US Expats Tax-hell Commences

Monday was Tax Day for residents in the US and most "US persons" trapped in the US Tax Net.  But for Americans Abroad, expats' own tax-hell is about to begin.  June 15th is the deadline for filing US income tax returns for non-residents caught in the US tax net.  Worse, June 30th is deadline for RECEIPT (not mailing!) of the dread FBAR and Form 8938.

Time to get your financial records in order and get going on your filing requirements so you can meet these deadlines.

Remember!  It's not just US citizens who are subject to US tax laws.  IRS defines "US persons" more broadly than any other country in world stretches their tax boundaries.  Legal permanent residents, even if they are outside the US, are still subject to US tax laws.  So are a host of others.  If you have any US income or any kind of US connection, beware!  Make double-sure you're not trapped.

Many foreigners delivered their babies in the US, thinking they were giving the "gift" of US citizenship to their offspring.  For example, it was quite popular in the 1990's for Koreans in an attempt to keep sons out of Korea's military service requirements.  Backfire!  All these kids, who have been living back in their and their parents' countries since infancy or childhood, now are be hunted down by IRS for their income tax payments.  Failure to file and failure to pay, as required, are both felonies.  With FBAR and Form 8938, penalties are downright draconian.

Exercise extreme caution!  If you are a US citizen residing outside US, or if you have other ties to US which might trap you in the net, make sure you verify whether you have to file, what you have to file, and get it done on time!

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