7 Common Tax Mistakes Americans in Ecuador Make

After helping Americans in Ecuador with their taxes, I see the same mistakes repeatedly. Here are the seven most common—and how to avoid them.

Mistake #1: Not Filing at All

The error: "I live abroad and don't earn money in the U.S., so I don't need to file."

The reality: U.S. citizens must file taxes on worldwide income regardless of where they live. Moving to Ecuador doesn't change this.

If your gross income exceeds the filing threshold ($14,600 for single filers in 2025), you must file—even if you owe nothing.

The fix: File your return. If you haven't filed in years, the Streamlined Filing Compliance Procedures let you catch up without penalties if your failure was non-willful.

Mistake #2: Forgetting the FBAR

The error: Filing your tax return but forgetting to report foreign bank accounts.

The reality: If your Ecuador bank accounts (Banco Pichincha, Banco del Austro, etc.) totaled over $10,000 at any point during the year, you must file an FBAR (FinCEN 114)—separately from your tax return.

The penalties:

• Non-willful: Up to $10,000 per account, per year
• Willful: Up to $100,000 or 50% of account balance

The fix: File your FBAR by October 15 each year through the BSA E-Filing System. It's separate from your tax return and goes to FinCEN, not the IRS.

Mistake #3: Thinking the FEIE Applies to Retirement Income

The error: "I live abroad, so my Social Security and pension are excluded from U.S. taxes."

The reality: The Foreign Earned Income Exclusion (FEIE) only applies to earned income—wages and self-employment income. It does not apply to:

• Social Security benefits
• Pension distributions
• 401(k)/IRA withdrawals
• Investment income
• Rental income

The fix: Understand what the FEIE actually covers. Most retirees don't have earned income, so the FEIE doesn't help them. Focus instead on proper reporting and available credits.

Mistake #4: Missing FATCA Reporting

The error: Filing your FBAR but missing Form 8938 (FATCA).

The reality: FBAR and FATCA are separate requirements with different thresholds:

If you have significant foreign assets, you may need to file both.

The fix: If your foreign financial assets (bank accounts, investments, etc.) exceed the FATCA thresholds, attach Form 8938 to your tax return.

Mistake #5: Not Tracking Physical Presence Days

The error: Claiming the FEIE using the Physical Presence Test without proper records.

The reality: The Physical Presence Test requires you to be outside the U.S. for 330 full days in a 12-month period. "Full days" means the entire 24 hours—travel days often don't count.

If audited, you need to prove you met the requirement.

The fix: Keep a travel log. Record:

• Dates of all U.S. trips
• Flight records and passport stamps
• Calendar showing your location each day

Apps like TravelTracker or a simple spreadsheet work fine.

Mistake #6: Ignoring State Taxes

The error: "I left California/New York/[high-tax state], so I'm done with them."

The reality: Some states are aggressive about claiming you're still a resident—especially if you:

• Kept a home there
• Maintain a driver's license there
• Are registered to vote there
• Return frequently

California, in particular, has been known to pursue former residents who didn't properly establish domicile elsewhere.

The fix: When you move to Ecuador:

• Formally change your domicile
• Update driver's license (or surrender it)
• Change voter registration
• Update your mailing address
• Minimize ties to high-tax states
• Keep records of your move and Ecuador residence

Mistake #7: Using the Wrong Tax Professional

The error: Using your old U.S. accountant who doesn't specialize in expat taxes.

The reality: Expat tax returns are different. They involve:

• Foreign Earned Income Exclusion (Form 2555)
• Foreign Tax Credits (Form 1116)
• FBAR filing (FinCEN 114)
• FATCA reporting (Form 8938)
• Treaty considerations
• Foreign bank account nuances

A generalist preparer may miss exclusions you qualify for—or miss required forms.

The fix: Work with someone who specializes in Americans abroad. They understand the forms, the exclusions, and the quirks of expat tax situations.

Bonus Mistakes

Not Reporting Ecuador Property Sale

If you sell real estate in Ecuador, the gain is taxable on your U.S. return (as well as potentially in Ecuador). Some Americans forget to report this.

Investing in Foreign Mutual Funds

If you invest in non-U.S. mutual funds, they may be classified as PFICs (Passive Foreign Investment Companies) and face punitive tax treatment. Stick to U.S.-based funds when possible.

Missing Estimated Tax Payments

If you're self-employed or have significant income without withholding, you may need to make quarterly estimated payments. Missing them triggers penalties.

Not Updating Social Security

If you move without notifying the SSA, you may miss important correspondence or questionnaires that can affect your benefits.

How to Fix Past Mistakes

If you recognize yourself in these mistakes, here's what to do:

For unfiled returns and FBARs:

1. Don't panic
2. Consider the Streamlined Filing Compliance Procedures
3. File 3 years of back returns and 6 years of FBARs
4. Certify non-willful conduct
5. No penalties (for qualified taxpayers)

For missed forms on filed returns:

1. File an amended return (Form 1040-X)
2. Include the missing forms
3. Generally no penalty if you fix voluntarily

For ongoing issues:

1. Get proper help going forward
2. Set up systems (FBAR reminders, day tracking)
3. Keep good records

Prevention Checklist

Use this annual checklist to avoid these mistakes:

Before April 15:

• Gather all income documents (U.S. and Ecuador)
• Calculate days outside U.S. if claiming FEIE
• Prepare Form 2555 if claiming foreign income exclusion
• Check if Form 8938 (FATCA) is required

Before October 15:

• File FBAR if foreign accounts exceeded $10,000
• File extended return if needed

Ongoing:

• Track travel days if using Physical Presence Test
• Save Ecuador bank statements showing maximum balances
• Keep records of Ecuador residency (visa, cédula)
• Maintain proof of Ecuador domicile

The Bottom Line

The most common mistakes come from not knowing the rules—not from trying to evade taxes.

The good news: most mistakes are fixable. The IRS offers programs for catching up, and voluntary correction is almost always better than waiting to be caught.

Want help avoiding these mistakes — or fixing past ones? I work with Americans in Ecuador every day.