What should expat US taxpayers consider as the end of the US tax year approaches?

The end of the US tax year (31 December) is fast approaching. If you’re a US citizen living in Australia or an Australian living in the US, it’s essential you put yourself in the best possible position ahead of this deadline. Here’s what you need to know. 

Foreign tax credit expiry 

This is particularly relevant for US citizens in Australia. Some foreign tax credits on a US tax return may only be available for a finite period (typically 10 years). If they are not used in this window, they may be lost. If the 10-year period is expiring for you, there are strategies to utilise these credits, and it’s important to seek expert advice before the end of the year. 

Gifting assets 

In 2023, you can gift an unlimited amount to a US citizen spouse – USD175K to a non-US citizen spouse and USD17K each to other recipients – without impacting the lifetime gift and estate threshold. For those looking to gift assets away to remain under the lifetime gift and estate cap, it may be worthwhile acting before 31 December. 

Offsetting gains 

If you have sold assets at a gain during 2023, there may be an opportunity to sell other underperforming assets at a loss to help offset this gain, sometimes called ‘loss harvesting’. 

Sometimes, assets are undervalued at a point in time, and it is important not to sell an asset at below its market value purely for a tax benefit. However, if the prospects for the investment are not attractive, it may be valuable to sell that asset to reduce taxes. 

Complex filing obligations 

Certain investments are problematic from a US tax return perspective and can cause more complex US filing obligations, increased filing costs and even increased tax obligations. A common example is an Australian-domiciled ETF or managed fund.  

If you are impacted, there may be an opportunity to move these, so you don’t carry on the burden for another year.

Retirement account contributions 

Making additional contributions to your US retirement accounts before the deadline can be a good strategy for some. However, there can be pitfalls as cross-border taxes make retirement account taxes more complex.  

Australians in the US may find value in contributing to their US retirement accounts to reduce their US income taxes. However, it’s important to understand how the account will be taxed when you draw upon it, depending on whether you live in the US, Australia or another country.  

For US citizens in Australia, it is important to note that any contributions to a US retirement account will not be tax deductible on your Australian income tax return.

Exercising stock options 

Before the deadline, you should determine whether to exercise your stock options. Certain options are taxable as income when you exercise them, so there may be opportunities to exercise them in the current tax year and to remain in a lower tax bracket. This is especially the case if you have had a low-income year or expect your income to rise in the next year, pushing you into a higher tax bracket.

If you haven’t already, seek advice ASAP 

Navigating finances as an expat US taxpayer can be a minefield, and your investment and tax decisions today can have far-reaching impacts. Before making any financial moves, it’s best to get advice from an accountant and a financial adviser who understand both jurisdictions.

General Advice warning

The information provided in this blog does not constitute financial product advice or a recommendation to purchase a particular product. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners Pty Ltd is not a registered Tax Agent. You should consider your individual situation and seek tax advice from a registered tax agent before making any decision based on the content of this document. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.