Qualifying for the Foreign Earned Income Exclusion Physical Presence - When You Have Foreign Residence or Tax Domicile

The IRS can cause you problems if you claim a foreign residence for the Physical Present Test when attempting to use the  foreign earned income exclusion on your tax return. Factors that are looked at to determine if you have a foreign residence are:

In Sochurek v. CIR, the Court of Appeals for the Seventh Circuit listed some of the factors to be weighed in determining a taxpayer's residence:

a. The taxpayer's intention.

b. Establishment of a home temporarily in the foreign country for an indefinite period.

c. Participation in the activities of the community on social and cultural levels, identification with the daily lives of the people, and, in general, assimilation into the foreign environment.

d. Physical presence in the foreign country consistent with the taxpayer's employment.

e. The nature, extent, and reasons for temporary absences from the foreign home.

f. Assumption of economic burdens and payment of taxes to the foreign country.

g. Status of a resident of the foreign country as contrasted to that of a transient or sojourner.

h. The taxpayer's employer's classification of the taxpayer's income tax status.

i. Marital status and residence of the taxpayer's family.

j. Nature and duration of his employment; whether his assignment abroad could be promptly accomplished within a definite or specified time.

k. Whether the taxpayer's purpose in establishing a foreign home is tax evasion.

Want help with your tax return or have expat or international tax questions. Email us at ddnelson@gmail.com.  We have been doing expat taxes for over 30 years.

IRS DELAYS 2013 FILING START DATE

Due to government shut downs in 2013, IRS will not start processing 2013 Tax returns until end of January 2014.  We have noted that the IRS is slow or running behind on almost everything else too. The filing deadlines have not been extended!

We can still get started on your expat or nonresident tax return right now so you can file by the date the IRS is ready to go.  You can download our forms at our website at www.TaxMeLess.com 

New Tax Law Changes for 2013

What's New

Future developments. For the latest information about the tax law topics covered in this publication, including information about any tax legislation, go to www.irs.gov/pub17.

Additional Medicare Tax. Beginning in 2013, a 0.9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than:

• $125,000 if married filing separately,
• $250,000 if married filing jointly, or
• $200,000 for any other filing status.

See Form 8959 and its instructions.

Net Investment Income Tax. Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). The NIIT is 3.8% of the smaller of (a) your net investment income or (b) the excess of your modified adjusted gross income over:

• $125,000 if married filing separately,
• $250,000 if married filing jointly or qualifying widow(er), or
• $200,000 if any other filing status.

See Form 8960 and its instructions.

Change in tax rates. The highest tax rate is 39.6%. For more information, see the 2013 Tax Computation Worksheet or the 2013 Tax Rate Schedules near the end of this publication.

Tax rate on net capital gain and qualified dividends. The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some taxpayers. See chapter 16.

Medical and dental expenses. You can deduct only the part of your medical and dental expenses that is more than 10% of your adjusted gross income (7.5% if either you or your spouse is age 65 or older). See chapter 21.

Personal exemption amount increased for certain taxpayers. Your personal exemption is increased to $3,900. But the amount is reduced if your adjusted gross income is more than:

• $150,000 if married filing separately,
• $250,000 if single,
• $275,000 if head of household, or
• $300,000 if any other filing status.

Limit on itemized deductions. You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than:

• $150,000 if married filing separately,
• $250,000 if single,
• $275,000 if head of household, or
• $300,000 if any other filing status.

Same-sex marriages. If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. See chapter 2.If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. For details on filing amended returns, see chapter 1.

Health flexible spending arrangements (FSAs). You cannot have more than $2,500 in salary reduction contributions made to a health FSA for plan years beginning after 2012. See chapter 5.

Expiring credits. The plug-in electric vehicle credit and the refundable part of the credit for prior year minimum tax have expired. You cannot claim either one on your 2013 return. See chapter 37.

Ponzi-type investment schemes. There are new rules for how to claim a theft loss deduction on Form 4684 due to a Ponzi-type investment scheme. See chapter 25.

Home office deduction simplified method. If you can take a home office deduction, you may be able to use a simplified method to figure it. See Publication 587.

Standard mileage rates. The 2013 rate for business use of your car is increased to 56½ cents a mile. See chapter 26.The 2013 rate for use of your car to get medical care is increased to 24 cents a mile. See chapter 21.The 2013 rate for use of your car to move is increased to 24 cents a mile. See Publication 521, Moving Expenses.

Reminders

Listed below are important reminders and other items that may help you file your 2013 tax return. Many of these items are explained in more detail later in this publication.

Enter your social security number (SSN). Enter your SSN in the space provided on your tax form. If you filed a joint return for 2012 and are filing a joint return for 2013 with the same spouse, enter your names and SSNs in the same order as on your 2012 return. See chapter 1.

Secure your tax records from identity theft. Identity theft occurs when someone uses your personal information, such as your name, SSN, or other identifying information, without your permission, to commit fraud or other crimes. An identity thief may use your SSN to get a job or may file a tax return using your SSN to receive a refund. For more information about identity theft and how to reduce your risk from it, see chapter 1.

Taxpayer identification numbers. You must provide the taxpayer identification number for each person for whom you claim certain tax benefits. This applies even if the person was born in 2013. Generally, this number is the person's social security number (SSN). Seechapter 1.

Foreign source income. If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U.S. law. This is true whether you live inside or outside the United States and whether or not you receive a Form W-2 or Form 1099 from the foreign payer. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents and royalties). If you live outside the United States, you may be able to exclude part or all of your foreign source earned income. For details, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Foreign financial assets. If you had foreign financial assets in 2013, you may have to file Form 8938 with your return. Checkwww.IRS.gov/form8938 for details.

Automatic 6-month extension to file tax return. You can use Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, to obtain an automatic 6-month extension of time to file your tax return. See chapter 1.

Include your phone number on your return. To promptly resolve any questions we have in processing your tax return, we would like to be able to call you. Please enter your daytime telephone number on your tax form next to your signature and occupation. If you are filing a joint return, you can enter either your or your spouse's daytime phone number.

Payment of taxes.  You can pay your taxes online, by phone, or by check or money order. You can make a direct transfer from your bank account or use a credit or debit card. If you e-file, you can schedule an electronic payment. See chapter 1.

Faster ways to file your return. The IRS offers fast, accurate ways to file your tax return information without filing a paper tax return. You can use IRS e-file (electronic filing). See chapter 1.

Free electronic filing. You may be able to file your 2013 taxes online for free. See chapter 1.

Change of address. If you change your address, you should notify the IRS. See Change of Address in chapter 1.

Refund on a late filed return. If you were due a refund but you did not file a return, you generally must file your return within 3 years from the date the return was due (including extensions) to get that refund. See chapter 1.

Frivolous tax returns. The IRS has published a list of positions that are identified as frivolous. The penalty for filing a frivolous tax return is $5,000. See chapter 1.

Filing erroneous claim for refund or credit. You may have to pay a penalty if you file an erroneous claim for refund or credit. See chapter 1.

Privacy Act and paperwork reduction information.  The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and the Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you what our legal right is to ask for the information, why we are asking for it, how it will be used, what could happen if we do not receive it, and whether your response is voluntary, required to obtain a benefit, or mandatory under the law. A complete statement on this subject can be found in your tax form instructions.

Customer service for taxpayers. You can set up a personal appointment at the most convenient Taxpayer Assistance Center, on the most convenient business day. See How To Get Tax Help in the back of this publication.

Preparer e-file mandate. Most paid preparers must e-file returns they prepare and file. Your preparer may make you aware of this requirement and the options available to you.

Treasury Inspector General for Tax Administration.  If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call  1-800-366-4484 (call  1-800-877-8339 if you are deaf, hard of hearing, or have a speech disability, and are using TTY/TDD equipment). You can remain anonymous.

2013. IRS MEDICARE TAX ON INVESTMENT INCOME EXPLAINED

https://www.youtube.com/watch?v=KKw7n3wS58U&feature=youtube_gdata_player

Expats - IRS Finally Tries to Make It Easier for You to Find Answer`

The IRS has released an International, Nonresident and Expatriate tax index.  They call it Tax Map.  Hopefully it will answer your questions... but those answers may not be understandable.  That is where you may still need a US International Tax Expert.  You can go to the Tax Map here.

Topics covered run from Alien Departure Permits to Working Abroad.  If you need further help email us at ddnelson@gmail.com or visit our website at www.TaxMeLess.  where many of these complex tax issues are simplified.

The latest expat and international developments are immediately posted at our blog: www.usexpatriate.blogspot.com 

What to do when you have an undisclosed foreign account

What to do when a client has an undisclosed foreign account from the Journal of Accountancy. An excellent article with lots of good tips on how to handle the situation with the IRS

What is Correct FBAR Statute of Limitations? 6 years or ???

You still may not be safe after six years.  Closing the foreign account and not filing could make things worse!  Read more below:

http://www.forbes.com/sites/robertwood/2013/12/17/whats-the-fbar-statute-of-limitations/

IRS NEW INTERNATIONAL TAX INDEX FOR ALL ANSWERS?

IRS Tax Map http://taxmap.ntis.gov/taxmap/

12 Countries to Exchange Taxpayer Info With IRS

See list of countries and details of agreements below

http://mobile.businessweek.com/news/2013-12-16/12-agreements-signed-to-help-u-dot-s-dot-fight-offshore-evasion-taxes

US EXPAT ARE STILL SUBJECT TO ESTATE & GIFT TAXES

Read below. As an expat you must include your assets everywhere in the world. Gifts include those made abroad.  Green card holders living abroad are not covered by these rules and will owe US estate taxes on US based assets exceeding $60,000 in total value.

http://www.timesdispatch.com/business/investment/time-to-check-the-list-for-financial-and-estate-planning/article_d9aa1b36-595b-5072-8360-5fe54d0dacab.html?mode=jqm

2014- Four Estate Planning Tips You Need to Know

http://www.fool.com/how-to-invest/personal-finance/taxes/2013/12/11/estate-tax-in-2014-4-things-you-need-to-know.aspx

What To Do When Your Foreign Banks Asks Questions

What To Say When (Not If) Your Offshore Bank Asks, 'Are You Compliant With IRS?' http://www.forbes.com/sites/robertwood/2013/12/04/what-to-say-when-not-if-your-offshore-bank-asks-are-you-compliant-with-irs/

IRS COLLECTING PENALTIES FOR LATE FILED FORMS 5471- INFORMATION REPORTS ON FOREIGN CORPORATIONS

Read more in article from Accounting Today. http://www.accountingtoday.com/news/IRS-Gets-Better-Assessing-Penalties-Late-Reporting-Foreign-Corporations-68888-1.html

US Signs FATCA Agreements With Cayman Islands, Costa Rica

Read More Here.  US Signs FATCA Agreements With Cayman Islands, Costa Rica  Time to start reporting your Costa Rica or Cayman Island Bank and Financial Accounts before it is too late. If you need to catch up email us.

CANADIAN BANKS WILL HELP US IRS NAIL TAX CHEATS

Canadian banks to be compelled to share clients' info with U.S. http://www.cbc.ca/m/touch/politics/story/1.2437975

What does Green card and Citizenship surrender have to do with it? Tina Turner Knows

U.S. Citizens Renouncing Skyrocket--- and thats now called the  Tina Turner effect.

In the past many  months we have assisted  and advised over one  hundred US Citizens or Green Card holder surrender their US status which also relieves them of having to file any future US tax returns. The
hardest part is that you must first acquire citizenship in another country.  It is a two part process with part one involving the US State Department and part two involving the IRS.

If you live abroad, and have dual citizenship and want to learn more, email me at ddnelson@gmail.com

Read More in Forbes about Surrendering your US Status

Hunt for US Tax Evaders Widens

From USA TODAY Hunt for offshore tax evaders widens Feds expand hunt for offshore tax evaders http://usat.ly/1cleDlK

Penalty for failure to get health insurance

How Big Is The Penalty If You Don't Get Health Insurance? http://www.forbes.com/sites/beltway/2013/11/07/how-big-is-the-penalty-if-you-dont-get-health-insurance/

IRS BASIC TAX GUIDE FOR US GREEN CARD HOLDERS & PERMANENT RESIDENTS

The IRS has produced publication 4588 which give US tax guidance to Green Card holders  (or permanent residents without Green Cards) and how effectively surrender their Green Card for tax  READ IT AND DOWNLOAD IT HERE

purposes.

If you are a Green Card holder or permanent resident and need help with your income taxes or with respect to the dual status tax return and Form 8854 which may be due when you surrender it, we can help. We have helped in excess of one hundred clients do so to date.  Email us at ddnelson@gmail.com or visit our website at www.taxmeless.com. 

Current Status of Opting Out of IRS Voluntary Offshore Disclosure Program

If you have not filed required FBARs, 5471, 3520 and other foreign asset reporting forms with the IRS for past years the IRS recommends you enter the 2012 Offshore Voluntary Disclosure Program.  However, in many instances that 27.5% penalty seems excessive for the value of the assets involved.  The IRS says at any time you can opt out of the program which means your past filings or amendments will be sent immediately to audit who can assess a smaller amount of penalty or a greater amount of penalties than provided for in the Offshore Disclosure Program.

There is no written and very little reported information on what happens to those taxpayers who Opt Out of the Offshore Disclosure Program.  BNA, a leading tax publisher for tax professionals, has in the following article reported the current status of Opting Out.  READ THE ARTICLE HERE

If you need to discuss your alternatives and the possible consequences of filing past year foreign assets reporting forms and the related income we can help.  Email us at ddnelson@gmail.com