a local accountant may be more than adequate.
- Consider a dual-service firm if you have complicated international tax issues but also need assistance with domestic taxes. Some firms specialize in both local and expat tax matters, offering the best of both worlds.
In conclusion, whether you need a US local accountant or an expat tax accountant depends largely on your specific tax situation. If you live in the US and deal with domestic tax matters, a local accountant is likely your best option. However, if you are a US citizen living abroad, managing foreign income, or taking advantage of international tax treaties and credits, a US expat tax accountant is essential to ensure your taxes are filed correctly and to minimize your tax burden.
At Universal Tax Professionals, we specialize in both domestic and international tax matters. Whether you need assistance with individual or business taxes, our team has the expertise to help.
