US Expatriates Who Are Self Employed May Save Taxes With The Home Office Deduction

As an expatriate ifyou use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes.
Simplified Option
For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014), you now have a simpler option for computing the business use of your home (IRS Revenue Procedure 2013-13, January 15, 2013). The standard method has some calculation, allocation, and substantiation requirements that are complex and burdensome for small business owners. This new simplified option can significantly reduce recordkeeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses.
Regular Method
Taxpayers using the regular method (required for tax years 2012 and prior), instead of the optional method, must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
Requirements to Claim the Deduction
Regardless of the method chosen, there are two basic requirements for your home to qualify as a deduction:
1. Regular and Exclusive Use.
You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.
2. Principal Place of Your Business.
You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.
Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:
Your business use must be for the convenience of your employer, and
You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.

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MONEY Magzine has a very good article if you want to avoid an IRS audit which is expensive, times consuming and very stressful.  If you get an audit notice make certain to get a tax professional to represent you.  Why?  Because if the IRS agents asks you a question when you represent yourself you may more may not answer it to your benefit.  If you have a representative, the Agent must ask your representative and the your CPA or attorney can always stall and tell the agent they must ask their client. That gives everyone time to craft the best answer and make sure the wrong answer is not given to the agent.   READ MORE HERE

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What Foreign Taxes Qualify for the Foreign Tax Credit.... and other rules on foreign tax credits

Generally, the following four tests must be met for any foreign tax to qualify for the credit:

1. The tax must be imposed on you
2. You must have paid or accrued the tax
3. The tax must be the legal and actual foreign tax liability
4. The tax must be an income tax (or a tax in lieu of an income tax)

Tax Must Be Imposed on You

You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U.S. possession. For example, a tax that is deducted from your wages is considered to be imposed on you.

Foreign Country

A foreign country includes any foreign state and its political subdivisions. Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit.

U.S. Possessions

For foreign tax credit purposes, all qualified taxes paid to U.S. possessions are considered foreign taxes.  For this purpose, U.S. possessions include Puerto Rico and American Samoa.

Tax Must Be Paid Or Accrued

You can claim a credit only if you paid or accrued the foreign tax to a foreign country or U.S. possession.

READ MORE OF THE RULES HERE

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https://www.irs.gov/Payments

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The foreign earned income exclusion is not automatic. US expats must file returns to claim it. If you file your return for any year late (more than 18 months), the IRS can deny the exclusion (and you would have to pay tax on your entire income--- but could still take foreign tax credits) if you owe taxes with the return. If your never file a return the statute of limitations for the IRS to assess taxes or require a return never expires!

Need help catching up or filing your return?  Need US International, Expatriate or Nonresident tax assistance. Go to www.TaxMeLess.com.  We offer all of your clients the absolute privacy of attorney-client privilege. We have over 30 years specialized experience in expatriate and nonresident US taxation.

Home Office Deduction for US Expatriate Taxpayers

If you use your home for business when working abroad, you may be able to deduct expenses for the business use of your home. If you qualify, you can claim the deduction whether you rent or own your home. You may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction:

1. Regular and Exclusive Use. As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:

Your principal place of business, or
A place where you meet clients or customers in the normal course of business, or
A separate structure not attached to your home. Examples could include a garage or a studio.
2. Simplified Option. If you use the simplified option, multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the rules for claiming a home office deduction.

3. Regular Method. This method includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.

4. Deduction Limit. If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.

5. Self-Employed. If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.

6. Employees. You must meet additional rules to claim the deduction if you are an employee. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

For more on this topic, see Publication 587, Business Use of Your Home. You can view, download and print IRS tax forms and publications on IRS.gov/forms anytime.  Have questions write us for help at ddnelson@gmail.com or visit our website for a wealth of information at www.TaxMeLess.com