Until the US changes from a citizenship-based to a residence-based taxation system, Americans living abroad are required to file a US tax return every year, reporting their worldwide income, wherever in the world they live. Expats often have additional filing requirements too, such as claiming exemptions like the Foreign Tax Credit and the Foreign Earned Income Exclusion to prevent double taxation and reporting their foreign bank and investment accounts by filing an annual FBAR.
While in the States CPAs abound, finding a tax preparer who is qualified and expert in filing taxes for Americans living abroad can be much more challenging. In major US expat destinations, there are local firms and individuals who cater to expats, however, in most places there may not be. This often leaves expats scratching their heads when looking for help with their US tax filing. Expats with the simplest circumstances might consider filing their own tax return, but with often high penalties for inaccuracies and omissions, and without the knowledge to guarantee that they are fulfilling all the filing requirements for expats, and doing so in their own best interests, this strategy is may not be the best other than for those expats with the simplest financial circumstances.
Remote online tax preparation
While the concept of remote online tax preparation firms isn’t new, the proliferation of high speed internet and increased social trust in online services over the last few years globally have made online tax preparation firms a viable option for millions more expats around the world. But are online CPA firms as good, and are they secure?
Pros and cons
Most expats rule out working with a CPA back in the States because most US-based CPAs have little knowledge or experience of filing US taxes for expats.
The main advantages of working with a local CPA in an expat’s host country is that they have experience of working with expats, they are available to meet with and speak to during the process, and that it’s easy, quick and cost effective to post them the tax and other documents necessary for filing. They may also provide local, host country tax preparation too, or have a working relationship with a local accountant.
In actual fact, technology has overtaken most of these advantages, making online tax prep firms more attractive: Documents can be scanned and sent to tax preparers electronically (saving expats time and money), and for the most part communication is - in practice - often by email anyway.
Compared to locally-based tax preparers, the major remote online tax prep firms often have better expat taxes knowledge and experience, due to having a bigger roster of clients and so more accumulated knowledge.
Furthermore, remote online expat tax firms offer highly competitive prices, having reduced overheads compared to more traditional ‘bricks and mortar’ firms.
Having a personal relationship with a tax preparer, so that they know you and your history from year to year, is important though, so before deciding to work with a remote online firm expats should check that they will be able to enjoy a similar relationship with a single tax professional before they go ahead, including in future years (some online firms offer this, while others may shunt clients between whichever tax preparer happens to be available from year to year).
Before choosing to work with a remote online tax prep firm, expats should also check the firm’s reputation, to ensure that they are well-regarded and accountable, rather than a new firm with a limited online presence that could disappear again just as suddenly.
Regarding online security, all major online expat tax prep firms provide the same levels of encryption when transferring and storing data that banks do, so anyone who is comfortable with online banking should be just as comfortable filing their taxes online. Expats living in the EU should of course ensure that an online firm they are considering working with are GDPR compliant, too.
Over the last few years, social trust in purchasing traditionally face-to-face services online has grown to such as extent that people feel safe to use online providers in all kinds of areas that just a few years ago they wouldn’t have. This includes remote online tax prep.
Most online CPA firms are secure, highly knowledgeable, and they are constantly adopting new technologies to bridge the geographical divide between expats and their CPA. So long as expats can verify that an online expat tax prep firm is reputable (as they would before purchasing any product or service), and that they can still enjoy a personal relationship with the same individual CPA over multiple years, who will be easily and directly contactable, all in all online firms provide a cost-effective and secure alternative.