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Tax Alert |
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As an Expatriate (Expat) American (American Citizen or
Green Card Holder living abroad) you should be aware of
several tax filing requirement that you must comply with
even though you are out of the U.S. and have no U.S.
source income. This article explains what are these
filing obligations and when do you have to submit them. |
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What do you have to file?
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The U.S. tax code has in place set of returns, form and
schedules that An American living abroad must prepare
and file. Failing to submit some of those returns may
result in large penalties and subject you to criminal
charges. On the other hand, filing all the forms and
returns listed in this article, not only put you in full
compliance with the IRS but also allow the statute of
limitations for IRS audits to expire three years after
you file those returns. It means the IRS will not be
able to go back (excluding fraud claims) and audit those
returns. |
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IRS Form 1040 - U.S.
Individual Income Tax Return
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The internal Revenue Code defines a U.S. Citizen and a
U.S. Permanent Resident (e.g. Green Card Holder) as a
U.S. person for tax purposes. As such, both are liable
for filing on a timely manner a U.S. individual tax
return, IRS form 1040 and all applicable schedules, and
report any U.S. and foreign source income taxable by
law. For example, if you work for a foreign employer in
the country where you reside, those wages are reportable
on your U.S. tax return. Additionally, any interest,
dividend or capital gains you earned in the U.S. or
outside in the U.S. is reportable as well. Should you
file a return even if your income is below the IRS
filing requirements for the year? Yes. As explained
above, filing a return start the clock on the Statute of
Limitations, therefore you should file your tax returns
even if you have no income or don’t owe taxes in order
to force the statute of limitations to run and eliminate
future problems when you decide to return to the U.S.,
the deadline for filing this return is June 15 for the
previous tax year ended December 31. |
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IRS Form 2555 - Foreign
Earned Income Exclusion
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Meeting certain
criteria will allow you to qualify
for the foreign earned income and
foreign housing exclusions and the
foreign housing deduction and
significantly reduce your taxable
foreign income. If you are a U.S.
citizen (or a U.S. Permanent resident)
living abroad, you are taxed on your
worldwide income. However, you may
qualify to exclude from income up to
$91,400 of your foreign earnings. In
addition, you can exclude or deduct
certain foreign housing amounts. To be
eligible for the foreign earned income
exclusion, the foreign housing
exclusion, or the foreign housing
deduction, you must: (1) have foreign
earned income, (2) your tax home must be
in a foreign country, and (3) you must
be one of the following: (3.a.) U.S.
citizen who is a bona fide resident of a
foreign country or countries for an
uninterrupted period that includes an
entire tax year, (3.b.) 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, or (3.c.) 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 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. The
deadline to file this form is the same
as form 1040, see above.
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IRS Form 1116 -
Foreign Earned Income Tax Credit
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The foreign tax credit is designed to eliminate (e.g.
in some cased only to lower) the double tax liability
resulting when foreign income is taxed by both the
United States and the foreign country in which it was
earned. Generally, income tax paid (as appose to
other taxes, not income tax) or accrued to a foreign
country or a U.S. possession will qualify for the
foreign tax credit. Tax paid to countries that
repeatedly provides support for acts of international
terrorism, the United States does not conduct
diplomatic relations with the country, or the United
States does not recognize the country's government does
not qualify for the Foreign Earned
Income Tax Credit and Expat American will not be able to
use. The deadline to file this form is the same as form
1040, see above.
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TD F 90-22.1- Report Of Foreign Bank
And Financial Accounts
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If you are a United States resident for
tax purposes (e.g. U.S. citizen, Green Card Holder or
reside in the U.S. for 183 days or more during the tax
year) you must file IRS form F 90-22.1 to report
financial interest in or signature or other authority
over any foreign financial accounts, including bank,
securities, or other types of financial accounts, in a
foreign country, if the aggregate value of these
financial accounts exceeds $10,000 at any time during
the calendar year. The deadline to file this form is by
June 30, of the succeeding year.
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What should you do if you have not
filed previous years?
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Many Americans living abroad unintentionally fail
to comply with the above because they incorrectly think
that living out of he U.S. means that they have
disconnected their ties to the IRS thus they are not
liable to file any US. tax returns or pay any U.S. tax.
When they learn that the IRC (Internal Revenue Code)
actually "follows" them to their foreign country, they
become concern and unsure about the right way to resolve
the issue. |
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When problem like that arise, it is highly recommended
to file a minimum of 3 (three) years of unfiled tax
returns, report your U.S. and foreign income and pay any
tax due to the IRS as soon as you become aware of the
default. We strongly suggest that you retain a tax
accountant that is experienced in issues related to
Expat taxation and that can represent you before the
IRS. Your goal is to comply with all IRS filing
requirement, pay any tax due and then apply for
penalties removal if the IRS assesses any. |
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An experienced tax accountant will be able to help you
with filing previous year returns, take advantage of the
tax breaks available to you by law (as an Expatriate
American living abroad) and then communicate with the
IRS to try and minimize penalties. |
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Conclusion
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Taking an assignment in a foreign country or simply
living outside of the U.S. does not releases you from
complying with all IRS filing requirement if you are
considered a U.S. person. Disregarding these laws,
regulations and requirements may result in significant
penalties, collection actions and even criminal charges
against you. It is easy to avoid those issues by
submitting the necessary tax returns and forms. Tax Usa,
has the expertise and experience to assist you with all
the issues listed above. |
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About Tax Usa Inc.
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Our firm
specializes in providing tax advice and
tax preparation services for expatriates
Americans. We have the knowledge,
experience and expertise to address your
expat tax concerns and make sure you are
always in compliance with the
ever-changing US tax code. When you
retain us we will accurately complete
all of your US tax forms and quickly
pinpoint all of the refund opportunities
that you may qualify for.
[more]
U.S. +1 [202] 742-6317
http://Tax-Usa.net
info@Tax-Usa.net
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Tax Services
For Expatriates |
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