Tax Countdown is on for US Expats

If you're a US expat, it's tax time.  Your two-month reprieve on filing deadlines is just about up.  For Americans abroad, hunker down and get that tax return done.  It's due June 15th.

Pray you qualify for the Foreign Earned Income Exclusion (FEIE).  Reduce your agony, at least a bit.

If you live abroad, work overseas, are a Perpetual Traveler gallivanting from place to place (everywhere except the US, basically), you need a bank account wherever you're living.  Check those balances - the highest total hit during the year among all accounts combined - to see if you fall within FBAR and/or Form 8938 limits for reporting bank and other financial accounts, and/or foreign assets, respectively. 

The deadline for RECEIPT of FBAR and Form 8938 is June 30th.  This trips up a lot of people since tax return deadlines are typically the date of postmark.  If you have to file FBAR and/or Form 8938, make sure it arrives before June 30th!  These two have draconian penalties ($50,000) for failure to file or late receipt!

We've gone into these before, so let's not repeat it all again.  Just a friendly reminder to get it done.

Once you get through the pain, maybe you want to rearrange some living arrangements or financial arrangements to reduce next year's bill.

May your road rise to meet you (not Taxman)!
Ann

Taxaholic Countries for Expats to Avoid

As if taxaholic France wasn't already in the news for the departure of Gerard Depardieu for more welcoming Russia, now comes a whopper!  More than 8,000 French households got tax bills for 2012 - dunned for taxes which exceed their income for the entire year.  Expect more departures from the no-longer-so-belle France.

We've mentioned countries with no personal income taxes.  Here's some horrible news about the EU: very few countries in the world tax like the EU.  Only Aruba, US, and Japan can rival Euro-kleptocrats. 

EU's worst:
Hungary - 59.4%
Belgium - 58.5
France - 56.4 (except for some, income taxes exceed 100% of income)
Germany - 54.6
Austria - 52.2
Netherlands - 50.2
Sweden - 49.4
Romania - 48.6
Italy - 46.0
Denmark - 45.7
Slovakia - 45.5
Lithuania - 45.4
Finland - 45.2

Only Cyprus (19.4%) and Malta (26.8%) have tax rates below 30%.  As we've all heard and read, Cyprus is broke, so it simply confiscated people's bank accounts.  That's Tax with a Capital T-plus!

What to do if your employer transfers you to one of these on an expat contract?  Try to find an alternative!  What if you're a citizen?  Do you want to be a milk cow for taxaholics?  Or do you want to enjoy the PT life?  You have a very potent incentive to be a non-resident citizen if you're from an EU country.

Think the grass is greener on the US side of the border?  People tend to think it "looks good" because charts like these only consider federal income taxes.  For the US, you have to add Social Security (FICA) and Medicare, which take another 7.65% from the first dollar you earn.  There's the new Medicare surcharge on top of that for those with higher-level incomes.  Don't forget state income taxes, which vary considerably.  Add it all up, and the US can turn out to the be the Ultimate Taxaholic for a lot of taxpayers.

If you are a US person (which includes more than citizens and legal permanent residents and workers on visas), non-resident status is no cure.  There's the Foreign Earned Income Exclusion, a small help to some.

Planning your travels, planning your expat-life, planning retirement relocation?  Whatever you do and wherever you go, tax planning must be a major consideration in the decision-making process for every Road Warrioress.

So, where are you headed?  What works well for you?  Share your thoughts.  We'd all love to hear them.

May your road rise to meet you!
Ann

US Expats & PTs Exempt from Obamacare

Amid the discussions of "Obummercare," as so many commonly refer to this disastrous legislation, one fact rarely comes out.  Yes, some people are exempt from those requirements to buy and maintain pricy healthcare coverage: e.g. prisoners, illegal aliens, and members of Native American tribes. 

But take a good look at one more exemption: Americans who remain outside the US for a year!  US citizens who meet qualifications for the Foreign Earned Income Exclusion (FEIE) are also exempt from the insurance provisions of the Affordable Healthcare Act. 

What do you need to do to qualify for the health insurance exemption?  Do you have to actually claim FEIE on your US income tax return?  You only have to be qualified to take FEIE; you don't actually have to do it.  

If you are legally resident for a full tax year in another country, you are exempt from maintaining the US insurance. Likewise for Perpetual Travelers (or PTs): if you remain outside the US - physically present in another country or countries - for at least 330 days a year, you are exempt from this insurance requirement. 

Considering healthcare coverage in some countries costs less per year than a US policy costs per month, this is good news for expats, PTs, and long-haul travelers.  Considering healthcare costs in a number of countries is 20% or so of US costs, medical care abroad without health insurance (e.g. if insurance is not available) is cheaper than the copay under most US health insurance policies.

Healthcare and health insurance have all been rising dramatically since passage of the very-unaffordable "Affordable Healthcare Act."  Escape this tax and get better healthcare for less simply by living and/or traveling abroad.

Have fun long-haul traveling, and. . .

May your road rise to meet you!
Ann

US Expats & PTs May Benefit from Foreign Earned Income Exclusion

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income from all sources.  However, you may qualify to exclude from income up to an amount of your foreign earnings that is now adjusted for inflation ($91,400 for 2009, $91,500 for 2010, $92,900 for 2011, $95,100 for 2012). I n addition, you can exclude or deduct certain foreign housing amounts.

You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer. Refer to Exclusion of Meals and Lodging in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, and Publication 15-B, Employer's Tax Guide to Fringe Benefits for more information.

To meet the bona fide residence test or the physical presence test, you must live in or be present in a foreign country. A foreign country usually is any territory under the sovereignty of a government other than that of the United States.  The term "foreign country" does not include U.S. possessions such as Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, or American Samoa.  This applies to the typical expat, living and working abroad for an extended period, with an employment visa or legal residency.

For PTs, you want to fulfill the physical presence test.  You meet the physical presence test if you are physically present in a foreign country or countries for at least 330 full days during a period of 12 consecutive months. The 330 qualifying days do not have to be consecutive. The physical presence test applies to both U.S. citizens and resident aliens.

The physical presence test is based only on how long you stay in a foreign country or countries. This test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad.

Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Having a "tax home" in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes.

If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live.  If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work.

As usual, IRS regulations are byzantine.  For more info on the Foreign Earned Income Exclusion and housing exclusion from IRS, see:

http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html. 

It's Tax Time for American Expats & PTs

June 15^th is the IRS income tax filing deadline for Americans!  While the term PT usually stands for Perpetual Traveler or Prior Taxpayer, US citizens, legal permanent residents and other “US persons” (defined by IRS) are Permanent Taxpayers wherever they go.

If you are a U.S. citizen or resident alien residing overseas, or are in the military on duty outside the US on the regular due date of your return, you are allowed an automatic 2-month extension to file your return and pay any amount due without requesting an extension. For a calendar year return, the automatic 2-month extension is to June 15.

If you are unable to file your return by the automatic 2-month extension date, you can request an additional extension to October 15 by filing Form 4868 before the automatic 2-month extension date.  However, any tax due payments made after June 15 will be subject to both interest charges and failure to pay penalties.

If you are a U.S. citizen or resident alien (Green Card Holder) and you live in a foreign country, mail your U.S. tax return to:

Department of the Treasury

Internal Revenue Service Center

Austin, TX 73301-0215

Estimated tax payments should be mailed with form 1040-ES to:

Internal Revenue Service

P.O. Box 1300

Charlotte, NC 28201-1300

Taxpayers with an AGI (Adjusted Gross Income) of $57,000 or less can electronically file their tax return for free using freefile.  Taxpayers with an AGI greater than $57,000 can either use free fillable forms or efile via commercial software programs.  A limited number of companies provide software that can accommodate foreign addresses.  

Don't forget you may be subject to the Foreign Earned Income Exclusion!  There is one benefit for Americans living & working abroad.  See TravelTellers' next post.  More to come on US taxes and financial reporting for American expats. and PTs

Here are some links to IRS publications & tax forms:

Publication 54, Tax Guide for U.S. Citizens and Residents Abroad (PDF)

Publication 519, U.S. Tax Guide for Aliens (PDF)

Publication 4588, Basic Tax Guide for Green Card Holders: Understanding Your U.S. Tax Obligations (PDF)

Publication 4732, Federal Tax Information for U.S. Taxpayers Living Abroad (PDF)

For detailed info from the IRS see:

 http://www.irs.gov/businesses/small/international/article/0,,id=97324,00.html