Do I need to file a US Uax return? I am a US tax payer living and working overseas.
Regardless of where you live you must file a yearly tax return with the IRS as long as your income (earned in-US and abroad) is over the minimum reporting threshold established by the IRS. Even if no tax is due – you must file. The US has treaties with many foreign countries that will reduce or even eliminate actual owed tax.
Do I need to file a State Tax Return?
Each state sets its own rules regarding state taxes and expats. Some states require that you file a state return, while others release you when you move out of state or overseas..
What forms do expats need to complete for their Federal Income Tax Return?
Just as you did when living in the US, you need to fill out a 1040 form. The forms specifically applicable to your life as an expat are 2555 and 1116 and possibly Schedule B, the 5471. These are the forms by which you declare your foreign earned income and qualify for the Foreign Tax Credit. Schedules differ depending on your situation. If you have a foreign bank account you may also need to complete forms TDF 90-221 (FBAR) and, new in 2011, form 8938.
How do I know if I qualify for the Foreign Earned Income Exclusion?
The IRS qualifies you as eligible for the Foreign Earned Income Exclusion (FEIE) if you fall into one of three categories:
1. You are a citizen of the US who qualifies as a bona fide resident of another country.
2. You are a resident alien of the US whose home country has an income tax treaty with the US. Additionally, you must be a bona fide resident of another country.
3. You are a citizen or resident alien of the US whose physical absence from the US constitutes a minimum of 330 days out of any 365.
Can housing expenses be excluded or deducted?
It is sometimes possible to exclude and/or deduct housing expenses when living overseas. Rent, repairs, utilities and insurance are some of the things that might be deductible either in part or in whole.
Can I deduct foreign taxes paid?
Generally, the tax you owe the US on foreign income can be substantially reduced or even zero if you have already been taxed on this income in your country of residence. You can claim this either as credits on your Federal return or claim each amount as an itemized deduction. The optimal choice between deduction or credits depends on your country of residence and whether or not this country has a tax treaty with the US as often there are substantial differences between US and foreign tax laws with respect to what the foreign country taxes and what it does not tax.
What is the last day of my extension (1040), if I filed for one?
What are FBAR and Form 8938?
FBAR’s must be received by the Department of the Treasury by June 30th. There is no extension for filing this form.
FBAR Penalties. The penalties for non-filing of the FBAR range from an automatic penalty of $10,000 to 50% of the balance of the account. If IRS investigator can prove that you willfully withheld the information from the government criminal charges can be filed.
Form 8938 must be attached as an annex to your 1040. The reporting requirements of foreign financial assets are more extensive and more complicated than those for the FBAR. The threshold of foreign assets owned depend on where one is domiciled and whether one is filing married filing jointly or otherwise.
Form 8938 is required under the Foreign Account Tax Compliance Act (FATCA), passed into law in March 2010. FATCA also requires foreign financial institutions banks, brokers, pension funds, insurance companies, hedge funds, mutual funds, trusts to report to the IRS holdings of their clients who are U.S. persons. This will come into force on January 1, 2014 and will allow the IRS to cross-check between reports of foreign financial institutions and individual filings of Form 8938. All institutions that do not comply will have a 30% withholding tax imposed on all its transactions concerning U.S. securities. In addition, FATCA will require that any foreign company not listed on a stock exchange or any foreign partnership which has 10% U.S. ownership to report to the IRS the names and tax I.D. number (TIN) of any U.S. owner.
Expatriate Flight Crews, Pilots, Co-Pilots and Flight Attendants
U.S. Citizens Performing Services in Foreign and International Airspace - If you are a U.S. citizen or a resident alien of the U.S., you are taxed on your worldwide income. This applies whether you live inside or outside of the U.S., or whether you are performing services in foreign or international airspace. However, qualifying U.S. citizens and resident aliens who live and work abroad may be able to exclude from their income all or part of their foreign earned income. In addition, they may also qualify to exclude or deduct certain foreign housing costs.
To qualify for the foreign earned income exclusion, your tax home must be in a foreign country. However, even if you are based in a foreign country, if you have an abode in the U.S. you will not have a tax home in a foreign country. "Abode" has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. It does not mean your principal place of business and does not mean the same as "tax home." The location of your abode will often depend on where you maintain your family, economic, and personal ties. Having a U.S. abode will not qualify you to claim the foreign earned income exclusion.
Are you a U.S. Citizen or Resident with a Non-resident Alien spouse? If so, should you file jointly or separately?
The answer will depend upon your individual facts and circumstances. There are elections available in this area, but there are consequences to making such elections.
Have Delinquent Tax Returns?
If you have not yet filed one or more year’s tax returns by the due date, it could be crucial to file your return before the IRS requests it of you, as your ability to claim the Foreign Earned Income Exclusion could be jeopardized. Voluntary compliance will also aid in potential decrease of penalties. If you are delinquent then the chances of an IRS audit increase dramatically.
What is Foreign Earned Income Exclusion and How You Can Benefit?
Whether you are an expat living overseas, or a Government Contractor living overseas (the rules differ for Military personnel), you may qualify for tax exclusions. Essentially, if you live overseas, and you can show that you are either a Bona-Fide Resident, or pass the Physical Presence Test, there is a strong possibility that you may qualify for this exclusion.
While the IRS released in a memo in 2009 stating that it may be difficult for Government Contractors to qualify for this exclusion, it is not impossible. In fact, the same memo also provided that it is based on a case by case basis (Ex: a Government Contractor working a 4 month temporary assignment vs. a long-term, indefinite assignment). According to the IRS, to prove you are a Bona-Fide Resident, you would have to show:
1. Tax Home in Foreign Country: To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad.
Tax Home: 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.
2. You must have foreign earned income: This is pretty simple – if you earned money in a foreign income that is generally the extent of this element.
3. You must be one of the following: A U.S. citizen who is (1) A bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year; or (2) A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year; (3) A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months The great news, is that if you can show that if you qualify, you will be entitled to exclude upwards of $95,100 (2010) in otherwise taxable income.