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February 20, 2012
QUICK U.S. TAX FACTS FOR EXPATRIATES AND AMERICANS LIVING ABROAD
$ 9,500 (for 2011 and lower for earlier years) or have self employment-independent contractor net income of more than $ 400 US per year. You are taxable on your world wide income and required to report it regardless of whether you filed a tax return in your country of residence.
· As an US expatriate living abroad on 4/15, your 2011 tax return is automatically extended until 6/15 but any taxes due must be paid by 4/15 to avoid penalties. The return can be further extended until 10/15/12 if the proper extension is filed. You may even be able to get a further extension until 12/15if you send the IRS the proper letter.
· For 2011 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $92,900, but this exclusion is only available if you file a tax return.
· If your spouse works and lives abroad, and is qualified, she can also get at $92,900 foreign earned income exclusion. A foreign housing deduction or exclusion is also available if you earn in excess of the foreign earned income exclusion. This amount varies by country.
· You get credits against your US income tax obligation for the taxes paid to a foreign country on that same income but you must file a return to claim those credits.
· If you own 10% or more of a foreign corporation, LLC or partnership or are a beneficiary of a Foreign Trust such as a Fideicomiso in Mexico, you must file special IRS forms each year or incur substantial penalties which can be greater including criminal prosecution if the IRS discovers you have failed to file these forms.
· Your net self employment income or independent contractor income is subject to US self employment tax of 15.3% (social security) which cannot be reduced or eliminated by the foreign earned income exclusion unless you work in one of the few countries the US Social Security Administration has a social security agreement with and pay social security to those countries. If you live in one of those countries you must secure a required certificate to prove your exemption from US self employment tax.
· If at any time during the tax year your combined highest balances in your foreign bank and financial accounts such as brokerage accounts, cash surrender value of foreign life insurance policies, foreign pensions, etc. (when added together) ever equal or exceed $10,0US you must file a FBAR form with the IRS by June 30th for the prior calendar year or incur a penalty of $10,000 or more including criminal prosecution. This form does not go in with your personal income tax return and is filed separately to a different address.
· In the several past year the IRS has hired more than 2,000 new employees to audit, investigate and discover Americans living abroad who have failed to file all necessary tax forms.
· Often due to foreign tax credits and the the foreign earned income exclusion expats living abroad when filing all past year unfiled tax returns and end up owing no or very little US taxes.
· Beginning in 2011a new law is in effect which requires all US Citizens report all of their world wide financial assets if in total the value of those assets are $50,000 or more on form 8938.
· Income from certain types of foreign corporations are immediately taxable on the US shareholder's personal income tax return. If your corporation only provides your personal services to customers you may have a Foreign Personal Holding Company which would cause all income to be immediately taxable to you. Income may also be immediately taxable when the income is from investments, rents, etc. This is call “Subpart F” income.
· If you own investments in a foreign corporation or own a foreign mutual fund shares you may be required to file the IRS forms for owning part of a Passive Foreign Investment Company (PFIC) or incur additional, taxes and penalties for your failure to do so. A PFIC is any foreign corporation that has more than 75% of its gross income from passive income or 50 percent or more of its assets produce or will produce passive income.
· The IRS is now matching up your US passport with your US tax records and knows if you have not been filing all required US tax returns while you are living Abroad. The IRS will shortly start matching up information received from Foreign Banks with US tax returns and required FBAR forms. If you have not been reporting, now is the time to start.
· Download your 2011 US tax return questionnaire prepared expressly for Americans living in Abroad HERE.
Don D. Nelson, CPA, Attorney (Kauffman Nelson LLP) has been assisting US Citizens , Permanent Residents and nonresidents in over 40 countries around the world with their US tax planning, tax return preparation, and other tax / legal matters for 20 plus years. He offers his clients attorney-client privilege which is not available from other tax accountants. He has helped hundreds of US expatriates around the world “catch up” filing their past late returns most often with little or no tax cost to you the delinquent taxpayer. His main office is at 34145 Pacific Coast Highway #401, Dana Point, California 92629 USA.