How to Navigate Work Abroad While Maximizing Tax Benefits

Updated: February 19, 2025 by Michael Kahn. Published: February 19, 2025.

For those that work abroad, it’s exciting that anyone can work from just about anywhere in today’s digital world. While you may be traveling to your dream destination and earning income in the process, you may be concerned about taxes.

This guide will help you navigate that aspect of your work while showing you how to maximize any tax benefits that are available to you. You will learn about the numerous tax obligations US expats contend with on a regular basis – so let’s get started with what you need to know right now.

Knowing US Tax Obligations For Expats

If you are a United States citizen working abroad, you are still subject to taxes even if you live elsewhere for a period of time. Here’s the thing: when you file for taxes, you’ll want to be aware of any tax obligations that are available to US expats including:

• Foreign Earned Income Exclusion (FEIE): This will give qualified individuals an opportunity to exclude a certain amount of income they have earned abroad from US taxation. You can find out how to qualify for FEIE so you can be better prepared when the time comes to file taxes later on in this guide.

• Foreign Tax Credit (FTC): This will allow you a dollar-for-dollar credit for any taxes you pay to the government of where you are working abroad.

• Foreign housing exclusion/deduction: This obligation will help you with any housing expenses that are accrued overseas. You can use them as a US tax deduction if they qualify.

As such, knowing these tax obligations will give you enough knowledge of what to do when the time comes to file taxes (especially if you file early). While you may qualify for a lesser tax bill, it’s never a bad idea to see what kind of relief you could get.

How Do You Qualify For FEIE?

Moving further with FEIE, it’s important to discuss what are the best ways to reduce your tax liability in the US. It is important that you meet some of the requirements to qualify for FEIE including:

• Physical Presence Test: This will require a US taxpayer to be inside a foreign country for 300 full days within a 12 month period.

• Bona Fide Residence Test: Here, the taxpayer must have a permanent residence established in the country they’re in for a whole tax year.

If you meet these requirements, you will be likely qualified for FEIE. Therefore, you will be able to exclude a certain amount of income from foreign taxation.

What Are Some Key Tax Strategies for US Expats?

Now that you have an idea of what tax benefits you may qualify for, we’ll turn our attention to some key tax strategies. This will allow you to make sure you are making the most out of any tax benefits that may be afforded to you. They include but are not limited to the following:

• Determine best residency options: One important thing to look for are any tax treaties that may exist between the US and your destination of choice. Establishing tax residency abroad will allow you to take advantage of any local benefits. As such, some countries have treaties where double taxation is prevented (meaning you won’t have to pay both local and US taxes).

• Keep track of your time: In order to qualify for FEIE and meet the Physical Presence Test, keep track of your time in a thorough manner to prove that you have met such requirements. Document your travel dates, the location, and keep a travel calendar handy. Also, a tax tracking app will help you make sure you have met the 330-day rule.

• Be compliant with IRS forms: There are several IRS forms that you will need to have handy as a US expat working abroad. They include Form 2555 (claiming FEIE and Foreign Housing Exclusion, Form 1116 (Foreign Tax Credit) , FBAR (FinCEN Form 114 ; for those with foreign financial accounts with $10000+), and Form 8939 (if you have significant foreign assets).

• Consider a tax-advantaged account: Accounts like 401(k)s, Roth IRAs, and even local retirement accounts might be useful here. Be sure that you are aware of any cross-border tax rules so you can make sure these accounts are tax efficient.

Final Thoughts

If you work abroad as a US expat, it is important to make sure that you qualify for any tax benefits that fit you. While the tax situation while living abroad can be complicated, this guide should be able to help you navigate through the challenges.

If you are considering traveling abroad, make sure that the country you intend to expatriate to has a tax treaty with the US so you will be able to deal with fewer challenges when it comes time to file your taxes.