7 Expat-level money and tax mistakes travelers overlook

Long trip turns into real life abroad? The tax rules don’t take a holiday.

The US taxes by citizenship. If you’re an American overseas, you still file Form 1040 and report worldwide income – even when you owe zero. Why? Because relief comes from FEIE or the Foreign Tax Credit. Not from skipping the return.

I hear the same questions all the time: “I’m in Lisbon – do I still file?” Yes.

Common mistakes I see:

• Skipping foreign account reporting.
• Picking FEIE when FTC would save more.
• Cutting state ties the wrong way.

The fix? A simple plan. Track income and travel days. Decide FEIE vs. FTC early. Keep your state paperwork clean.

Do that, and US citizen living abroad taxes get predictable. Which means you can focus on the life you moved for.

1. The biggest myth: “I’m abroad, so US rules don’t apply.”

They do.

Even if you owe $0 after credits or exclusions, you still must file and report. Filing depends on your gross income and filing status – not your GPS pin.

What counts?
Under tax for expatriates rules, your worldwide income qualifies. Wages. Freelance profit. Interest and dividends. Rent. It all goes on Form 1040.

Deadlines:

• Living abroad? You get an automatic 2-month extension (usually to June 15).
• Need more time? File another extension.
• Important: Interest on any balance starts from April.
  

Skip filing because “I paid foreign tax”? Risky. Late-filing penalties. Plus trouble with FBAR/FATCA reporting.

Do this now:

1. Confirm you’re required to file.
2. Collect local wage slips and bank interest.
3. Decide early: FEIE or FTC?
4. Track state residency ties.
5. Calendar the federal deadline – and your extensions.

2. Misusing the FEIE (or thinking it covers everything)

The Foreign Earned Income Exclusion (FEIE) can shield a big chunk of earned income. Salary. Freelance pay. That’s it.

But you must qualify:

• Physical Presence Test: ~330 full days abroad in any 12-month span.
• Bona Fide Residence Test: You truly live abroad for a full tax year (facts and intent).

What FEIE doesn’t cover:

• Pensions, dividends, interest, capital gains. Not “earned.”
• Self-employment tax. FEIE reduces income tax, not Social Security/Medicare. A totalization agreement can help – if you get a certificate of coverage.

Easy-to-miss errors:

• Skipping Form 2555.
• Blowing the 330-day count with a quick US visit. Weddings. Work trips. Emergencies.

A common scenario: you’re at 315 days abroad. Two surprise trips home. Result? No FEIE that year.

Pro moves:

1. Keep a simple day log (flight emails + passport stamps).
2. Put school breaks and family events on a travel calendar.
3. Before filing, check if FEIE or the Foreign Tax Credit saves more.

3. Don’t stack FEIE and the Foreign Tax Credit on the same dollars

Both tools cut US tax. But not together on the same income.
Exclude wages with FEIE (Form 2555)? Then you can’t also claim the Foreign Tax Credit (FTC) (Form 1116) on those wages.
Double-dip = audit magnet.

So choose smart, not both:

• High foreign tax rate? Lean FTC. You may create carryovers for future years.
• Low- or no-tax country? FEIE (plus the housing exclusion/deduction) often wins.
  

One more wrinkle: Child tax credits. FEIE can shrink or block refundable amounts. An FTC path may keep them alive.

Do this before filing:

1. Run two quick scenarios (FEIE vs. FTC) with your full year – salary, bonus, equity vests, moving allowances.
2. Pick the path with the lower total US tax and better future credits.
3. Then stick with it. No regrets.

4. Forgetting FBAR & FATCA (foreign account reporting)

Two rules. Easy to miss.

• FBAR (FinCEN 114). If your non-US accounts totaled over $10,000 at any point in the year, you file. That’s the aggregate across all accounts – checking, savings, brokerage, some pensions – and even accounts you can sign on.
• FATCA (Form 8938). Higher thresholds for expats (think six figures). Filed with your tax return. Covers more asset types.
  

These are reporting forms – not extra tax. The risk? Big penalties if you skip them.

Do this:

1. Log each account’s year-end and highest balance.
2. Include joint, spouse, and employer signature accounts.
3. Make your FBAR list match your Form 8938 list.
4. Missed years non-willfully? Ask about the IRS Streamlined program before you file.

5. Cutting state ties incorrectly (the “sticky state” surprise)

Moving abroad doesn’t erase state taxes. Not by itself.

Some places are sticky – like gum on your shoe. Think CA, NY, VA, SC, NM. Keep ties and they may still call you a resident.

What counts as a tie?

• A home you can use
  Driver’s license or voter registration
• Kids in local schools
• Mail and banking there
• Ongoing business activity
  

Even as a nonresident, you owe tax on state-source income (rentals, K-1s, in-state work).

Do this before you fly:

1. Set a new domicile: lease or home outside the old state.
2. Swap your license and voter reg.
3. Move banking and professional mail.
4. Update insurance, doctors, school records.
5. Keeping property? Use an arm’s-length rental and keep records.

No-income-tax states (FL, TX, etc.) help. But proof beats promises. Paper trail > intention.

6. Assuming FEIE cancels self-employment tax

FEIE cuts income tax. It doesn’t wipe out self-employment (SE) tax.

If you’re a contractor abroad, expect roughly 15.3% on net profit (up to the Social Security wage base). Even in Bali. Even in Berlin.

Two ways to ease the hit:

• Totalization agreement. Paying into the other country’s system? Get a certificate of coverage. That usually stops US SE tax for that period.
• Entity wages. Running a company? Paying reasonable wages can change the math. It’s complex – get advice first.
  

Don’t assume a local “freelancer” card changes US rules.

Pro moves:

1. Forecast quarterly.
2. Set aside cash for SE tax.
3. Coordinate payroll/coverage early – fixing it after year-end hurts.
   

Quick example: Designer in Portugal, no certificate? That FEIE won’t stop SE tax.

7. Buying local mutual funds/pensions that trigger PFIC headaches

That “simple” local fund? Could be a trap.

Many non-US mutual funds, ETFs, and insurance-wrapped products are PFICs. The default tax treatment is punitive. Think interest charges on “excess” payouts. Plus Form 8621 – often one per fund, per year.

You can elect QEF or mark-to-market to soften it. But those need timely paperwork from the fund. Miss it, and you’re stuck.

Foreign pensions? Another curveball. Tax-deferred doesn’t always mean tax-deferred here. And the pension’s internal funds can be PFICs too.

A quick picture: you buy a friendly local index fund in Paris. Low fees. Nice brochure. For the IRS? PFIC.

Use these guardrails:

1. Favor US-domiciled funds/ETFs in a US brokerage.
2. Get written confirmation before buying non-US funds.
3. Check treaty and pension rules before contributing.
4. Keep statements showing year-end and highest balances.

Ready to keep this simple?

Start with tax for expatriates for a quick primer. Then talk to Taxes for Expats (TFX)—real humans, not bots.
We’ll review FEIE vs. FTC, FBAR/FATCA, state ties, SE tax, and PFIC risk—before deadlines hit.

Why TFX? 20+ years. 50,000+ returns. 90% retention.
Clear steps. Fewer surprises. More time for the life you moved for.

Photo by Anastasiia Nelen on Unsplash