2016 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

$20,700 - for a joint return or $ 10,350 - for a single return or married filing separately (these amounts are for 2016 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. There is an additional dependents deduction of $4,050 for each child (subject to citizenship and other requirements).

As a US expatriate living and working abroad 4/15/17, your 2016 tax return is automatically extended until 6/15/17 but any taxes due must be paid by 4/15/17 to avoid penalties and interest. The return can be further extended until 10/15/17 if the proper extension form is filed. An even further extension until December may be available.

✦ For 2016 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $101,400, 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. You can lose this exclusion if you file your return more than 18 months late. The exclusion can only be claimed on filed tax return and does not apply if you fail to file a tax return

✦ For 2016 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). These rules are complex and should be reviewed if you do not qualify for the expat exclusion for the entire year of 2016

✦ 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 $16,800 (for an entire year) up to a maximum amount which varies by your foreign country of residence.(For country limitations see Form 2555 instructions)

✦ You get credits against your US income tax obligation for foreign income taxes paid to a foreign country but you must file a US tax return to claim these credits. This avoids double taxation of the same income.

✦ 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 (to cause the income and foreign taxes the foreign corporation pays to flow through to your personal US tax return) 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 and only certain types of foreign business entities are eligible to make this election..

✦ 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 October 15, 2017 for the prior calendar year or incur a penalty of $10,000 or more including criminal prosecution. Foreign financial accounts often include foreign pension plans, stock brokerage accounts, and cash surrender value of foreign life insurance. This form does not go in with your personal income tax return and can only be filed separately on the web at: http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

✦ 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 form 8621 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 2016 US tax return questionnaire prepared expressly for Expatriates at www.TaxMeLess.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 Tax Attorney, Kauffman Nelson, LLP, CPAs
34145 Pacific Coast Highway #601
Dana Point, California 92629 USA
US Phone: (949) 480-1235, US Fax: (949) 606-9627
Email:ddnelson@gmail.com or ustax@hotmail.com
Skype: dondnelson

Visit our International Tax Blog for the Latest Expat and International Tax Developments at www.usexpatriate.blogspot.com / www.us-mexicotax@blogspot.com

We have been preparing tax returns and assisting US clients located in over 123 countries around the the world for over 35 years. We also assist US Nonresidents meet their US tax obligations and return filing requirements. Email, skype or phone us for immediate assistance. We offer mini consultations (with attorney client privilege) to answer your tax questions and resolve your tax issues.

For additional useful informaton and tax assistance go to www.TaxMeLess.com

Disclaimer and Conditions: The information contained herein is general in nature and is not to be construed or relied on as tax or legal advice with respect to you individual tax situation or questions. Your use of this material does not create any attorney/CPA relationship between you and this firm or any other obligation. You are advised to retain competent tax professionals help with your individual tax matters and for appropriate answers your specific tax questions.

International Taxpayers - IRS Videos on Filing Requirements and, Foreign Earned Income Exclusion

Two videos from the IRS explaing International Taxpayer Filing Requirements and the Foreign Earned Income Exclusion.

• International Taxpayers--Filing Requirements. Learn about the requirements for filing an individual income tax return including income limits while living abroad.
• International Taxpayers--Foreign Earned Income Exclusion. Find out who is eligible, what income qualifies and how to claim the exclusion

When you need help with your US expatriate, international or nonresident tax planning, problem solving, or return preparation email us at ddnelson@gmail.com or call us on skype at dondnelson. We serve US taxpayers in 123 countries around the world. Download your 2016 expat questionnaire HERE .  The  fill it out and send in for a fee quote. 

Expats... Go w to Get Away From California Tax Man Successfully

It is often very difficult to give up your California tax residency and obligation to file a California tax return even though you move abroad and no longer live in California. LEARN MORE ABOUT THOSE RULES HERE.     You may need help getting out of California tax. We can help. Email us at ddnelson@gmail.com for help.

Situations Where Foreign you Income Expat Exclusion Will NOT WORK!

If you think on form 2555 you eligible for the foreign earned income exclusion under the physical presence test, don't be so certain. Read the following link to find out how the IRS can take it away from you on a technicality. If you need help succeeding and preparing a return that will survive audit and IRS scrutiny email us. ddnelson@gmail.com

http://www.lexology.com/library/detail.aspx?g=c4304733-ff7b-4488-94a4-64261807afa5

Israel & US Now Exchanging Tax Data on Individuals

Read More Here

IRS Makes it Costly to Make a Late Flow Through or Disregarded Entity Election if Not Filed TImely for Foreign Entities

It is becoming very expensive to get a private letter ruling from the IRS.  This ruling procedure is required when you wish to make a late election to treat a foreign entity as a "flow through entity." The new fees (which are also applicable to other IRS private rulings are below:

Rev. Proc. 2017-1.  includes the new user fees for seeking relief under Treas. Reg. §301.9100 ("9100 relief").  A taxpayer might seek 9100 relief in order to make a late election, such as a late entity classification election (also known as a “check-the-box election”) on Form 8832.

The new IRS fees are effective for requests received after February 1, 2017.  The amount of the user fee depends on the gross income of the taxpayer:

1. Taxpayers with gross income of under $250,000 will have a 9% increase --- from $2,200 to $2,400
2. Taxpayers with gross income greater than $250,000 and less than $1 million will have a 17% increase --- from $6,500 to $7,600
3. Taxpayers with gross income greater than $250,000 and less than $1 million will have a 2% increase --- from $9,800 to $10,000

Best to make the election in a timely manner. Read the instructions to form No.  8832  which is filed to make the "check the box" election for both domestic and foreign business entities.  Failure to make the election can result in some situations in adverse US tax consequences.  Email us at ddnelson@gmail.com if you need assistance or wish to discuss.

Foreign Housing Exclusion or Deduction

In addition to the foreign earned income exclusion, you can also claim an exclusion or a deduction from gross income for your housing amount if your tax home is in a foreign country and you qualify for the exclusions and deduction under either the bona fide residence test or the physical presence test.

The housing exclusion applies only to amounts considered paid for with employer-provided amounts, which includes any amounts paid to you or paid or incurred on your behalf by your employer that are taxable foreign earned income to you for the year (without regard to the foreign earned income exclusion). The housing deduction applies only to amounts paid for with self-employment earnings.

Your housing amount is the total of your housing expenses for the year minus the base housing amount. The computation of the base housing amount (line 32 of Form 2555) is tied to the maximum foreign earned income exclusion. The amount is 16% of the maximum exclusion amount (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year.

Housing expenses include your reasonable expenses actually paid or incurred for housing in a foreign country for you and (if they lived with you) for your spouse and dependents. Consider only housing expenses for the part of the year that you qualify for the foreign earned income exclusion.

Housing expenses do not include expenses that are lavish or extravagant under the circumstances, the cost of buying property, purchased furniture or accessories, and improvements and other expenses that increase the value or appreciably prolong the life of your property.

You also cannot include in housing expenses the value of meals or lodging that you exclude from gross income (under the rules for the exclusion of meals and lodging), or that you deduct as moving expenses.

Also, for purposes of determining the foreign housing exclusion or deduction, your housing expenses eligible to be considered in calculating the housing cost amount may not exceed a certain limit. The limit on housing expenses is generally 30% of the maximum foreign earned income exclusion, but it may vary depending upon the location in which you incur housing expenses. The limit on housing expenses is computed using the worksheet on page 3 of the Instructions for Form 2555.

Additionally, foreign housing expenses may not exceed your total foreign earned income for the taxable year.  Your foreign housing deduction cannot be more than your foreign earned income less the total of your (1) foreign earned income exclusion, plus (2) your housing exclusion.

Although the foreign housing exclusion and/or the deduction will reduce your regular income tax, they will not reduce your self-employment tax.

Your housing expenses may not exceed a certain limit. The limit on housing expenses varies depending upon the location in which you incur housing expenses. The limit on housing expenses is computed using the worksheet on page 3 of the Instructions for Form 2555.
The foreign housing exclusion or deduction is computed in parts VI, VIII, and IX of Form 2555. Please refer to the Instructions for Form 2555 and chapter 4 of Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Need help with your expat return?  Email us at ddnelson@gmail.com

Don’t Miss Filing Deadlines Related to Foreign Income and Assets or These Great Informational Videos

All U.S. citizens and residents (green card holders) must report worldwide income on their federal income tax return. If you lived outside the U.S. on the regular due date of your tax return, the extended filing deadline for your 2016 tax return is Monday, June 15, 2017.  Similarly, the deadline to report interests in certain foreign financial accounts is the same as your tax return (with some exceptions). Here are some important tips to know if these reporting rules apply to you:

• FATCA Requirements.  FATCA refers to the Foreign Account Tax Compliance Act. In general, federal law requires U.S. citizens and resident aliens to report any worldwide income. You must report the existence of and income from foreign accounts. This includes foreign trusts, banks and securities accounts. In most cases you must report the country where each account is located. To do this file Schedule B, Interest and Ordinary Dividends with your tax return.

You may also have to file Form 8938, Statement of Special Foreign Financial Assets with your tax return. Use the form to report specified foreign financial assets if the aggregate value of those assets exceeds certain thresholds. See the form instructions for details.

• FBAR Requirements.  FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts. If you must file this form you file it with the Financial Crimes Enforcement Network, or FinCEN. FinCEN is a bureau of the Treasury Department. You generally must file the form if you had an interest in foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. This also applies if you had signature or other authority over those accounts. You must file Form 114 electronically. It is available online through the BSA E-Filing System website. The FBAR filing requirement is not part of filing a tax return. The deadline to file Form 114 is June 30.

• View the IRS Webinar.  You can get help and learn about FBAR rules by watching the IRS webinar on this topic. The title is “Reporting of Foreign Financial Accounts on the Electronic FBAR.” The presentation is one hour long. You can find it by entering “FBAR” in the search box of the IRS Video Portal home page. Topics include:

o FBAR legal authorities
o FBAR mandatory e-filing overview
o Using FinCEN Form 114; and Form 114a
o FBAR filing requirements
o FBAR filing exceptions
o Special filing rules
o Recordkeeping
o Administrative guidance

You can access IRS forms, videos and tools on IRS.gov at any time.

Additional IRS resources:

• Comparison of Form 8938 and FBAR Requirements
• International Taxpayers
• International Tax Topic Index
• FBAR Reference Guide
• Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
• IRS Tax Map
• Treasury Department End-of-Year Exchange Rates

IRS YouTube Videos – International Taxpayers:

• Introduction to the International Taxpayers Webpage
• Filing Requirements
• Filing Status If Married to a Nonresident Alien
• Foreign Earned Income Exclusion
• Individual Taxpayer Identification Number (ITIN)

Our firm has specialized in expat, nonresident and international tax returns for over 30 years. Need help or further explanation, or your return prepared, contact us.  Email us at ddnelson@gmail.com or visit our website at www.TaxMeLess.com .  

2016 FBAR (form 114) Gets an Automatic Extension of Time to File for 2016

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced that, to implement the new due date for FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), of April 15 (April 18 for 2017), it will automatically grant all taxpayers filing the form a six-month extension every year to Oct. 15 (which will be Oct. 16, 2017, because Oct. 15 is a Sunday). FinCEN explained that this six-month extension will be automatic each year and that taxpayers do not have to request extensions.

Section 2006(b)(11) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, changed the due date of FBARs to April 15 to coincide with the due date for individual income tax returns. Before the change, the form was due on June 30, a date that did not coincide with any other individual income tax return deadline, and no extensions were allowed.

The Bank Secrecy Act, P.L. 91-508, and its regulations require FBAR reporting from “[e]ach United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country” (31 C.F.R. §1010.350(a)), if the aggregate maximum values in that person’s foreign accounts exceed $10,000 at any time during the calendar year (31 C.F.R. §1010.306(c)).

- See more at: http://www.thetaxadviser.com/news/2016/dec/fbar-automatic-extension-201615731.html#sthash.4xTfczcV.dpuf

Expats and Nonresidents - Amend your Return If Original is not Correct- Easy to Avoid IRS Problems

If there are items of income or expenses, or specialized offshore reporting forms, missing from your tax return it is best to file an amended tax return. If you do not amend to correct errors (in your favor or not) and the IRS discovers the problem first, you risk severe penalties, interest and possible criminal prosecution. The amendment process is simple as described below.

1. When to amend.  You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.

2. When NOT to amend.  In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item.

3. Form 1040X.  Use Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.

Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.

4. More than one year.  If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See "Where to File" in the instructions for Form 1040X for the address you should use.

5. Other forms or schedules.  If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.

6. Amending to claim an additional refund.  If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.

7. Amending to pay additional tax.  If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.

8. When to file.  To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.

If you need assistance amending your return to make corrections, add forms 8865, 5471, 8621, or other foreign entity and asset reporting forms contact us at ddnelson@gmail.com or phone US 949-480-1235.