Expatriate Tax Help Expatriate Tax Law- Americans Living Abroad If you are a U.S. citizen or resident alien, you have a legal obligation to file U.S. tax returns every year. You are taxed on your worldwide income, regardless of where you live. In general, the filing requirements are the same as U.S. citizens or residents living in the U.S. Of course, you are entitled to certain tax benefits, such as income exclusion, housing allowances, and foreign tax credits. There are also the not so obvious benefits! We have many years of knowledge and experience to help you pay the lowest tax, without risking a tax audit. He can also show you the not so obvious benefits. Foreign Earned Income Exclusion – Form 2555 And Form 2555-EZ To qualify generally you must live in a foreign country, and have your tax home there. By living in a foreign country, we mean not in the U.S., which includes Puerto Rico, Northern Marina Islands, Republic of Marshall Islands, Federation States of Micronesia, Guam and American Samoa. All the above have a special tax status making them equivalent to the living in U.S. Also, you must qualify as one of the following: 1) A U.S. citizen who is a bona-fide resident of a foreign country or countries for an uninterrupted period that includes a complete tax year, or 2) A U.S. resident alien who is a citizen or national 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 and entire tax year, or 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. You may be able to exclude up to $91,500 for 2010 (less for prior years) of earned income from U.S. Income Taxation. We also file several back tax years for many of our clients. The exclusion applies separately to each spouse living abroad. You must file your return and elect these exclusions on the returns. Earned income is income from your services. Interest, dividend, and rental income is not earned income. Exclusions and deductions for foreign housing expenses over the standard amount may also be claimed by U.S. citizens leaving abroad. There are rules concerning many items that need consideration. It is important to define and understand the rules concerning the following: Tax Home – including waiver of time requirements for war, civil unrest, etc. Travel Restrictions – Your presence in a foreign country can’t violate U.S. travel restrictions, especially Cuba, Libya and Iraq. Exclusion of earned income, foreign amount, foreign credits and deductions, foreign housing exclusion, housing deductions- all described in the instructions to form 2555. There are also foreign housing carryovers, foreign tax limits, and limits on how you take your deductions. This can get very confusing, even for a tax preparer with limited experience, who is just reading the instructions. It is essential to have a knowledgeable and experienced person preparing your returns. Please call us at 713-774-4467. Foreign Tax Credits – Form 1116, Or Form 1118 Do you have income that you paid foreign tax on, that is also taxed by the U.S.? You can claim the foreign tax paid as a credit against your U.S. taxes. You must file Form 1116 Foreign Tax Credit to claim it. Corporations file Form 1118. You may also be able to take an itemized deduction for your foreign taxes paid. U.S. Tax Treaties By now, the U.S. has tax treaties with most major countries. These treaties allow for tax credits so you are not paying taxes to more than one country on the same income. The treaties also extend certain rules such as for IRS audits. The IRS has three years after you file your returns to audit it. Even if you do not have taxable income, filing a return will start the three-year period. Not filing will only start the period if the IRS files an SFR, substitute for return. We also provide services for aliens living abroad. Other Expatriate Topics Military Families Did you receive benefits from the Military Families Tax Relief Act of 2003? Home Sale Preferences and Combat Pay Exclusion – two benefits that can help you. You may be also eligible to deduct home leave expenses as a miscellaneous business expense. Other Income Did you rent your property while living outside the U.S.? Your rental income is reported, along with related expenses. Dividend or other investment income? Reported, less related expenses. It can be tricky. Filing State Returns Certain taxpayers must maintain a state of domicile in the United States, and there will be tax obligations to that state. It varies by state. Social Security, Medicare, Self-Employment And Social Security Totalization If you are an employee working overseas, the normal employment taxes should be taken out. The taxes are withholding, Social Security and Medicare. There are some countries that have established a Social Security Totalization Treaty with the U.S. In this case, you participate in that country’s social insurance system. By doing so, you will not have Social Security and Medicare taxes taken out of your pay. If you are an employee of a foreign employer and subject to foreign Social Security tax laws, you are not required to pay Social Security tax to the U.S. As a self-employed person, you are responsible for all U.S. taxes, including the self-employment tax. You will file a Schedule C and Schedule SE, just like you would if you lived in the U.S. The SE tax rate is 15.3% of your net Schedule C income. Foreign credits and income exclusion do not reduce this calculation of SE tax. Information Exchange Agreements, Or Sharing Agreements The following countries have information exchange, or sharing agreements with the United States: Barbados, Bermuda, Colombia, Costa Rica, Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Marshall Islands, Mexico, Peru, St. Lucia, Trinidad and Tobago. Automatic 2 Month Extension Of Time To File For U.S. Citizens And Resident Aliens Abroad You may be able to get a 2-month extension of time, if you are a U.S. citizen or a resident alien who lives and works outside of the United States. Those citizens or resident aliens who perform military or naval service abroad may be allowed to get this extension too. In order to qualify for this automatic extension of time, which allows you to file your return by June 15th, instead of April 15th, you must show evidence of your income earned abroad. When filing a joint return, the automatic extension will apply either to you or to your spouse. If you file separate returns while married, the 2-month automatic extension will apply only to the spouse who qualifies. Penalties And Interest On Taxes Due And Extensions You can file an extension of time to file giving you until Oct. 15th, instead of April 15th. Taxes are due throughout the year, either through federal withholding or estimated taxes. Please do not confuse the extension of time to file with the extension of time to pay. Any taxes not paid when due during the year are subject to penalties and interest. Filing form 2210 may help reduce those penalties. Best Of Both Worlds – Our Experience Matters Most To You We know enough about foreign tax rules to help you get the best treatment in your situation. Don’t be fooled by discount services or fill in the blanks on line and we will produce your return companies. Knowing what questions to ask you is the key to filing properly and to reducing your taxes. One example is when to elect to split the return. Typically, if one spouse still lives in the U.S., the return is filed with the MFJ- married filing joint status. However, in some situations the overseas spouse can file married filing separately, taking advantage of the foreign earned income exclusion. The spouse in the U.S. files head of household and takes advatage of the filing status and any credits allowed to lower income taxpayers, that would not be allowed if they filed married filing joint. This is one example where paying for quality professional experience will matter most to you. Our Overseas Tax Services Call us to see how our experience in taxpayer representation coupled with our experience in expatriate taxes will benefit you more than you realize. Our overseas tax services for Americans and aliens living abroad won’t make you an expert in living overseas taxes, but you’ll feel comfortable that you have the knowledge and experience available to you. Call us now at 713-774-4467. ● If you are considering hiring us, call Joe Mastriano, CPA 713-774-4467. ● Think your IRS matter is handled? Think again! ● For your analysis, click here to email me.
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