Living and working abroad offers flexibility and opportunity, but it also introduces complex tax obligations that many expats and digital nomads underestimate. Most international tax problems do not arise from intentional noncompliance, but from common misconceptions and overlooked filing requirements.

This guide highlights the most frequent tax mistakes made by Americans abroad and explains how to avoid them.

Assuming Living Abroad Eliminates U.S. Tax Filing Obligations

One of the most common mistakes is assuming that relocating outside the United States removes the requirement to file U.S. tax returns. U.S. citizens and green card holders are generally taxed on worldwide income.

Misunderstanding the Foreign Earned Income Exclusion

Many expats believe the Foreign Earned Income Exclusion eliminates all U.S. tax. In reality, it applies only to earned income and does not cover investment income or self-employment tax.

Failing to Report Foreign Bank Accounts

Foreign bank and financial accounts may trigger FBAR and FATCA reporting obligations. Missing these filings often results in some of the most severe penalties expats face.

Confusing Tax Residency and Immigration Status

Visa or residency permits abroad do not determine U.S. tax residency. Misunderstanding this distinction can lead to incorrect filings and compliance gaps.

Overlooking Self-Employment and Contractor Tax Issues

Digital nomads and freelancers often overlook self-employment tax exposure or assume foreign taxes eliminate U.S. obligations. This mistake frequently results in unexpected balances due.

Missing Filing Deadlines and Extensions

Although Americans abroad receive an automatic filing extension, additional extensions may still be needed. Missing deadlines can result in penalties and interest.

Ignoring Prior-Year Noncompliance

Many expats delay addressing missed filings, hoping the issue resolves itself. In reality, uncorrected noncompliance often compounds over time.

How to Fix Expat Tax Mistakes

Taxpayers who discover mistakes may still qualify for IRS relief programs such as the Streamlined Filing Compliance Procedures. Early action improves outcomes significantly.