US Expat Taxes – Everything You Need to Know
10 Aspects of Your US Expat Taxes You Need to Understand as an American living abroad
The United States is one of the few countries that taxes citizens on their worldwide income, regardless of where that income is earned and where they live. Greenback Expat Tax Services is here to help you make sense of the complicated rules associated with US Expat Taxes.
This article focuses on the key areas of your US Expat Taxes that you need to be aware of. We run a weekly series focusing on different elements of US expat taxes on our website as well (focusing on these items and more) so be sure to check it out!
1- The Foreign Earned Income Exclusion
Qualifying US citizens who live and work abroad may be able to save a lot of money on their expatriate tax return by filling out the form for the foreign earned income exclusion. In order to qualify, a US citizen or resident alien must have earned income in a foreign county, a regular place of business outside the US, and must meet the bona fide residence or physical presence test. This exclusion is claimed on Form 2555, and attached to Form 1040. If you qualify for the foreign earned income exclusion on your US Expatriate tax return, you may also qualify for the foreign housing credit, which would allow you to deduct up to $27,450 of your foreign housing costs.
2- The Foreign Tax Credit
It is common for a US citizen living abroad to be taxed by both their host country and the United States. The Foreign Tax Credit was designed by the IRS to reduce the burden of double taxation on US expats. US citizens may elect to claim a credit for foreign income taxes paid on their US expat taxes. This credit is claimed on Form 1116 and allows you to reduce your US tax burden by what you have paid to the foreign government.
3- Understanding Foreign Exchange Impact
When filing your US Expat taxes, it is important to note that all of the amounts must be reported in US dollars. The IRS prefers that each transaction is converted to US dollars at the daily rate, but they are also willing to accept an average annual rate in cases of numerous transactions. Depending on the fluctuation of current foreign exchange rates, choosing the right method can yield significant tax savings for you and your family. For example, let’s say you received a 50,000 EUR bonus on May 20, 2010. Using the 2010 annual average rate would translate this bonus to $66,225 USD. However, using the daily rate for May 20, 2010 would translate the bonus to $61,335 USD. As you can see, in this case using the daily rate would yield you a higher tax savings on your US Expat taxes than using the annual average rate.
4- Issues with Dual Taxation
Similar to the Foreign Tax Credit, the US has arranged tax treaties with more than 50 countries in an attempt to avoid dual taxation of US citizens living abroad. Generally, the treaties work to allocate an individual’s income only to the source of earnings. You can obtain detailed information about the provisions of each of the treaties in the IRS Publication 901 and determine how these treaties affect your US Expat taxes.
5- Social Security
As an American living abroad, you are still entitled to receive Social Security benefits. The United States has developed agreements with 24 countries in an attempt to eliminate dual taxation and ensure benefit protection for recipients. The Social Security Administration has issued Publication 05-10137 which helps expatriates manage their social security benefits while living in another country. Country specific information is also available on the Social Security website. Visit www.SSA.gov, then search for your specific country.
6- Do You Have to File State taxes?
Each of the fifty states varies in how they determine the filing requirements of your US Expat taxes. Some states have no personal income tax at all, such as Florida, Texas and Washington. On the other hand, some states, such as California and Virginia, consider whether you have retained certain rights as a US citizen, such as ownership of assets, financial accounts and a driver’s license to determine your future “intent.” If they determine that you intend to return to the state you previously resided in, they may still require you to file a tax return.
7- Foreign Bank Accounts
If you are a US citizen that has one or more foreign account(s) and the cumulative balance of these accounts exceeded $10,000 at any time during the calendar year, you must file Form TDF 90-22.1 Report of Foreign Bank and Financial Accounts (FBAR) by June 30 each year. This form is filed separately from your US Expat taxes, and must be received, not just postmarked, by the Treasury on June 30th.
8- Dates for filing
Normally, US citizens are required to file their US income tax returns by April 15. However, a US citizen living abroad is entitled to an automatic extension to file their US Expat taxes until June 15. Despite the automatic extension, all US Expat taxes still need to be paid by April 18, 2011 to avoid any interest charges.
9- Voluntary disclosure
The IRS is currently offering an opportunity for people who may have failed to report their foreign financial accounts to get current on their US expat taxes. This opportunity will end on August 31, 2011. This initiative offers a reduced penalty to those who are out of compliance, and frees you from the possibility of criminal prosecution. In order to become current with their US Expat taxes, participants must file all original and amended tax returns and make all applicable payments for taxes, interest and penalties by the August 31, 2011 deadline.
10- Getting an extension
US expats can receive an automatic extension to file their US expatriate taxes by simply attaching a statement to Form 1040 when filed by June 15. An additional extension to October 15th can be requested as well via Form 4868. Expatriates who need additional time to meet the bona fide residence or physical presence test may request an extension on Form 2350. The extension is generally granted for an additional 30 days after either of the tests have been met.
The above is meant to be an overview only- please consult with a tax professional for assistance filing your US expat taxes.
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Requesting an IRS Extension of Time
Simply submit your the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (Form 4868) to request an Extension of time to Submit Your Internal Revenue Service Taxes. This form will have to be submit yourd by April 15th. To prevent the long wait at the post office on Tax Deadline Day, we advocate this process ahead of the due date.
Requirements for an Internal Revenue Service Extension of Time to File Internal Revenue Service Taxes
There is certainly usually a down side in terms of the Internal Revenue Service. If you’d like an Internal Revenue Service Extension of Time to Submit Internal Revenue Service Taxes, you must meet their specifications. Here is the official set of requirements you will need to satisfy before you qualify for an Extension of Time to File IRS Taxes.
- Enter your full tax liability estimation on line 4 of the Application for Automatic Extension of Time to Submit Your U.S. Individual Income Tax Return, and
- Submit Form 4868 by the regular due date of your return
- Properly approximate your tax liability using the details readily available to you
Take note: The IRS Extension of Time to Submit Your is not in any way an Extension of time to pay what you owe. Your debt is routinely due April 15th. No exceptions. If you don’t pay your taxes by the deadline, you’ll be charged penalty fees and interest. Form 4868 does not in any way extend the time to pay taxes.
At Any Time You you Can’t pay what you owe the IRS by the April 15th due date, contact a reliable tax expert or tax resolution organization and discuss possible options. It truly is important that do this prior to you having an enormous debt is on your shoulders.
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In order to request an Extension of your time to submit Internal Revenue Service Taxes, simply submit your Form 4868 (Application for Automatic Extension of Time to Submit Your U.S. Individual Income Tax Return). You should submit your this form by April 15th. We recommend carrying this out before the deadline to prevent the delays of Tax Day! Qualifying for an Internal Revenue Service Extension of Time to Submit Your IRS Taxes
The Internal Revenue Service likes things complicated. You’ll find conditions to be met if you would like to File Internal Revenue Service Taxes using an Internal Revenue Service Extension of time. The official list of qualifications you have to meet before you qualify for an Extension of Time to File IRS Taxes is below.
- Submit Form 4868 by the regular due date of your return
- Properly approximate your tax debt using the details you have available
- Enter your total tax liability on line 4 of the Application for Automatic Extension of Time to Submit Your U.S. Individual Income Tax Return, and
Don’t Overlook: An Extension of Time to File is not an Extension of Your Time to cover the taxes that you owe. No matter what, they are due April 15th. No exceptions. If you can’t pay on, you’ll be slapped with penalties and interest. Form 4868 does not in any way extend the time to pay what you owe. Get in touch with a reliable tax expert or tax resolution service and discuss possible solutions in case you you Can’t pay your tax debt by the April 15th deadline. You will need to do that prior to you winding up with an enormous debt is on your shoulders.