12 expensive mistakes U.S. expats make on their taxes

Updated September 2026 · Covers 2025 returns (filed 2026) & 2026 planning · Sources: IRS Pub. 54, FBAR and Form 8938 instructions, Streamlined Filing Compliance Procedures · Spot an error?

Last reviewed September 2026 by Ken Hoven against IRS Publication 54, the current FBAR and Form 8938 instructions, and the Streamlined Filing Compliance Procedures pages. See editorial standards. Educational content only — not tax or legal advice.

I've filed U.S. returns from Qatar, India, and China, and I've watched a lot of other Americans abroad do the same. The expensive mistakes are rarely exotic. They're the same dozen, made by smart people who assumed the rules worked the way rules work everywhere else. Here they are, grouped by where they bite, with the fix for each.

Filing mistakes

1. Not filing because you don't owe anything

The single most common mistake, and the one that turns into a multi-year project. The FEIE and the Foreign Tax Credit are claimed on a return; they don't exist without one. If your gross income is above the threshold for your status — or you have $400 of self-employment income — you file, even when the result is $0. Do expats need to file? has the thresholds.

2. Treating June 15 as the payment deadline

The automatic two-month extension for people abroad moves the filing deadline. Interest on any balance due still runs from April 15. If you expect to owe — common for the self-employed and for people in low-tax countries — estimate and pay by April 15, then file by June 15. All the dates.

3. Ignoring your state

A handful of states treat you as still domiciled until you prove you've established a permanent home elsewhere. California, Virginia, New Mexico, and South Carolina come up most. If you left from one of those with a driver's license, voter registration, or property still in place, you may owe a state return years after you moved. Sever the ties deliberately before you leave, and keep the evidence.

FEIE mistakes

4. Assuming the exclusion is automatic

It's claimed on Form 2555, with a qualifying test and a tax home abroad. No form, no exclusion. And the amount — $130,000 for 2025, $132,900 for 2026 — is a ceiling, prorated in a partial year. FEIE guide.

5. Counting days by the calendar year

The Physical Presence Test needs 330 full days abroad in any 12-month window, which can start on any date and straddle two tax years. People who moved mid-year conclude they don't qualify when a shifted window would have worked. Arrival days, departure days, and U.S. layovers don't count as foreign days. How the 330-day rule actually works.

6. Taking the FEIE in a high-tax country

In France, Germany, the UK, Japan, or Canada, the Foreign Tax Credit usually beats the FEIE — it can wipe out the U.S. tax entirely and build carryforward credits, and it doesn't cap the excluded amount. The FEIE shines in low- or no-tax countries like the UAE, Qatar, or Singapore. Choosing wrong is a years-long decision because of the next mistake. FEIE vs FTC, and the calculator.

7. Revoking the FEIE without knowing about the five-year lockout

If you claim the FEIE and then switch to the FTC, you've revoked the exclusion — and you can't claim it again for five tax years without IRS consent. Expats who move from a high-tax country back to a low-tax one get caught by this. Decide the election with the next few years in mind, not just this return.

8. Thinking the FEIE covers self-employment tax

It doesn't. The exclusion removes income tax on foreign earned income; the 15.3% self-employment tax still applies to net self-employment earnings unless you're covered by a totalization agreement with your country of residence. Freelancers in the UAE or Thailand who owe 'nothing' under the FEIE often owe several thousand dollars of SE tax. Self-employment abroad.

Foreign account reporting mistakes

9. Missing the FBAR because each account was small

The $10,000 threshold is the combined peak balance of all foreign accounts during the year — checking, savings, brokerage, some pensions, and accounts you merely have signature authority over. Three accounts that each touched $4,000 add up to an FBAR. It's filed separately with FinCEN, not the IRS, and the penalties for non-willful failure start in the five figures per violation. Check your threshold, then the FBAR & FATCA guide.

10. Confusing FBAR with Form 8938 — or filing one and assuming it covers the other

Different agencies, different thresholds, different asset definitions, both potentially required. Form 8938 attaches to your return when specified foreign financial assets exceed $200,000 (year-end) or $300,000 (any time) for a single filer abroad — double that for joint filers. Many expats need FBAR only; some need both; a $10,000 penalty waits for the ones who skip 8938. Form 8938 guide and FATCA vs FBAR.

11. Buying local mutual funds or ETFs

Foreign-domiciled funds are usually PFICs — passive foreign investment companies — with a punitive U.S. tax regime and a Form 8621 per fund per year. A perfectly sensible local index fund can cost more in compliance than it earns. This is specialist territory; if you already own them, get a specialist before your next return rather than after.

The catch-up mistake

12. Quietly filing old returns instead of using the streamlined procedures

When people realize they've missed years, the instinct is to just file them and hope. The IRS calls that a quiet disclosure, and it forfeits the penalty protection you'd have had under the Streamlined Foreign Offshore Procedures — three years of returns, six years of FBARs, a non-willfulness statement on Form 14653, and every failure-to-file, failure-to-pay, information-return, and FBAR penalty waived. The program requires that you weren't already under examination and that the failure was non-willful, so it's for honest mistakes, which is what most of these are. The checklist and the cost tool show what it takes.

A ten-minute audit of your last three returns

Pull the last three years and check each of these. Any "no" is worth a closer look before the next filing season.

• Was a return filed for every year your gross income exceeded the threshold?
• Is there a Form 2555 or a Form 1116 on each return — and is it the right one for your country's tax rate?
• If you're self-employed, does Schedule SE show tax paid, or a totalization exemption statement?
• Did your combined foreign account balances ever exceed $10,000 that year? If yes, is there an FBAR on file with FinCEN?
• Did your foreign assets exceed the Form 8938 threshold? If yes, is 8938 attached?
• Do you own any foreign funds, a foreign company, or a foreign pension that might carry its own form?
• Is your state situation resolved — either a final part-year return or clear evidence you severed domicile?

When to stop doing it yourself

Salary, a few bank accounts, maybe a rental back home — that's software territory, and it's where most expats live. Hire a specialist when any of these show up: foreign mutual funds or ETFs, a foreign pension that isn't a simple employer plan, ownership of a foreign business, a treaty position you're relying on, more than a few years of unfiled returns, or any reason the IRS might argue a failure was willful. The cost of a specialist on those is small next to the penalties they prevent.

Frequently asked questions

What is the most common U.S. expat tax mistake?

Not filing at all because no tax is owed. The FEIE and Foreign Tax Credit only exist on a filed return, and the filing threshold is measured on gross income before the exclusion. Years of non-filing then have to be fixed through the streamlined procedures.

Is it a mistake to take the FEIE?

Not in itself — it's the right choice for most expats in low- or no-tax countries. It becomes a mistake in high-tax countries where the Foreign Tax Credit would eliminate the U.S. tax and build carryforward credits, and because switching away from the FEIE triggers a five-year lockout.

Can I fix a missed FBAR without penalties?

Often, yes. If you have no unreported income and the failure was non-willful, the delinquent FBAR submission procedures let you file the missing FBARs with an explanation. If you also have unfiled or incorrect returns, the Streamlined Foreign Offshore Procedures cover both and waive the penalties, provided you meet the non-residency test and were not already under examination.

Does the FEIE eliminate self-employment tax?

No. The FEIE excludes foreign earned income from income tax only. Self-employment tax of 15.3% still applies to net self-employment earnings unless a totalization agreement between the U.S. and your country of residence exempts you.

What is a quiet disclosure and why is it a mistake?

Filing past-due returns or FBARs without using a formal IRS program. It gives up the penalty waiver the streamlined procedures provide and can draw attention without protection. If you qualify as non-willful and meet the residency test, the streamlined route is the safer path.