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
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
