If Your U.S. and Portugal Tax Returns Are Prepared Separately, Read This First

Many Americans living in Portugal assume that having a U.S. preparer and a Portuguese preparer is enough. Each is competent. Each files a correct return. Problem solved.

Not quite.

When returns are prepared separately, the risk is not bad math. It’s bad coordination. And the taxpayer usually ends up holding that risk.

If you choose to keep separate preparers, here are the things you must be able to explain between them. If these are handled inconsistently, the consequences can range from double tax to audit exposure and penalties, sometimes without any clear error on either return.

1. Where the Work Was Actually Performed

Portugal may tax employment and self-employment income based on where the work is physically performed. The U.S. often does not.

If one return assumes “U.S. income” because the employer or client is American, and the other assumes “Portuguese-sourced” because the work was done from Portugal, you can end up with:

• income taxed in both countries, or

• income incorrectly exempted in Portugal, triggering reassessment and penalties later.

Both preparers need the same factual explanation of where the work happened.

2. How Each Income Stream Is Being Classified

U.S. tax labels do not map cleanly to Portuguese categories. Salary, self-employment income, S-Corp distributions, LLC income, dividends, and capital gains may be treated very differently in Portugal than in the U.S. If one preparer treats income as employment and the other treats it as capital or business income, that mismatch alone can trigger questions in an audit.

3. Entity Control and Effective Management

Portugal may look to where an entity is effectively managed, not just where it is formed or owned. If you manage a U.S. company from Portugal, your Portuguese return may need to treat that income as Portuguese-sourced, or, in some cases, treat the company itself as Portuguese tax resident. U.S. preparers often never ask this question. Portuguese preparers may assume the U.S. side handled it. That assumption gap is where problems start.

4. Treaty Positions and Exemptions

The U.S.–Portugal tax treaty does not align cleanly with Portuguese or U.S. domestic law.

In practice:

• one return may rely on treaty taxing rights,

• the other may rely on domestic exemption rules, and

• Portugal may still assess tax even when the treaty favors the U.S., forcing a dispute.

If the two returns take incompatible positions, credibility erodes quickly.

5. Capital Gains Reporting Mechanics

Even when capital gains are exempt in Portugal, reporting is often still required at the transaction level. A U.S. Schedule D summary may not be sufficient. Missing or inconsistent transaction data is a common reason for reassessments, even when no tax was ultimately due.

The Core Problem: No One Is Coordinating

The U.S. and Portugal tax authorities do not reconcile your returns. If the facts, classifications, or positions don’t line up, the risk doesn’t cancel out. It compounds. Each preparer may do their job correctly. The system can still fail you.

How Coordinated Preparation Reduces Risk

Our coordinated U.S. + Portugal return service is designed to eliminate these gaps.

Both returns are prepared together using:

• a single fact pattern,

• consistent income classifications, and

• aligned treaty and exemption positions.

We also provide a coordination memo summarizing the positions taken. If your income types remain consistent, that memo can be reused in later tax years, reducing cost, friction, and risk.

Learn More

If you are an American living in Portugal and want your U.S. and Portuguese tax returns handled as a single, coordinated filing, not two disconnected documents, you can learn more about our program here.

If you keep separate preparers, coordination is your responsibility.
If you don’t want that job, that’s what this program is for.