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

Quick Note on Foreign Pensions - the US Tax-Grab

Just a quick note while Tax Season rages onward.  We've mentioned the dread Form 8938, wherein "US persons" - not just US citizens - must annually report foreign assets.  This form is in addition to and far more broadly based than the FBAR report on foreign bank and other financial accounts.

Americans have gotten used to certain tax exemptions for IRAs, 401k's and various types of pensions and retirement savings.  We won't waste your time on all the ins-and-outs of those here. 

What you do need to worry about is any foreign pensions!  Foreign pensions are NOT tax-exempt from US taxes!  Unlike various types of IRAs or 401k's, etc, foreign pensions are fully reportable and fully taxable.  So foreign pension funds must be reported, just like foreign bank accounts, stockbrokerage accounts, and other financial accounts.

Don't fall afoul of the IRS on this one!  Penalties take up to 50% of your pension fund if you fail to report it as required.

May your road rise to meet you!
Ann

Remember FEIE Can Keep You Tax-Free

FEIE is a vital acronym for the US expatriate or Perpetual Traveler!  For 2013, the Foreign Earned Income Exclusion is up to US$97,600.  That's right, no US income tax on your first $97,600 of earned income if you reside outside the US.

It does not matter if the earnings come from your US employer or a company abroad.  If you live outside the US for at least 330 days per year, or have legal residency in a foreign country (e.g. an expat residing in a foreign country on an employment visa), a lot of your earnings are protected from the clutches of the IRS.

If you are lucky enough to live in a country without income taxes, or you are a PT residing here-a-bit, there-a-bit, outside taxation obligations, you can be free of onerous income taxes entirely.  If you reside where your foreign income is taxed, what you pay there may be credited to what you owe IRS if your income goes over the exclusion maximum.

FEIE only applies to earned income!  So interest, dividends, rental income, and other forms of unearned income remain subject to US taxes.

No exemption from filing!  Do be careful to file all your proper tax and other financial forms on time if you are a US citizen, legal permanent resident, or other "US person" subject to IRS reporting requirements.  IRS is quietly - but as deadly as a krait in the bamboo - going after expats.  Hey, the US is broke, so Taxman is as greedy as ever, just more desperate for your dollars (yen, rupees, Euros, and everything else).

Tax-time is always stress-time.  But FEIE can seriously reduce your pain.

May your road rise to meet you!
Ann

IRS Adds Fuel to the Tax Fires

As if the FBAR form (TD F 90-22.1) weren't enough to drive US citizens, legal permanent residents, and other "US persons" crazy, there's also Form 8938 to add fuel to the IRS fires under your butt.  Since the rules keep changing, and Form 8938 is new anyway, American expats can go crazy trying to keep up with US tax laws and various IRS requirements. 

We talked in our last post about FBAR (Foreign Bank Account Report, which includes reporting all kinds of banking and other financial accounts).  If you have had any kind of financial account(s) which hit a total of US$10,000 at any time during the year, you need to file the FBAR.  Here's that link: http://www.irs.gov/pub/irs-pdf/f90221.pdf.  Get on it NOW because the IRS must receive it by June 30th.  Note that's the deadline for IRS to receive it, not for you to mail it out!

Now comes Son-of-FBAR, Form 8938.  Here you have to report all specified types of foreign assets, not just banking or other kinds of financial accounts (such as stock brokerage accounts).  http://www.irs.gov/pub/irs-pdf/f8938.pdf is the link to Form 8938.  For the instructions, go to: http://www.irs.gov/pub/irs-pdf/i8938.pdf.  Attach that form, if required, to your income tax return, and file it by the deadline for your income tax return.  If you are living abroad, your deadline for filing your income taxes is June 15th - this week!  If you filed for an extension, that deadline will be October 15th.

Gee whillikers - ain't the IRS sweet?  They even give you a comparison table of the requirements for the two different tax forms, financial assets vs. other foreign assets.  See the comparison table at: http://www.irs.gov/businesses/article/0,,id=255986,00.html. 

It's not just people we think of as expats who are caught in the IRS tax traps.  Many foreigners come to the US & give birth to get their baby US citizenship, then take baby home.  Well, guess what!  They have to file annual income tax returns, FBAR, Form 8938, etc, as required even if they were born in the US, then promptly departed and have never returned.  Even if they have dual citizenship.  Whatever.  Uncle Sam's minions at the IRS want your money!

Penalties are severe - and I do mean really severe - so check these out.  Don't risk making any mistakes on these two forms, in addition to routine income tax returns.  Not all American expats are subject to them, but be careful.  Very, very, very careful!

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