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December 1, 2014

2014 Fast Tax Facts for US Expatriates and Green Card Holders Living and Working Abroad


If you are a US Citizen you must file a US tax return every year unless your taxable income is less than
$20,300 - for a joint return or $ 10,150 - for a single return or married filing separately (these amounts are for 2014 and are lower for earlier tax years) or have self employment-independent contractor net self employment income of more than $ 400 US per year. You are taxable on your worldwide income regardless of whether you filed a tax return in your country of residence. You must file a tax return each year if you income exceeds the amounts stated above even if you owe no tax.

As a US expatriate living and working abroad 4/15, your 2014 tax return is automatically extended until 6/15/15 but any taxes due must be paid by 4/15/15 to avoid penalties and interest. The return can be further extended until 10/15/15 if the proper extension form is filed. An even further extension may be available.

For 2014 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $99,200, but this exclusion is only available if you file a tax return. You must qualify under one of two tests to take this exclusion: (1) bonafide resident test or (2) physical presence test. You can read more about how to qualify in IRS Publication 54. This exclusion only applies to income taxes and does not apply to US self employment tax (social security plus medicare). You spouse who lives and works abroad with you will also be able to use this exclusion against any earned income they have abroad.

For 2014 if you qualify for the entire year for the foreign earned income exclusion (form 2555) you will be excluded from having to comply with the health insurance rules (or possible penalties) of Obamacare (ACA).

If your foreign earnings from wages or self employment exceed the foreign earned income exclusion you can claim a housing expense for the rent, utilities and maintenance you pay if those amounts that exceed a minimum amount of $15,872 (for an entire year) up to a maximum amount which varies by your foreign country of residence.

You get credits against your US income tax obligation for income taxes paid to a foreign country but you must file a US tax return to claim these credits.

If you own 10% or more of a Foreign corporation or Foreign partnership (LLC) you must file special IRS forms or incur substantial penalties which can be greater including criminal prosecution if the IRS discovers you have failed to file these forms.

If you create a foreign trust or are a beneficiary of a foreign trust you may be obligated to file forms 3520 and /or 3520A each year to report those activities or be subject to severe penalties. Foreign foundations and non-profits which indirectly benefit you may be foreign trusts in the eyes of the IRS.

Your net self employment income in a foreign country (earned as an independent contractor or in your own sole proprietorship) is subject to US self employment tax (medicare and social security) of 15.3% which cannot be reduced or eliminated by the foreign earned income exclusion. The one exception is if you live in one of the very few countries that have a social security agreement with the US and you pay that countries equivalent of social security. Your investment income (passive income) may also be subject to a 3.8% additional medicare tax if you income as a married filing jointly exceeds $250,000 or $200,000 if filing as single.

Forming the correct type of foreign corporation and making the proper US tax election with the IRS for that corporation may save you significant income taxes and avoid later adverse tax consequences. You need to take investigate this procedure before you actually form that foreign because it can be difficult to make that election later.

If at any time during the tax year your combined highest balances in your foreign bank and financial accounts (when added together) ever equal or exceed $10,000US you must file a FBAR form 114 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 can only be filed separately on the web at:
In the past several years the IRS has hired thousands of new employees to audit, investigate and discover Americans living abroad who have failed to file all necessary tax forms. These audits have begun and will increase significantly in the future. The IRS gets lists of Americans applying or renewing for US passports or entering the country. They will compare these lists with those who are filing US income tax returns and take action against those who do not.

Often due to foreign tax credits and the the foreign earned income tax expats living abroad who file all past year unfiled tax returns end up owing no or very little US taxes. The IRS has several special programs which will help you catch up if you are in arrears which will reduce or possibly eliminate all potential penalties for failing to file the required foreign asset reporting forms. We can direct you to the best program for your situation, prepare the returns and forms and represent you before the IRS.

Beginning in 2011 a new law went into effect which requires all US Citizens report all of their world wide financial assets with their personal tax return if in total the value of those assets exceed certain minimum amounts starting at $50,000 . Failure to file that form 8938 on time can result in a penalty of $10,000. The form is complex and has different rules that apply to you if you live abroad or live in the US. This form is required in addition to the FBAR form. 114.

Certain types of income of foreign corporations are immediately taxable on the US shareholder's personal income tax return. This is called Subpart F income. The rules are complex and if you own a foreign corporation you need to determine if these rules apply to you when you file the required form 5471 for that corporation.

If you own investments in a foreign corporation or own 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.

Download your 2014 US tax return questionnaire prepared expressly for Expatriates at www.TaxMeLess.com or www.expatattorneycpa.com Send us your completed questionnaire and we will immediately provide you with a flat fee quote for preparing your return.

Don D. Nelson, US Attorney, CPA, Kauffman Nelson, LLP
Dana Point, California 92629 USA
US Phone: (949) 481-4094, US Fax: (949) 606-9627Email:ddnelson@gmail.com or