Navigating U.S. expat taxes can feel like a maze, especially with the unique tax obligations that come with living abroad. In 2025, U.S. citizens and green card holders living overseas must comply with complex IRS regulations, from reporting foreign income to disclosing international accounts. Unfortunately, many expats make costly mistakes that lead to penalties, missed savings, or audits. To help you stay compliant and maximize your tax benefits, we’ve outlined the top five tax mistakes U.S. expats make and how to avoid them.

1. Failing to Report All Foreign Income

One of the most common errors in U.S. expat taxes is neglecting to report all foreign-earned income. The U.S. taxes its citizens on worldwide income, meaning salaries, freelance earnings, rental income, or dividends from foreign sources must be reported. Some expats mistakenly believe that income earned abroad is exempt or that foreign taxes paid eliminate U.S. obligations.
Advice: Use IRS Form 2555 to claim the Foreign Earned Income Exclusion (FEIE), which allows you to exclude up to $130,000 (2025 limit) of foreign-earned income. Additionally, the Foreign Tax Credit (Form 1116) can offset U.S. tax liability with taxes paid abroad. Always report all income sources to avoid IRS penalties.

2. Missing Foreign Bank Account Reporting (FBAR)

Expats often overlook the requirement to file a Financial Crimes Enforcement Network (FinCEN) Form 114, known as the FBAR. If you have over $10,000 in foreign financial accounts at any point during the year, you must report them. Failure to file can result in penalties starting at $10,000 per account, even if the oversight was unintentional.
Advice: Track your foreign accounts, including bank accounts, pensions, and investment portfolios. File the FBAR electronically through the BSA E-Filing System by April 15, with an automatic extension to October 15. Consult a tax professional to ensure compliance with U.S. expat tax rules.

3. Ignoring the Streamlined Filing Compliance Procedures

Many expats who haven’t filed U.S. taxes for years assume they face severe consequences. However, they may qualify for the IRS’s Streamlined Filing Compliance Procedures, which allow non-willful delinquent filers to catch up without penalties. Ignoring this option can lead to unnecessary stress or harsher penalties later.
Advice: If you’re behind on filings, check eligibility for the streamlined program, which requires submitting three years of tax returns and six years of FBARs. Work with a tax advisor specializing in U.S. expat taxes to navigate this process smoothly.

4. Misunderstanding Tax Treaties

The U.S. has tax treaties with many countries to prevent double taxation, but expats often misinterpret these agreements or assume they automatically apply. Misunderstanding treaty benefits can lead to overpaying taxes or missing out on credits.
Advice: Research the specific tax treaty between the U.S. and your host country. For example, some treaties reduce withholding taxes on pensions or dividends. A tax professional can help you apply treaty provisions correctly to optimize your U.S. expat tax return.

5. Not Claiming the Child Tax Credit

Expats with children sometimes miss the Child Tax Credit (CTC), assuming it’s unavailable to those living abroad. In 2025, the CTC offers up to $2,000 per qualifying child, and it’s partially refundable, even for expats with little U.S. tax liability.
Advice: Ensure your children meet the IRS criteria (e.g., U.S. citizenship, residency, or dependency). Combine the CTC with other credits like the FEIE or Foreign Tax Credit to lower your tax burden.

Conclusion

Avoiding these common mistakes can save you time, money, and stress when filing U.S. expat taxes in 2025. Staying informed and proactive is key to compliance and maximizing deductions. Don’t navigate this complex landscape alone—our expert tax advisors are here to help. Schedule to book a consultation and ensure your taxes are handled with precision.