The Tax Mistake That Cost Me $10,000 as an American Expat (And How to Avoid It)

I'm going to tell you a story that most expat blogs are too polished to share. It's about the time I found out that the IRS wanted $10,000 from me — not because I cheated on my taxes, but because I didn't file a form I'd never heard of.

If you're an American living abroad — or thinking about it — this could save you a lot of money and a lot of stress.

The Mistake: I Didn't File an FBAR

When I moved abroad, I did what I thought was responsible. I filed my federal tax return. I claimed the Foreign Earned Income Exclusion. I even hired a regular CPA.

What nobody told me — not my CPA, not Google, not any of the "how to move abroad" blogs I read — was that I needed to file a separate report called the FBAR (Foreign Bank Account Report) with something called FinCEN. Not the IRS. A different government agency entirely.

If your foreign bank accounts exceed $10,000 in aggregate at any point during the year, you must file FinCEN Form 114. That means if you have $6,000 in a checking account and $5,000 in savings, you've crossed the threshold.

I had a local bank account for rent and a savings account for emergencies. Together, they occasionally crept above $10,000. I had no idea I needed to report this.

The Penalty: Up to $10,000 Per Year, Per Account

Here's where it gets scary. In 2026, the penalties are:

I was lucky. My violation was classified as non-willful, and I got into a compliance program before it got worse. But the back penalties, interest, and accountant fees still cost me over $10,000.

The Five Most Expensive Mistakes American Expats Make

My FBAR disaster was just one of several common traps. Here are the big five:

1. Not filing at all ("I live abroad, so I don't need to file") Wrong. US citizens must file federal tax returns regardless of where they live or earn money. The filing obligation exists even if you owe $0 in taxes. If you're married to a non-US citizen and file separately, the threshold drops to just $5 in income.

2. Confusing the FEIE with the FTC The Foreign Earned Income Exclusion (FEIE) lets you exclude up to $132,900 of foreign earned income from US taxes in 2026. The Foreign Tax Credit (FTC) lets you offset US taxes with taxes paid to another country.

You cannot apply both to the same income. Choosing wrong can cost thousands. Generally: if your foreign tax rate is lower than the US rate, use the FEIE. If it's higher, the FTC may save you more.

3. Forgetting the FBAR (my mistake) Any aggregate balance over $10,000 in foreign accounts = mandatory FBAR. This includes accounts where you have signature authority, even if they're not in your name. Joint accounts with a non-US spouse count.

4. Not filing Form 8938 (FATCA) In addition to the FBAR, if your foreign financial assets exceed $200,000 (for expats filing single), you must also file Form 8938 with your tax return. Yes, that means reporting the same accounts to two different places. Welcome to American bureaucracy.

5. Ignoring state taxes Moving abroad doesn't automatically sever your state tax obligations. This one deserves its own section...

The State Tax Trap (Especially California and New York)

Some states will chase you around the globe. The worst offenders:

• California: Doesn't recognize the FEIE. Has a 546-day safe harbor rule but uses a "closest connections" test that can override it. No foreign tax credits allowed at the state level.
• New York: Maintains 300+ dedicated residency auditors. The 548-day foreign safe harbor is strict about spousal requirements.
• Virginia, South Carolina, New Mexico: All have aggressive residency definitions.

The fix: Before moving abroad, establish domicile in a no-income-tax state (Florida, Texas, Nevada, Wyoming, South Dakota). Get a driver's license, register to vote, and use it as your legal address. This gives you a clean break.

Read our deep dive: What Happens to Your US State Taxes When You Move Abroad? (link below in this article series).

How to Stay Compliant (It's Actually Not That Hard)

Here's what I wish someone had told me before I moved:

1. Hire an expat-specialist CPA — not your family's regular accountant. Firms like Greenback, MyExpatTaxes, or Bright!Tax specialize in this.
2. File your FBAR by April 15 (auto-extended to October 15 if you miss it)
3. File your federal return by June 15 (automatic 2-month extension for expats abroad)
4. Keep records of foreign accounts — screenshots of balances on December 31 of each year
5. If you're behind, use the Streamlined Filing Procedures — the IRS offers penalty-free catch-up for non-willful failures

Already Behind? There's a Way Out

If you're reading this and realizing you've missed FBAR filings, don't panic. The IRS Streamlined Filing Compliance Procedures let you:

• File 3 years of back tax returns
• File 6 years of back FBARs
• Certify that your failure was non-willful
• Pay $0 in penalties (for the Streamlined Foreign Offshore program)

This is the best deal the IRS offers. Use it before they come to you.

Key Takeaways

• US citizens must file taxes regardless of where they live
• FBAR (FinCEN 114) is required for aggregate foreign account balances over $10,000
• Non-willful FBAR penalties: up to $16,536 per report; willful: $165,353 or 50% of balance
• The FEIE excludes $132,900 of earned income; the FTC credits foreign taxes paid — don't mix them up
• California and New York can keep taxing you after you leave
• If you're behind, the Streamlined Filing Procedures offer penalty-free catch-up

Planning a move abroad? Our country guides help you find the right destination, and our comparison tool lets you weigh your options side by side.

---

Sources:

• FBAR Penalties 2026 (Taxes for Expats)
• Foreign Earned Income Exclusion 2026 (Taxes for Expats)
• 2026 IRS Changes for Expats (Greenback)
• Top 10 US Expat Tax Mistakes (MyExpatTaxes)

Last updated: March 14, 2026