A blockhead’s guide to United States’ IRS tax filing for Cuenca expats

Executive Summary: This column has been released from Larga Towers for readers who are United States citizens. If you are not one, you may stop reading HERE to save your valuable time. For the rest of us, the strange truth is that you may owe no federal income tax at all, yet you still have to file a return each year. The good news is that filing can often be done for free, unless your financial life is complicated. Thank you for your attention to this matter.

Living in Cuenca does not get you out of filing US taxes. The IRS has a long memory and an even longer reach, but filing a tax return does not necessarily mean that you have to pay any taxes, and for many retirees it does not need to cost anything either.

This is a list of simple hints for ordinary Cuenca expatriates. Not landlords with three rental properties, or people depreciating trucks or offsetting income from a farm that has an oilwell and a copper mine, but normal humans with Social Security and maybe extra income from an IRA, a work pension, or a small amount of other earnings such as interest on investments.

Charlie Larga is not a tax expert. But he did once spend a couple of seasons working for an unnamed tax preparation company and personally handled roughly 300 returns, which officially qualified him as a Blockhead, which is not nothing.

First Things First
If you are a US citizen, you must file a US federal tax return every year once your income passes the filing threshold. It does not matter that you live in Ecuador. It does not matter that your money arrives in dollars. It does not matter that SRI does not care.

You have to file because the US says you must file. Whether you owe anything or not is a completely separate question.

Do You Need Last Year’s AGI (and what is that?)
Short answer. Often yes. AGI means Adjusted Gross Income. Many tax filing systems ask for last year’s AGI as a way to confirm that you are really you.

If you filed last year, your AGI is printed clearly on your prior year tax return on Form 1040. If you have a copy of your return from last year this is a thirty second problem, but if you did not keep a copy, all is not lost.

You can get your prior year AGI by requesting an IRS tax transcript online. This is free and usually instant once your identity is verified. You do not need to call anyone. You do not need to explain your life story.

If you truly cannot get your AGI, most filing systems allow you to enter zero and continue, but expect extra identity checks and delays. This is one reason why even minimal record keeping matters.

Filing for Free
The IRS shut down its own Direct File experiment, which was a pity, because it was free and it worked, but free filing is still available.

You have two realistic free options:

1. IRS Free Fillable Forms
   This is the closest thing to doing your taxes with a pencil, but online.
   You type numbers into official IRS forms and submit them electronically.

It is free and it is a bit clunky, but it does work, although you do need to be comfortable reading instructions and checking your own math.

2. Free File Software Through the IRS
   The IRS still partners with several tax software companies that offer genuinely free federal filing if your income is below a certain level.

The catch is that you must start from the IRS website, not from the company’s own homepage, or you will be steered toward paid upgrades that mysteriously appear halfway through the process.

If your tax return is simple, this is probably the easiest route.

Social Security and the Big Question
Here is the number everyone wants. If you receive $2,500 per month in Social Security, that is $30,000 per year. Social Security on its own is often not taxable at all.

What matters is something the IRS calls combined income, which roughly means:

• Your other income
• Plus half of your Social Security
• Plus certain interest income

For a single filer, Social Security usually does not start becoming taxable until combined income exceeds about $25,000.

With $30,000 in Social Security, half of that is $15,000. That means you can generally earn around $10,000 per year (also known as $800 per month) from other sources before any of your Social Security even enters the tax calculation.

That works out to roughly $800 to $850 per month.

Even then, becoming taxable does not mean writing a check immediately. It just means part of your Social Security is included in the arithmetic.

Income Tax and the Standard Deduction
For a single filer over 65, the standard deduction is generous and increases slowly with inflation, so as a rough rule of thumb, in 2025 a single person over 65 can often earn around $16,000 to $17,000 per year in taxable income before any federal income tax is actually owed.

That is after deductions.

For many retirees in Cuenca with Social Security and modest additional income, the result is:

• You file
• You report everything
• You owe nothing

This feels wrong to many people, which is why they worry. But zero is a perfectly acceptable number.

How Tax Filing Companies Really Make Their Money
Here is something most people do not realize.

Many tax preparation companies make only modest money from preparing your return. Where they really earn is through Instant Refunds. An instant refund is not a gift. It is a loan.The company gives you your refund immediately, or almost immediately, then collects the actual refund from the IRS weeks later. For this service, they take a cut, which can be surprisingly large, especially on small refunds.

By the time fees and interest are stripped out, your refund may shrink noticeably. If you do not need the money extremely urgently, waiting for the IRS to send your refund directly to your bank account is almost always a much better deal.

Here is an example:

• $2,000 refund
• $80 in fees
• Money advanced for about 14 days

That works out to an annualized rate comfortably above 70% APR (Annual Percentage Rate), even though no one ever says it that way. So, patience pays interest. Paying to borrow your own money does not. Even if you use the money from the instant refund to immediately pay down your credit card, you will still be losing money.

When Free Is No Longer Enough
Free filing works well if your return includes things like:

• Social Security
• A pension
• Interest income
• Modest self-employment income

You should seriously consider a paid service or a tax professional if you have:

• Rental property
• Depreciation
• Itemized deductions
• Complex foreign income issues
• Capital gains that are more than trivial

This is not because the IRS is out to get you, and you are free to do it all yourself by hand if you really want to, but one mistake with depreciation of a rental home can follow you around like a bad smell for years so paying for help is sometimes cheaper than being clever.

Why Filing Matters Even When You Owe Nothing
Many US expatriates in Cuenca just do a quick bit of mental arithmetic and assume that since they owe no tax, filing does not really matter. It does. Filing keeps your record clean, preserves your eligibility for future benefits, and prevents small administrative problems from turning into large ones years later.

(It should be noted that if you owe nothing and you file late, then there is generally no penalty. An expat known to Charlie once skipped filing for two years, because he thought he owed money that he didn’t have, then decided to file in the third year, and on doing some calculations realized that actually he didn’t owe any money after all, so armed with that knowledge he happily back-filed for 2 years in addition to the current year.)

Filing also creates an official paper trail that shows the IRS you are compliant, which can matter if rules change, if you later sell an asset, or if you are ever asked to explain a gap in filings. Think of filing as proof that you are alive and mentally competent. If the government unexpectedly decides to give every tax payer a windfall gift of $5000, then you will not be scrambling to file backdated tax returns.

A Final Cuenca Reality Check
Most US retirees in Cuenca are not tax cheats and they are not hiding money. Many of the rules still assume that the filer is sitting at a kitchen table filling out forms by hand on paper, not someone in Cuenca trying to remember a password while the IRS website times out.

So here are the basics once again:

1. File your return.
2. Use a free option if your life is simple.
3. Pay for help if your finances are complex.
4. Avoid instant refunds unless you expect to die within the next two weeks.
5. Note your AGI and save it in more than one place where you can readily find it next year.
6. If your state has a state income tax, you will also have to file a tax return according to the laws of that state.

And remember, you are supposed to file a tax return even if the amount you owe and the refund expected are both zero.

Charlie Larga
Cuenca, Ecuador
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Disclaimer: This column is offered for general information and light amusement, not as tax advice. Charlie Larga is not a tax professional, does not know your full financial life, and cannot be held responsible if the IRS takes a dim view of your calculations, assumptions, or optimism. Tax rules change, details matter, and when things get complicated, paying a professional number-cruncher may well be cheaper than arguing with a government agency.