After years of preparing tax returns for Americans abroad, I have seen the same mistakes come up again and again. Some cost a few hundred dollars. Others cost tens of thousands — or trigger IRS notices that take months to resolve. The frustrating part is that every one of these mistakes is preventable. Here are the five I see most often, why they happen, and how to make sure they do not happen to you.
Mistake #1: Not Filing a US Tax Return at All
This is the most common — and the most dangerous — mistake Americans abroad make.
The assumption is understandable: “I live in another country, I pay taxes here, so I don’t need to file in the US.” But that is not how the US tax system works. The United States taxes based on citizenship, not residency. Every US citizen and green card holder must file a federal income tax return each year, regardless of where they live or earn income. Even if you owe zero tax — because the Foreign Earned Income Exclusion eliminates your liability — you must still file the return to claim the exclusion. No return means no exclusion, which means the IRS considers your full foreign income taxable.
How to avoid it: File every year, even if you believe you owe nothing. If you have missed prior years, the Streamlined Filing Compliance Procedures can get you current — often with zero penalties if you qualify as living abroad.
Mistake #2: Missing the Foreign Housing Exclusion
Most expats who use the FEIE know they can exclude up to $132,900 (2026) of foreign earned income. Far fewer realize they can also exclude a portion of their housing costs on top of that.
The Foreign Housing Exclusion allows you to exclude qualified housing expenses — rent, utilities, property insurance — above a base amount set by the IRS. The maximum exclusion varies by city: teachers in Singapore or Hong Kong have significantly higher caps than those in lower-cost cities.
I regularly see returns prepared by domestic CPAs or tax software that claim the FEIE but completely omit the housing exclusion. On a typical international school package with a $2,500/month housing allowance, the missed exclusion can mean $3,000 to $8,000 in unnecessary tax — every year.
How to avoid it: Make sure your tax preparer calculates the housing exclusion using IRS-published limits for your specific city. If you are using tax software, look for the housing exclusion section within Form 2555 — it is often buried and easy to skip.
Mistake #3: Ignoring the FBAR
The FBAR (Foreign Bank Account Report) is the reporting requirement most expats have never heard of — until they learn about the penalties.
If the combined value of all your foreign financial accounts exceeded $10,000 at any point during the year, you must file FinCEN Form 114 with the US Treasury. This includes your local checking account, savings account, investment accounts, pension funds, and even accounts where you are only a co-signer.
The penalties for non-filing are disproportionate to the amounts involved. Non-willful penalties can reach $10,000 per account per year. Willful penalties can reach $100,000 or 50% of the account balance — whichever is greater.
Most expats who miss the FBAR do so out of ignorance, not intent. They simply did not know the requirement existed. The good news is that the IRS recognizes this: the Streamlined Filing Compliance Procedures allow you to file the last six years of FBARs with no penalties if your failure was non-willful.
How to avoid it: If you have any foreign bank account, assume you need to file an FBAR and confirm with your tax preparer. The filing is electronic and separate from your tax return.
Mistake #4: Using a Tax Preparer Who Does Not Understand Expat Returns
This is the root cause of mistakes #2 and #3 — and many others.
International tax returns involve forms, elections, and calculations that most domestic tax professionals encounter rarely, if ever. The FEIE qualification tests, housing exclusion city-specific limits, FBAR filing requirements, FATCA thresholds, treaty-based positions, and the interaction between foreign tax credits and exclusions are specialized knowledge.
A well-meaning CPA who primarily handles domestic returns may claim the FEIE but miss the housing exclusion. They may not ask about foreign bank accounts. They may not know that the physical presence test uses a flexible 12-month period rather than the calendar year. They may use the wrong method for currency conversion.
Each of these errors individually might seem minor. Together, they can cost you thousands of dollars per year and leave you non-compliant with reporting requirements you did not know existed.
How to avoid it: Work with a tax professional who specializes in expat returns and handles them regularly — not as an occasional exception. Ask specifically: “Do you prepare returns for Americans living abroad? How many per year? Are you familiar with the FEIE housing exclusion and FBAR requirements?”
Mistake #5: Not Tracking Physical Presence Days
If you use the physical presence test to qualify for the FEIE, you must be physically present in a foreign country for at least 330 full days during a 12-month period. That leaves a maximum of 35 days in the US (or in transit) within that period.
Teachers who spend three weeks home at Christmas and eight weeks home in summer have used approximately 77 days — well over the 35-day limit for a calendar year. The common mistake is assuming they do not qualify for the FEIE, when in reality they may qualify by selecting a different 12-month period or by using the bona fide residence test instead.
The opposite mistake also happens: teachers who assume they qualify without actually counting their days, only to discover at filing time that a long home leave, a family emergency trip, or a conference in the US pushed them over 35 days.
How to avoid it: Track every entry and exit from the United States throughout the year. Keep a log of dates alongside your passport stamps and flight records. If you are close to the 330-day threshold, consult your tax preparer before booking travel — the timing of a single flight can make or break your qualification.
The Bigger Picture
These five mistakes share a common thread: they are all consequences of the US tax system being unusually complex for Americans abroad, combined with a shortage of tax professionals who genuinely understand that complexity.
The cost of these mistakes is not just financial. It is the stress of receiving an IRS notice you do not understand, the anxiety of learning about penalties you did not know existed, and the frustration of realizing you have been overpaying for years.
All of it is avoidable — with the right knowledge and the right specialist.
Ready to File With Confidence?
If any of these mistakes sound familiar — or if you are not sure whether they apply to your situation — schedule a free 15-minute consultation. I will review your filing history, flag any issues, and tell you exactly what you need to do.