Posted by Don W on August 20, 2010 under Expatriate Taxes, Relocation and Taxes
Q: My wife is a dual Australian / US Citizen. We are now residents of (and homeowners in) Australia. In June 2009, we incurred approximately $10,000 in moving expenses from Tennessee to Australia. Are any of our moving expenses to Australia deductible? Does US Tax Code allow us to deduct any of the mortgage interest or taxes paid for our primary residence in Australia?
Also, my wife and I have spent only 10 days in the USA since July 2008, so for TY 2010, 330 Rule is assured. Given the benefit of US Taxes 330 Rule, is it better to file as a US Citizen and offset Australian tax liabilities against that filing?
A: For Federal purposes you can deduct your moving expenses. You can also deduct foreign mortgage interest on Schedule A.
As for filing, there is only one option - all US citizens are required to report their worldwide income to the IRS each year. You can get a tax credit for foreign taxes paid, but your US tax return is still your primary tax return (in the eyes of the IRS).
Posted by Don W on August 2, 2010 under Expatriate Taxes
Q: I am a US expat living in Brazil. I am trying to find some data on US expats taking cruises. I recall something about if a cruise departs from a US port, it will still be considered as time in the US and would count against the physical presence requirements. I have checked the IRS website as well as the State Dept Travel website, but I have been unsuccessful in finding the answer to this question.
A: If you are living in Brazil, then your tax home is Brazil. That doesn’t change because you are on a cruise for a week or two. In this instance, you are still outside of the US and you have established a tax home already.
However, all bets are off if you are wondering if you can live on a cruise ship and also qualify for the Foreign Earned Income Exclusion.
The Physical Presence Test has two parts:
You must meet both. For more information on this test check out the Foreign Earned Income Exclusion section of the Expat Tax Basics page on our main site.
Posted by Don W on May 13, 2010 under Business Tax Issues, Expatriate Taxes
Q: I have been in Finland for 12 years, and I am returning the the United States and filing previous year’s taxes. I am confused by the apparently contradictory information that I find in the the 2009 IRS publication 54, page 11, titled “Exemption from Social Security and Medicare Taxes”.
I paid all my self employment taxes in Finland dutifully all the years I lived there, and understand the Totalization Agreement with Finland means I don’t have to pay them again in the US, but my accountant says I have to pay the 15.3% Self-Employment tax.
Who is correct?
A: The basic rule is this – you must be paying into one system or the other (assuming there is a Totalization Agreement).
In your case, if you have been paying into Finland’s social system then you would not be required to pay Self-Employment tax on the income. You would just be required to pay income tax.
Please check out the SocialSecurity.gov overview of the Totalization Agreements by country (you can also find full text of the Agreements on the site). Keep in mind that these agreements only apply to the years spent abroad. Once you return to the US you will again be responsible to US system.
Posted by Don W on under Business Tax Issues
Q: Hello, I am a U.S. citizen living in Europe and I am a partner in 2 separate companies here, with 50% in one and between 30% and 50% in the other. I am very confused and have several questions.
- As I live full time abroad, I get a 2-month extension for filing until June 15th, correct?
- What forms do I need to include with my 1040? As I understand it, I need the 2555 and the 5471?
- As I am a partner and receive distribution of earnings rather than a salary, this does not qualify as foreign earned income so I cannot elect the foreign earned income exclusion, correct? So would I still need the 2555 form?
- Income taxes and SS are taken from my earnings here. Do I qualify for US tax credit?
A: I will answer your questions in the order you presented them.
- Yes, you an get automatic extension until June 15th.
- From what you have presented you will need at the very least Form 2555, Form 1116 and
- If you are receiving distributions — and NOT dividends — for work done then yes, it does qualify as Earned Income. Additional details about your situation would help us to provide a more specific answer.
- Income taxes and Social Security are two different issues. If you paid income tax you probably qualify for the Foreign Tax Credit (see number 1). Social Security is governed by whether or not there is a Totalization Agreement with the country in which you are residing. If there is, then, generally, you are only required to pay into one system. But you must pay into one or the other.
Posted by Don W on under Expatriate Taxes, First Time Filing as an Expat
Q: Hi, I’m American but I live in the Netherlands and am married to a Dutch citizen. I am not an expat, as I’m on a highly skilled migrant visa and I work for a Dutch company, earning euros. I’ve been told that I need to file a tax return in the US– can you advise?
A: Because you are a US citizen living and working abroad, you are an expat. Let me qualify that – by our definition you are an expat!
All US citizens are required to report their worldwide income each year. You do have to file.
Based on what your question it looks like you will have to file Married Filing Separate instead of Married Filing Joint. If your husband is a non-resident alien with no exposure to the US then you must file MFS.
There’s good news, though: the IRS provides two tools to help reduce, or eliminate, double taxation. The first is the Foreign Earned Income Exclusion, which if you qualify, allows you to exclude up to $91,500 for the 2010 tax year. The second tool is the Foreign Tax Credit. This, potentially, gives you a dollar-for-dollar credit against your US taxes for taxes paid to foreign country.
It is more complex than that and various factors can determine the outcome. But, that is the gist of it.
Our web site has a great deal of information about expat filing requirements on our Expat Tax Basics page.
Posted by Don W on under Expatriate Taxes, Relocation and Taxes
Q: I would like some information regarding expatriate tax as related to my somewhat unique situation. My company is planning to send me to the Dominican Republic to work with our offshore partners. Here are the specifics of my situation:
- I will be working in the Dominican Republic for 1-3 years
- I will be paid by my company in the US
- My company has not incorporated in the Dominican Republic
- I will simply be working with companies in the DR but will be working for and getting paid by my company in the US.
- I plan to travel to the US at least twice each year, probably around Christmas and the 4th of July.
- What are my options? Thanks again in advance for any information you can provide.
A: The MOST important thing to remember is whether or not you will qualify for the Foreign Earned Income Exclusion. That is where the 330 day rule comes from.
All the time you return for meetings, vacation, medical emergencies, etc. count against it. Are you going to be paying taxes in the Dominican Republic? If so, you will also be eligible for the Foreign Tax Credit.
You can also find a great deal of information on our Expat Tax Basics page on our main site.
Posted by Don W on April 22, 2010 under Estate Tax and Planning, Tax Matters in the News
Though we don’t like to think about it, it remains a fact that anything can happen to anyone, at any time – but through a handful of small actions, you can make things easier for your close family and friends: by making your important documents easier to find in an emergency.
Four years ago, my brother keeled over (a cardiac event, it was called) and over the course of the next three days, while he was unconscious, it was left to the neighbors to search through his home to find any Health Care Directives, Power of Attorney papers and – if worse came to worst – a will. The closest neighbor reported to me by phone that all such documents were eventually found, but in three different rooms throughout the house. It made them frantic.
To avoid such a scenario in your own life, consider taking a bit of time to assemble a paper trail – and share it with at least a few close, trusted neighbors, friends or relatives. Make it easier for them to help you.
A recent article in the New York Times provides a practical approach to putting together your own paper trail. It may come in handy some day!
Posted by Don W on March 17, 2010 under Expatriate Taxes, Foreign Bank Account Reporting (FBAR), Tax Matters in the News
The IRS has made yet another change to what’s known as FBAR– they have “temporarily suspended the requirement to file a Report of Foreign Bank and Financial Accounts for the 2009 and earlier calendar years, for people who are not U.S. citizens, residents or domestic entities”.
Announcement 2010-16 (PDF) temporarily suspends the requirement to file Form
TD F 90-22.1, also known as the FBAR, as the IRS tries to clear up the definition of “United States person.” In addition, the IRS issued Notice 2010-23 (PDF), which provides FBAR filing relief for some persons with signature authority and who own commingled funds.
. . . After receiving a significant number of public comments, the Treasury Department published proposed FBAR regulations to provide taxpayers with guidance on who is required to file FBARs due on June 30, 2010, and how to answer FBAR-related 2009 federal income tax return questions.
The IRS and the Treasury Department now believe it is appropriate to provide the following administrative relief: The requirement to file an FBAR due on June 30, 2010, is suspended for persons who are not U.S. citizens, U.S. residents, or domestic entities. Additionally, all persons may rely on the definition of “United States person” found in the July 2000 version of the FBAR instructions to determine if they have an FBAR filing obligation for the 2009 and earlier calendar years. The definition of “United States person” there is: (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.
This substitution of the definition of “United States person” applies only with respect to FBARs for the 2009 calendar year and to earlier calendar years.
All other requirements of the 2008 version of the FBAR form and instructions, as modified by Notice 2010-23, remain in effect until changed by subsequent guidance issued by the Treasury Department, including the IRS.
- excerpted from WebCPA – Feb 26, 2010
Posted by Don W on February 22, 2010 under Expatriate Taxes, First Time Filing as an Expat, Relocation and Taxes
Q: This is my first year abroad and I have been away since April 2009. I was a resident of Oregon in the beginning of 2008 then California as of May 2008. What do i need to do/know to file taxes? Do I automatically get the extension for filing or do i need to file by April 15th since its my first year?
A: From your email it looks like you will need to file Part Year Resident returns in both states. It would depend on income generated in each state, if any, etc.
All US citizens are required to report their worldwide income to the IRS on their tax return. The two primary forms required for expat returns, in addition to the usual Form 1040, etc., are Form 2555 (PDF) – Foreign Earned Income Exclusion (instructions) and Form 1116 (PDF) – Foreign Tax Credit (instructions).
Yes, you get automatic a 2 month extension until June 15th. However, if you want to extend until October you will need to file for extension by April 15th. Make sure to check with each state to see if they accept the federal extension or whether you need to file an extension with the state as well. Filing an extension is never a bad idea for expats—gives you time to decide what you are going to do.
Posted by Don W on under Expatriate Taxes, First Time Filing as an Expat
Q: I am a US expat living abroad and I was wrongly informed that I did not need to file a return if I didn’t earn more than a certain amount per year and lived outside the US as there is an exclusion. This was some years ago, I cannot recall the last year I filed a return and I am now very worried as I have recently been informed that I may have been required to fill in a form each year. I don’t know where to begin now.
I don’t know how to find out when my last return was filed and do I need to file a return for all the years I haven’t filed? What forms do I need? Can I file forms retroactively? Should I contact the IRS for help or should I file all years before contacting them?
A: You can look at your situation on the bright side: at least you are getting back into compliance when you are under no pressure! You never know if it might have come back to haunt you at a time when you could least afford it.
Your situation is not as bad as it appears. Regardless of when you last filed, what you need to do is file the most recent three years. This is what we always recommend to our clients. Technically, the IRS requires six years, but the unspoken rule is three. Then, if the IRS requests additional years the taxpayer can provide them.
Your tax return will use the same forms you would have used if you had been in the US with the addition of two forms that are specific to most expatriates: Form 2555 (PDF) – Foreign Earned Income Exclusion (instructions) and Form 1116 (PDF) – Foreign Tax Credit (instructions). The way the tax system works in the US is that a taxpayer must declare all income regardless location.
For information about basic expat tax filing requirements – as well as income exclusions, housing deductions and foreign tax credits available to US expats – please visit our Expat Tax Basics page.
