The Complete US Tax Guide for Turkish Expats (2025-2026)

Navigating the United States tax system is complex enough on its own. But for Turkish citizens living, working, or investing in the US, or US residents maintaining financial ties to Türkiye, the intersection of two distinct tax regimes creates a unique set of compliance challenges.

At Arc & Ledger Accounting in Culver City, we frequently consult with Turkish entrepreneurs, E-2 visa holders, and tech professionals who are surprised to learn the extent of the IRS's global reach. The US taxes its residents on their worldwide income. This means that rental income from an apartment in Istanbul, interest from a Turkish bank account, or capital gains from Borsa Istanbul must be reported to the IRS.

However, there is good news. Through mechanisms like the Foreign Earned Income Exclusion (FEIE), the Foreign Tax Credit (FTC), and the US-Türkiye Income Tax Treaty, the system is designed to prevent double taxation, provided you file correctly.

1. The Golden Rule: Worldwide Income Reporting

If you are considered a US resident for tax purposes, either by holding a Green Card or by meeting the Substantial Presence Test (typically living in the US for more than 183 days over a three-year period), the IRS treats you exactly like a US citizen. You must report all global income.

A common misconception we see among new arrivals from Türkiye is the belief that income generated outside the US is outside the IRS's jurisdiction. This is incorrect. If you earn rental income in Izmir, it goes on your US Form 1040 (Schedule E). If you sell property in Ankara, it goes on Schedule D.

2. FBAR and FATCA: The Reporting Heavyweights

Perhaps the most critical, and heavily penalized, area of expat taxation involves foreign financial accounts.

The FBAR (FinCEN Form 114)

If the combined total of all your foreign financial accounts (including checking, savings, brokerage, and certain pension accounts in Türkiye) exceeds $10,000 USD at any point during the calendar year, you must file an FBAR.

For example, if you have $6,000 in a Garanti BBVA account and $5,000 in an İş Bankası account on the same day, your aggregate total is $11,000. You must report both accounts. FBAR penalties are severe, starting at $10,000 for non-willful violations.

FATCA (Form 8938)

The Foreign Account Tax Compliance Act (FATCA) requires US taxpayers to report specified foreign financial assets if they exceed certain thresholds (starting at $50,000 on the last day of the tax year for single filers living in the US). While FBAR is filed with the Financial Crimes Enforcement Network (FinCEN), Form 8938 is filed directly with your IRS tax return.

3. Leveraging the US-Türkiye Tax Treaty

The United States and Türkiye have an active income tax treaty designed to prevent double taxation and prevent fiscal evasion. The treaty dictates which country has the primary right to tax specific types of income.

If you pay taxes in Türkiye on income sourced there, you can generally claim a Foreign Tax Credit (Form 1116) on your US return. This credit reduces your US tax liability dollar-for-dollar based on the taxes paid to the Turkish government. Because Turkish tax rates are often higher than US rates, this credit frequently eliminates the US tax burden on that specific income entirely.

4. The E-2 Visa Nuance

Many Turkish entrepreneurs operate in the US under an E-2 Investor Visa. While the E-2 is a non-immigrant visa, E-2 holders almost always meet the Substantial Presence Test, making them US tax residents subject to worldwide taxation.

If you are operating a US LLC or S-Corporation as an E-2 visa holder, careful tax planning is essential. E-2 holders must maintain the viability of their business to renew their visa, meaning reasonable compensation (for S-Corps) and proper expense documentation are not just tax issues, they are immigration issues.