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About Tax Samaritan

  • A tax and wealth management firm that can you help navigate the complex expat tax issues such as the foreign earned income exclusion, foreign tax credit, the FBAR, tax treaties, social security totalization agreements and other advanced tax topics. This knowledge comes from the preparation of thousands of expat tax returns for American taxpayers overseas.
  • Tax Professionals that understand the unique tax issues and challenges that are applicable to U.S. taxpayers abroad.

A relationship that doesn’t end after we file your return or solve your tax problem. We believe in a long-term relationship and in keeping you up-to-date on new developments in tax laws that apply to you. We will also be available whenever you need us.

We specialize in tax solutions and wealth management for U.S. taxpayers, with a special focus on assisting Americans living abroad. Our tax and financial services are very straightforward. Tax solutions and wealth management is much more than just a tax return and a retirement account, as it encompasses all parts of your financial life, including tax and investment planning. We want to help solve your tax and financial issues and enhance your financial situation. Today, https://www.taxsamaritan.com/tax-return-getting-started/tax-quote/Tax Samaritan does this with insightful questions about your tax situation and a focus and detailed attention on your return that is no different than preparing our own personal returns. We view your return and financial situation with a holistic approach.

Affordable Care Act

U.S. citizens living abroad are subject to the individual shared responsibility provision. However, U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period, regardless of whether they enroll in any health care coverage. In addition, U.S. citizens who are bona fide residents of a foreign country (or countries) for an entire taxable year are treated as having minimum essential coverage for that year. In general, these individuals qualify for the foreign earned income exclusion under section 911. Individuals may qualify for this rule, even if they cannot use the section 911 exclusion for all of their foreign earned income because, for example, they are employees of the United States. The exemption can be claimed on Form 8965 when you file your tax return.

Credits

In general, these expenses will not be deductible or eligible for a credit unless they are accrued from an eligible educational institution.

Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. An eligible educational institution is a school offering higher education beyond high school. It is any college, university, vocational school or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. If you aren’t sure if your school is an eligible educational institution:

• Ask your school if it is an eligible educational institution

• See if your school is on the U.S. Federal Student Aid Code List

Categories: Credits, Deductions

The American Opportunity Credit: This credit can help parents and students pay part of the cost of the first four years of college. The American Recovery and Reinvestment Act modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers.

Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.

The Lifetime Learning Credit: This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program.  Eligible taxpayers may qualify for up to $2,000 per tax return.

The Hope Credit: The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years.

You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

Category: Credits

Currency Exchange

All income and expenses on your tax return must be reported in U.S. dollars. In general, you can use the exchange rate on the day a payment or expense was received or paid, or an average annual exchange rate. To use the average annual exchange rate, your income and expenses need to be earned or paid evenly throughout the year. The IRS average annual exchange rates for most currencies are posted here:

https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

When completing the FBAR, the exchange rates posted by the U.S. treasury for the given tax year should be used for converting foreign currency to U.S. dollars. The Treasury Reporting Rates of Exchange can be found here.

Deductions

Yes, you are typically allowed the same deduction for mortgage interest. However, effective with tax year 2018, foreign property/real estate taxes paid are no longer eligible as an itemized deduction. The deductions are taken on Schedule A, assuming the standard deduction is less than the total of your itemized deductions. You may be able to deduct/exclude other foreign housing costs, depending on your situation.

Category: Deductions

In general, these expenses will not be deductible or eligible for a credit unless they are accrued from an eligible educational institution.

Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. An eligible educational institution is a school offering higher education beyond high school. It is any college, university, vocational school or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. If you aren’t sure if your school is an eligible educational institution:

• Ask your school if it is an eligible educational institution

• See if your school is on the U.S. Federal Student Aid Code List

Categories: Credits, Deductions

Students and their parents may be able to deduct qualified college tuition and other related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American opportunity, Hope, or Lifetime Learning credits.

You cannot claim any of the education credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

Category: Deductions

In general, these charitable donations will not be deductible on your U.S. tax return. To be deductible, charitable donations need to be made to qualified organizations. A qualified organization is generally one that has received 501(c)(3) status from the IRS. If you are unsure, you can ask any organization whether it is a qualified organization, and most will be able to tell you. Or you can use the tool here to search for qualified organizations.

Category: Deductions

FBAR (Foreign Bank Account Reporting)

Specified foreign financial assets include the following:

  • Financial accounts maintained by a foreign financial institution
  • The following foreign financial assets if they are held for investment and not held in an account maintained by a financial institution:
  • Stock or securities issued by someone that is not a U.S. person (including stock or securities issued by a person organized under the laws of a U.S. possession)
  • Any interest in a foreign entity
  • Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person (including a financial contract issued by, or with, a counterparty that is a person organized under the laws of a U.S. possession).

The annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts is April 15.  This date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41 (the Act).  Specifically, section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the Federal income tax filing season. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year (please note that this may change in future years).

Tag: FBAR

You must file Form 8938 if:

You are a specified individual (U.S. tax resident) and you have an interest in specified foreign financial assets required to be reported. In addition, the aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you:

Specified individuals living in the U.S.:

  • Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
  • Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

 

Specified individuals living outside the U.S.:

  • Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.

Type of AccountForm 8938FBAR
Financial (deposit and custodial) accounts held at foreign financial institutionsYesYes
Financial account held at a foreign branch of a U.S. financial institutionNoYes
Financial account held at a U.S. branch of a foreign financial institutionNoNo
Foreign financial account for which you have signature authorityNo, unless you otherwise have an interest in the account as described aboveYes, subject to exceptions
Foreign stock or securities held in a financial account at a foreign financial institutionThe account itself is subject to reporting, but the contents of the account do not have to be separately reportedThe account itself is subject to reporting, but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial accountYesNo
Foreign partnership interestsYesNo
Indirect interests in foreign financial assets through an entityNoYes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity.
Foreign mutual fundsYesYes
Domestic mutual fund investing in foreign stocks and securitiesNoNo
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantorYes, as to both foreign accounts and foreign non-account investment assetsYes, as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash valueYesYes
Foreign hedge funds and foreign private equity fundsYesNo
Foreign real estate held directlyNoNo
Foreign real estate held through a foreign entityNo, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estateNo
Foreign currency held directlyNoNo
Precious Metals held directlyNoNo
Personal property, held directly, such as art, antiques, jewelry, cars and other collectiblesNoNo
“Social Security”- type program benefits provided by a foreign governmentNoNo

Generally, all foreign accounts for which you have a financial interest or signature authority will need to be reported on the FBAR, as long as the combined total exceeds $10,000 at any time during the year. In addition, these accounts are required to be reported on Form 8938 if they exceed the following thresholds:

Specified individuals living in the U.S.:

  • Unmarried individual (or married filing separately): If the total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
  • Married individual filing jointly: If the total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

Specified individuals living outside the U.S.:

  • Unmarried individual (or married filing separately): If the total value of all assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.
  • Married individual filing jointly: If the total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.

All income from foreign accounts in which you have a financial interest must be reported on your individual tax return.

Filing Prior Year Tax Returns

You must file a federal income tax return for any tax year in which you meet the filing requirements to file a tax return. For most taxpayers, if your gross income is equal to or greater than the personal exemption amount and standard deduction combined (per the Form 1040 Instructions for the corresponding tax year), a tax return must be filed. There is no statute of limitations for unfiled tax returns. Thus, the recommended number of prior years to file will depend on the facts and circumstances of your particular situation, which should be discussed with your tax professional.

Filing Requirements

Yes, you must file a U.S. tax return in order to claim the Foreign Earned Income Exclusion, even if there is no resulting tax liability. In general, the exclusion needs to be claimed on a timely filed return. You may still be able to file late returns and claim the exclusion if you have not been notified by the IRS.

In general, the reporting requirements for foreign rental properties are the same as domestic rental properties if owned by a U.S. citizen or green card holder. You must include Schedule E with your tax return and report all rental income received during the year. You can take deductions for many expenses related to the property, such as mortgage interest, repairs, depreciation, insurance, and management or association fees. If you paid foreign taxes on the income generated from your rental property, you may be able to utilize the Foreign Tax Credit. Rental income is generally considered passive income and cannot be excluded under the Foreign Earned Income Exclusion unless you are actively in business as a real estate professional.

If you own your business abroad, the structure of your company will impact your filing requirements. Factors that may have an effect on your obligations include:

  • The structure of the company
  • Where the company was established
  • The number of shareholders

If you own a sole proprietorship or a single-member U.S. LLC, the IRS won’t consider the company a separate entity for tax purposes, and you will be able to report your profits and losses directly on the Schedule C of your individual tax return. However, if you have a U.S. partnership or LLC that elects to be treated as a partnership, the company needs to file its own Form 1065 U.S. Return of Partnership Income. You will also need to file K-1s for each of your members.

If you have an LLC that you have elected to treat as a corporation, the IRS considers your company to be its own entity, and it will need to file its own return. Alternatively, if you qualify, you can allow your LLC to claim S Corporation status and pass on income to its shareholders. To claim S Corporation status, your company must have only one class of stock, no more than 100 shareholders and no ineligible shareholders.

As an entrepreneur or business owner working abroad, your federal income tax return isn’t the only form you may need to file to meet your obligations in the United States. Here are some of the other forms you may need to file each year.

Form 8858 – Information Return of U.S. Persons With Respect to Foreign Disregarded Entities

If you own shares in foreign entities that are not considered entities under United States law, you must file this form along with your individual income tax return every year.

Form 5471 – Information Return of U.S. Persons With Respect to Certain Foreign Corporations

If you own more than 10 percent of a foreign corporation’s stock, you must file Form 5471 each year when you file your income tax return.

Form 8832 – Entity Classification Election

If you own a foreign LLC, you need to file Form 8832 in order to treat your company as a sole proprietorship or partnership. If you don’t file this form, the IRS will consider the company a foreign corporation, which leads to more reporting requirements.

Form 3520 – Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts

If you receive a foreign gift, or if you make a transfer to a foreign trust, you must file Form 3520 within 90 days. This is an informational form.

General filing requirements for most taxpayers can be found here: https://www.irs.gov/pub/irs-pdf/p501.pdf

The due date for individual tax returns is April 15th. You may be allowed an automatic two-month extension of time to file your return and pay any federal income tax that is due. You will be allowed the extension if you are a U.S. citizen or resident alien and on the regular due date of your return:

  • You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico
  • You are in military or naval service on duty outside the United States and Puerto Rico

Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return. To use this automatic two-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension. Additional extensions may be filed to extend the due date to October 15th.

Filing Status

Yes, it is possible to request an ITIN (individual taxpayer identification number) for your spouse if they don’t already have a U.S. tax identification number, so that a joint tax return can be filed. However, in order to file a joint tax return, your non-resident spouse will be required to make an election as part of the return, which will be subject to U.S. taxation and the reporting of their worldwide income (just like a U.S. citizen/permanent resident). In addition, as a result of this election to be considered a “tax resident,” the non-resident spouse will also be subject to other disclosure requirements, such as the FBAR.

Generally, we don’t recommend filing a joint return with a non-resident spouse due to becoming subject to ongoing U.S. tax reporting requirements, unless the spouse has little to no current worldwide income for the foreseeable future.

Category: Filing Status

Foreign Earned Income Exclusion

Certain taxpayers may be able to exclude employer-provided housing amounts and deduct housing costs not provided by the employer. The exclusion is limited to the extent that it exceeds 16 percent of the maximum exclusion. Qualified housing expenses include:

  • Rent
  • The fair rental value of housing provided in kind by your employer
  • Repairs
  • Utilities (other than telephone charges)
  • Real and personal property insurance
  • Nondeductible occupancy taxes
  • Nonrefundable fees for securing a leasehold
  • Rental of furniture and accessories
  • Residential parking

Qualified expenses do not include deductible interest and taxes, housing expenses claimed on Form 8829, the principal portion of your mortgage payment, furniture purchases, capital improvements or the cost of domestic labor.

When choosing between the foreign earned income exclusion and foreign tax credit, it is an easy choice to use the credit only if you didn’t earn any wages and received only retirement income. On the other hand, if you didn’t pay any taxes to your foreign country and you did earn income, the exclusion is the better choice. Further, depending on your income and the rate of tax in your resident country, it may make more sense to use a combination of the exclusion and credit; then again, it may not. Either way, a proper analysis and comparison are recommended to determine what is most beneficial for the current tax year (but also prospectively for future years).

The “foreign earned income exclusion” is strictly based on “foreign earned income” only (i.e. foreign wages or self-employment income). Passive income, such as interest, dividends, capital gains and retirement distributions, are not considered “earned income.”

The U.S. is the only country that has taxation of worldwide income for all of its citizens, no matter where they live and regardless of how long they have been overseas. In fact, the U.S. is one of the the only countries that imposes what is known as a “diaspora tax” on its citizens.

If you are a U.S. citizen or a resident alien, the rules for filing income, estate and gift tax returns, along with paying estimated tax, are generally the same, whether you are in the United States or abroad. With taxation of worldwide income, your U.S. and foreign income is subject to U.S. income tax, regardless of where you reside. It is a citizenship-based income tax.

To qualify for the exclusion, you must be either a bona fide resident of a foreign country or be physically present in the foreign country for 330 full days during any 12 consecutive months. The 330 days do not need to be consecutive. A full day in any foreign country counts. If you qualify for the exclusion and a portion of your physical presence period is during the previous or following calendar year, the exclusion is prorated:

(“Number of days in your qualifying period that fall within the calendar tax year” / “Number of days in the calendar tax year”)  X  Maximum foreign earned income exclusion

Foreign Pensions

Just as with domestic pensions or annuities, the taxable amount generally is the Gross Distribution minus the Cost (investment in the contract). Income received from foreign pensions or annuities may be fully or partly taxable, even if you do not receive a Form 1099 or other similar document reporting the amount of the income. In general, your foreign pension and retirement plan should also be reported on the FBAR and Form 8938, if required. Depending on how the plan is structured, there may be additional reporting requirements on Forms 8621 and 3520. We suggest contacting a tax professional that specializes in taxation for expats if you are unsure of the filing requirements related to your foreign pension or retirement plan.

Foreign mutual funds typically fall under the Passive Foreign Investment Company (PFIC) classification and are taxed through a system that is much more punitive and disadvantageous than their domestic counterparts. If you own foreign mutual funds, you will most likely have to include Form 8621, the Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, with the filing of your return. We recommend consulting with an expert if you are unsure of the filing obligations related to your foreign investments.

Foreign pensions cannot be excluded on Form 2555.  Foreign earned income for purposes of the foreign earned income exclusion does not include pensions and annuity income (including social security benefits and railroad retirement benefits that are treated as social security).

Foreign Tax Credit

You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. The excluded income is not subject to double-taxation and not available for a credit as a result.

If you can’t claim a credit for the full amount of qualified foreign income taxes you paid or accrued in that particular year, you’re allowed a carryback and/or carryover of the unused foreign income tax. You can carry back the unused foreign tax for one year and then carry it forward for 10 years.

The Foreign Tax Credit is a credit for income taxes paid to a foreign country, and it is designed to help minimize the burden of double-taxation.

In order to qualify for the foreign tax credit, taxpayers must meet all four of the following requirements:

  • The tax must be imposed on you by a foreign country.
  • You must have paid or accrued the tax.
  • The tax must be the legal and actual foreign tax liability.
  • The tax must be an income tax.

Keep in mind that the foreign tax credit only applies to taxes imposed on foreign income. You can’t claim a credit for taxes you may have paid on U.S.-sourced income.  You can’t claim the credit for any taxes you paid that could be refunded or forgiven, either.

The following foreign taxes do not qualify:

1.      Taxes eligible for a refund (even if not claimed)

2.      Taxes used to provide a subsidy to you or someone related to you

3.      Taxes not required by law, because you could have avoided paying the taxes to the foreign country

4.      Taxes that are paid or accrued to a country if the income giving rise to the tax is for a period (the sanction period) during which:

  • a.       The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism
  • b.      The United States has severed or doesn’t conduct diplomatic relations with the country
  • c.       The United States doesn’t recognize the country’s government, unless that government is eligible to purchase defense articles or services under the Arms Export Control Act

5.      Withheld foreign taxes on dividends for foreign stocks that don’t meet required minimum holding periods

6.      Withheld foreign taxes on gains and income from other foreign properties that don’t meet required minimum holding periods

Taxpayers can choose to deduct foreign taxes paid on Schedule A or claim a credit on Form 1116. The taxpayer must choose either the itemized deduction or credit for any given year. While every taxpayer’s situation is different, it is generally preferred to claim a credit for foreign income taxes paid.

Forms

The FBAR is an annual report that must be filed by any U.S. person who has a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account, exceeding certain thresholds.

A U.S. person includes U.S. citizens, U.S. residents, entities, including but not limited to, corporations, partnerships or limited liability companies, created or organized in the United States or under the laws of the United States, along with trusts or estates formed under the laws of the United States.

The report must be filed if the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. The FBAR is due on April 15th, but FinCEN will allow filers an automatic extension to October 15th. For willful violations, the penalty may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation. Non-willful violations that are not due to reasonable cause can be subject to penalties up to $12,459 per violation.

Category: Forms

Form 8938 is used to report specified foreign financial assets if the total value of all foreign financial assets is more than the reporting threshold:

Specified individuals living in the U.S. include:

·         Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

·         Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

 

Specified individuals living outside the U.S.:

·         Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

·         Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year

 

Required taxpayers who fail to file Form 8938 by the due date may be subject to a $10,000 penalty. In addition, if you are notified of the failure by the IRS and continue not to file Form 8938, you may be subject to an additional $10,000 penalty for each 30-day period the form is not filed, limited to $50,000. Further, if an underpayment of tax is involved with an undisclosed specified foreign financial asset, you may be subject to a penalty equal to 40 percent of the underpayment.

Category: Forms

Form 3520 and 3520-A are forms required to be filed to report certain transactions with foreign trusts, ownership of foreign trusts and the receipt of large gifts from foreign persons. A foreign gift is money or other property received by a U.S. person from a foreign person that the recipient treats as a gift or bequest and excludes from gross income. Foreign gifts must be reported if they exceed:

·         More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate)

·         More than $15,797 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships)

Taxpayers who cannot demonstrate reasonable cause for failing to file on time or reporting incorrect information may be subject to an initial penalty equal to the greater of $10,000 or the following (if applicable):

·         35 percent of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust.

·         35 percent of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution.

·         5 percent of the gross value of the portion of the foreign trust’s assets treated as owned by a U.S. person for failure by the U.S. person to report the U.S. owner information. Such U.S. person is subject to an additional separate 5 percent penalty (or $10,000 if greater), if the foreign trust (a) fails to file a timely Form 3520-A, or (b) does not furnish all required information or includes incorrect information.

Additional penalties may be imposed if the owner continues noncompliance after being notified by the IRS.

Category: Forms

Form 5471 is required to be filed by U.S. citizens and residents who are officers, directors or shareholders in certain foreign corporations. In general, this form is required if you own (directly, indirectly or constructively) 10 percent or more of the voting power of a controlled foreign corporation. You may also be required to file if you acquire or dispose of sufficient stock in a foreign corporation that shifts your ownership interest above or below the 10 percent threshold.

A $10,000 penalty may be imposed for each annual accounting period of each foreign corporation that fails to furnish the required information. If notified by the IRS and noncompliance continues after 90 days, an additional $10,000 penalty is charged for each 30-day period, limited to $50,000.

Category: Forms

Form 8621 is required by U.S. citizens and residents that are direct or indirect shareholders of a Passive Foreign Investment Company (PFIC). Absent any exception, each stock that is held during the year is required to be reported on a separate Form 8621 under the following circumstances:

·         Receives certain direct or indirect distributions from a PFIC

·         Recognizes gain on a direct or indirect disposition of PFIC stock

·         Is reporting information with respect to a QEF or section 1296 mark-to-market election

·         Is making an election reportable in Part II of the form

·         Is required to file an annual report pursuant to section 1298(f). See the Part I instructions, later, for more information regarding the person that must file pursuant to section 1298(f)

A foreign corporation is a PFIC if it meets either the income or asset test described below:

·         Income test – 75 percent or more of the corporation’s gross income for its taxable year is passive income (as defined in section 1297(b)).

·         Asset test – At least 50 percent of the average percentage of assets (determined under section 1297(e)) held by the foreign corporation during the taxable year are assets that produce passive income or that are held for the production of passive income.

There is not a specific penalty for failure to file Form 8621. However, the regulations coordinate the Form 8621 filing requirements with the Form 8938 filing requirements. Section 6038D requires a U.S. individual to disclose any directly held foreign financial assets on Form 8938, if the aggregate value of the individual’s foreign financial assets exceeds the filing threshold. An exception to the disclosure requirement applies to any foreign financial asset the individual reports on another disclosure form, such as Form 8621. A U.S. individual shareholder who fails to disclose a directly held PFIC investment on either Form 8621 or Form 8938 when required can be subject to a $10,000 penalty under §6038D(d).

Category: Forms

Green Card Holders

As a green card holder, you generally are required to file a U.S. income tax return and report worldwide income no matter where you live.

However, if you surrender your green card or the U.S. Citizen & Immigration Service determines that you have abandoned your green card and it is taken away from you, you will need to follow the nonresident alien requirements for filing a Form 1040NR, a U.S. Nonresident Alien Income Tax Return.

Income

Yes, you will most likely need to include Schedule E with your tax return if you’ve received rental income, even if there is a net loss. Losses from rental properties may help reduce your overall tax liability and must be claimed on your tax return.

Category: Income

The source of earned income and employee benefits generally depends on the physical location of the taxpayer when earning the income. If earned in a foreign country, it is considered foreign source.

The source of unearned income generally depends on the location of the payor or the property that generates the income. As a result, dividends and interest received from the U.S. government or domestic corporations is considered a U.S. source.

Category: Income

The rules for reporting the sale of your primary residence are generally the same as if the property was located in the United States. The IRS allows an exclusion of $250,000 ($500,000 if filing jointly) if you used and owned the property as your principal residence for two of the past five years. In general, taxpayers must not have excluded the gain from the sale of a former principal residence within the two-year period ending on the date of the sale. If the future sale of your home is due to a change in employment, health or unforeseen circumstances, you may qualify for a reduced exclusion, even if you fail to meet the ownership and use tests, or you used the exclusion within the two-year period ending on the date of the sale. There’s no limit to the number of times you can claim the exclusion.

Category: Income

Modified Adjusted Gross Income is your Adjusted Gross Income (AGI) plus the addition of certain deductions. Oftentimes, your AGI and MAGI can be identical. The following deductions (as applicable) are added back to calculate MAGI:

  • Student loan interest
  • One-half of self-employment tax
  • Qualified tuition expenses
  • Tuition and fees deduction
  • Passive loss or passive income
  • IRA contributions and taxable social security payments
  • The exclusion for income from U.S. savings bonds
  • The exclusion under 137 for adoption expenses
  • Rental losses
  • Any overall loss from a publicly traded partnership
Category: Income

Yes, you should report all income received, irregardless of the source and amount. The United States taxes its residents on their worldwide income.

Category: Income

Individual Taxpayer Identification Number

An Acceptance Agent is a person or an entity (business or organization) who, pursuant to a written agreement with the IRS, is authorized to assist individuals and other foreign persons who do not qualify for a Social Security Number.  but who still need a Taxpayer Identification Number (TIN) to process a Form 1040 and other tax schedules. The Acceptance Agent facilitates the application process by reviewing the necessary documents and forwarding completed Forms W-7 to the IRS, which results in a much quicker process. Tax Samaritan is a certified Acceptance Agent.

In general, you can claim exemptions for individuals who qualify as your dependents. To be your dependent, the individual must be a U.S. citizen, U.S. national, U.S. resident alien or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins.

Children usually are citizens or residents of the same country as their parents. If you were a U.S. citizen when your child was born, your child generally is a U.S. citizen. This is true even if the child’s other parent is a nonresident alien, the child was born in a foreign country, or the child lives abroad with the other parent.

You must include the social security number (SSN) of each dependent on your return. If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent’s individual taxpayer identification number (ITIN), instead of an SSN.

You need an ITIN as soon as you are ready to file your federal income tax return, since you need to attach the return to your application. To apply for an ITIN, complete Form W-7, the Application for IRS Individual Taxpayer Identification Number. See the related Instructions for Form W-7 for documents that will be needed and where the application is to be submitted. Refer to the website Individual Taxpayer Identification Number (ITIN) for specific information.

There are exceptions to the requirement to include a U.S. tax return with the Form W-7. For example, if you are a nonresident alien individual eligible to receive the benefit of reduced withholding under an income tax treaty, you can apply for an ITIN without having to attach a federal income tax return.  For a complete list of exceptions to the requirement to attach an income tax return, refer to the Exceptions Tables in the Instructions for Form W-7.

You need an ITIN if you are not eligible to get a social security number but must provide a taxpayer identification number on a U.S. tax return or information return.  Examples include the following:

  • A nonresident alien individual eligible to get the benefit of reduced withholding under an income tax treaty
  • A nonresident alien individual not eligible for an SSN who is required to file a U.S. tax return or who is filing a U.S. tax return only to claim a refund
  • A nonresident alien individual not eligible for an SSN who elects to file a joint U.S. tax return with a spouse who is a U.S. citizen or resident alien
  • A U.S. resident alien (based on the substantial presence test) who files a U.S. tax return but who is not eligible for an SSN
  • An alien spouse who is claimed as an exemption on a U.S. tax return but who is not eligible to get an SSN
  • An alien individual who is eligible to be claimed as a dependent on a U.S. tax return but who is not eligible to get an SSN
  • A nonresident alien student, professor or researcher who is required to file a U.S. tax return but who is not eligible for an SSN, or who is claiming an exception to the tax return filing requirement
  • A dependent/spouse of a nonresident alien U.S. visa holder, who is not eligible for an SSN

ITINs are for federal tax reporting only and are not intended to serve any other purpose. The IRS issues ITINs to help individuals comply with the U.S. tax laws and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs).

An ITIN does not provide authorization to work in the United States or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

You will need to contact the Social Security Administration, as the IRS does not issue SSNs. Use Form SS-5-FS, Application For A Social Security Card, which may be obtained from and filed with the Social Security Administration.

Late Filing

If you don’t meet your obligations, you may face the following penalties:

  • Failure to File Penalty: 5 percent of the unpaid balance for each month or part of a month the return is late. The maximum is 25 percent. If the return is more than 60 days late, the minimum penalty is the lesser of $135 or the tax due. There is no penalty if the return shows a refund.
  • Failure to Pay Penalty: 0.5 percent of the unpaid balance for each month or part of a month there is an unpaid balance. The maximum is 25 percent.

In certain circumstances, the IRS can take even more extreme action against you, such as revoking your passport.

To protect yourself from all of these consequences, consider talking to a tax professional about your responsibilities so you can make sure you are complying with all of the applicable laws. A tax professional can also help you resolve any problems you already have, such as unfiled returns or back taxes.

Category: Late Filing

You can amend your tax return to fix the error on Form 1040X. The primary statute of limitations expires three years after the filing date. If you are filing 1040X to claim a refund, you have two years from the payment of the tax or three years from the original (before any filing extension) due date of the return to make a refund claim.

Category: Late Filing

Offshore Voluntary Disclosure Program

The purpose of the Offshore Voluntary Disclosure Program (OVDP) is to bring taxpayers that have used undisclosed foreign accounts and assets, including those held through undisclosed foreign entities, to avoid or evade tax into compliance with United States tax and related laws. Taxpayers holding undisclosed foreign accounts and assets, including those held through undisclosed foreign entities, should make a voluntary disclosure, as it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution for all issues relating to tax noncompliance and failing to file FBARs.

In contrast, taxpayers simply filing amended returns or filing through the Streamlined Filing Compliance Procedures do not eliminate the risk of criminal prosecution. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, as well as an increased risk of criminal prosecution. The IRS remains actively engaged in identifying those with undisclosed foreign financial accounts and assets.

Other Taxes

The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8 percent to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts. The Net Investment Income Tax went into effect on Jan. 1, 2013. The NIIT affects income tax returns of individuals, estates and trusts, beginning with their first tax year beginning on (or after) Jan. 1, 2013.

Category: Other Taxes

Our Process

The FBAR disclosure form (the “FBAR” file) can be opened only in Adobe Acrobat. In order to open, please first save the file locally to your computer, then open Adobe Acrobat and open the file from within Adobe Acrobat. If you try to download and open the file directly after downloading, you generally will not be able to open the file properly.

Category: Our Process

Our process is designed to make it quick and easy for the clients that we work with. Below is an overview of our 5-step process:

  1. Complete Our Tax Quote Questionnaire

Unlike most companies that offer a flat rate at the beginning and last-minute rate increases at the end, we believe in getting familiar with your tax situation before we get started, so that we can analyze your situation and draft a complete engagement letter for your review. Our quote questionnaire asks a few questions to understand your tax needs (such as whether you have foreign income, rental income, etc). The engagement letter details the scope of the work that we will perform for you and the cost for these services. This way, there are no surprises. Of course, if there are areas that are uncovered in subsequent steps (for example, you have stock sales that weren’t disclosed in the questionnaire), we will request and seek your approval for a change in engagement scope.

We are available to meet by phone or Skype to assist you in completing the quote questionnaire.

  1. Review/Sign Engagement Letter

This step engages us to prepare your tax return and/or resolve your tax problems. An invoice will be sent to you after receiving your signed engagement letter (we require an initial payment of 50 percent of the quoted fee to start work – we accept all major credit cards). Within one business day after receiving your payment, we will provide an invitation to register for our collaboration portal.

We will set up an engagement folder for “your access only” on our secure client collaboration portal to upload the documents that are needed to prepare your return.

We have created a very simple, powerful and secure way for us to collaborate, communicate and share files and information with our collaboration software. Our #1 goal is to make your experience with Tax Samaritan seamless and simplified.

Our all-inclusive tool combines the security of an online file portal and email communications into a centralized, secure and organized area.

Think along the lines of… no more sifting through emails or searching for attachments… All files, emails, comments and attachments related to your engagement will all be in one secure and organized location. We are keeping it very simple – no more wasting time.

Not only that… you will clearly see for your engagement – milestones, tasks and instructions in a private area set up just for “you” and for “us,” so that you’ll never wonder what’s outstanding and in need of a status update. Everything will be available and organized, accessible to only those involved in your engagement. You can see the status of your engagement in “real time.”

You will find that we offer our app (which, of course, is free to our clients) for the iPhone, Android, Google Chrome and the Web. Everything is in the cloud, accessible anywhere and anytime, and 100 percent secure.

We believe that this makes the tax preparation process even more worry-free and effortless for you.

As always, we are available to assist you at any step of this process along the way.

  1. Prepare Your Tax Return

Simply put, you provide the requested documents and information, and we do all the hard work behind the scenes.

If you don’t have access to a scanner to upload the documents, your documents can be faxed or mailed to us. In most cases, your return will be posted for your review within 15 business days after all the necessary documents and information to prepare your return have been provided. If you need your returns sooner, we can provide rush service upon request.

  1. Review Your Return

Once your return is prepared and ready for your review, your final payment will be due (the remaining 50 percent of your invoice). As soon as we receive payment, a draft of your tax return will be posted on the secure client portal for your review. We can schedule a meeting with you over the phone or skype (with screen share) to provide an overview of your return (we want you to have the opportunity to understand your return) or to clarify and answer any questions that you may have. We will be happy to make any changes or revisions to your return as needed.

  1. File Your Return

Once you have acknowledged that you are satisfied with your return, we will be able to e-file your returns to the IRS and states (if a current year tax return) or provide instructions on how to mail in your tax returns.

Category: Our Process

The majority of our clients are able to enjoy the ease of e-filing their federal tax returns. However, there are certain circumstances that may require your returns to be filed on paper. Either way, Tax Samaritan will help make the process as simple and easy as possible.

Category: Our Process

We utilize a https://www.taxsamaritan.com/tax-return-getting-started/our-tax-process/collaboration portal where you can securely share files and communicate with us. In many cases, you will find a PDF or Excel questionnaire that can be downloaded, filled out and then uploaded to the portal. Our questionnaires are designed to make the information-gathering process easy, quick and simple. The questionnaires help compile necessary information and, most importantly, ensure that no deductions are missed.  You will find questionnaires to help gather information for Schedules A,C,D and E, as well as foreign bank account information, travel information and other general information.

Category: Our Process

Retirement

There are various requirements for contributions to IRA plans. In general, the taxpayer will need to have taxable compensation that is not excluded under the Foreign Earned Income Exclusion. If all of your income is excluded, your contribution may be deemed an excess contribution.

Category: Retirement

If you are a U.S. citizen or a resident alien, the rules for filing income, estate and gift tax returns and paying estimated tax are generally the same, whether you are in the United States or abroad. With taxation of worldwide income, your U.S. and foreign income is subject to U.S. income tax, regardless of where you reside. It is a citizenship-based income tax.

Elsewhere in the world, the basic rule is that taxes are based on residency and not on taxation of worldwide income based on citizenship.

Category: Retirement

State Taxes

Your responsibilities will depend on the state you lived in before you moved overseas. The state income tax return residency rules for taxpayers that reside overseas vary greatly from state to state, and there are numerous ways that each state makes this determination.  Some states use a “time-based” test, while other states, such as California, look at whether you are considered to have “tax domicile” in the state. This is often not as simple as whether you are physically present in the state or not. There are many criteria used in determining whether the state is a taxpayer’s domicile. Each state has their own definition. It is true that one of the common determinants is the taxpayer’s prolonged physical presence. Some states base their determination on other factors, including where the individual has family ties, where he or she has been filing resident tax returns, where he or she is registered to vote or has a driver’s license, where he or she owns property, or where the person has bank accounts or other financial holdings.

We encourage taxpayers to review their state tax filing requirements and state residency with their tax professional to determine if they are considered a resident, part-year resident or non-resident state taxpayer.

Individuals are generally considered residents, and are thus fully liable for taxes, if they are domiciled in the state or if they are living in the state (usually at least six months of the year), but are not domiciled there.

A non-resident, according to most states’ definitions, is an individual who earns income sourced within the specific state, but does not live there, or is living there for only part of the year (usually fewer than six months).

There are currently seven states with no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In addition, New Hampshire and Tennessee have no tax on personal income, but do tax profits from the sale of bonds and property.

Taxpayers should keep in mind that states can challenge the residency status of a taxpayer, and that this is not unusual, especially with some of the more aggressive states – generally those states that perpetually have budget issues, such as California, Massachusetts, New York, Virginia, etc. To reduce your risk of future demands of state tax returns or liability, it is important that you research your state tax filing requirements and make the necessary changes prior to departure, ensuring the certainty that your filing choice will not be challenged in the future. If you maintain a home in the state, have a state-issued drivers’ license, financial accounts, voter registration status, etc., it is possible that some states may use any of these as proof that you were a resident of that state while living abroad.

For further assistance with determining your state income tax residency as part of an engagement for services, please be sure to contact Tax Samaritan or your tax professional. If you are preparing your own return, we recommend checking the regulations with the relevant state tax authority.

Category: State Taxes

The following states do not impose income tax on earned income:

·         Washington

·         Nevada

·         Alaska

·         Texas

·         Wyoming

·         South Dakota

·         Florida

Category: State Taxes

Streamlined Procedure

The IRS allows U.S. taxpayers to come into compliance through the use of a streamlined filing procedure. Certain restrictions need to be met to qualify for the domestic or foreign streamlined procedure. In general, the purpose is to allow taxpayers to file amended or delinquent returns and resolve their tax and penalty obligations, all with one procedure. The program allows taxpayers to come into compliance by filing the last three years of delinquent or amended returns, and six years of delinquent or amended FBAR reports. To qualify, you must meet the following criteria:

  • Taxpayers must certify that their conduct was not willful.
  • The IRS has not initiated a civil examination of taxpayer’s returns for any taxable year.
  • Taxpayers that are eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay all previous penalty assessments.
  • Taxpayers who want to participate in the streamlined procedures need a valid Taxpayer Identification Number.

Tax returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS. Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return. They may also be subject to verification procedures, in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors and other sources.

Tax Treaties

Totalization Agreements are agreements designed to help taxpayers avoid paying too much in taxes. At this time, the United States has Totalization Agreements with the following countries: Australia, Austria, Belgium, Canada, Czech Republic, Chile, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom.

These agreements prevent dual Social Security taxation, which occurs when a taxpayer from one country spends time working in another country and must pay Social Security taxes to both countries on the same earnings. In addition, these agreements help to fill in gaps in benefit protection for individuals who have split their careers between the United States and a foreign country. The agreements assign coverage to just one country and exempt the taxpayer from the payment of Social Security taxes in the other country.

Category: Tax Treaties

The United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Most income tax treaties contain what is known as a “saving clause,” which prevents a citizen or a resident of the United States from using the provisions of a tax treaty in order to avoid taxation of U.S. source income.

Treaties should be carefully examined to find if you are entitled to a:

·         Tax credit

·         Tax exemption

·         Reduced rate of tax

·         Other treaty benefit or safeguard

The United States has tax treaties with the following countries:

Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Trinidad, Tunisia, Turkey, Turkmenistan, Ukraine, Union of Soviet Socialist Republics (USSR), United Kingdom, United States Model, Uzbekistan and Venezuela

Category: Tax Treaties

Working With Tax Samaritan

You can expect to receive the tax returns for your review within 15 business days from receiving the requested documentation needed to prepare your return(s). During peak times/deadlines, returns may be delayed by a few days, but your return status will always be accessible.

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Recent FAQs

About Tax Samaritan

We specialize in tax solutions and wealth management for U.S. taxpayers, with a special focus on assisting Americans living abroad. Our tax and financial services are very straightforward. Tax solutions and wealth management is much more than just a tax return and a retirement account, as it encompasses all parts of your financial life, including tax and investment planning. We want to help solve your tax and financial issues and enhance your financial situation. Today, https://www.taxsamaritan.com/tax-return-getting-started/tax-quote/Tax Samaritan does this with insightful questions about your tax situation and a focus and detailed attention on your return that is no different than preparing our own personal returns. We view your return and financial situation with a holistic approach.

  • A tax and wealth management firm that can you help navigate the complex expat tax issues such as the foreign earned income exclusion, foreign tax credit, the FBAR, tax treaties, social security totalization agreements and other advanced tax topics. This knowledge comes from the preparation of thousands of expat tax returns for American taxpayers overseas.
  • Tax Professionals that understand the unique tax issues and challenges that are applicable to U.S. taxpayers abroad.

A relationship that doesn’t end after we file your return or solve your tax problem. We believe in a long-term relationship and in keeping you up-to-date on new developments in tax laws that apply to you. We will also be available whenever you need us.

Affordable Care Act

U.S. citizens living abroad are subject to the individual shared responsibility provision. However, U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period, regardless of whether they enroll in any health care coverage. In addition, U.S. citizens who are bona fide residents of a foreign country (or countries) for an entire taxable year are treated as having minimum essential coverage for that year. In general, these individuals qualify for the foreign earned income exclusion under section 911. Individuals may qualify for this rule, even if they cannot use the section 911 exclusion for all of their foreign earned income because, for example, they are employees of the United States. The exemption can be claimed on Form 8965 when you file your tax return.

Credits

The American Opportunity Credit: This credit can help parents and students pay part of the cost of the first four years of college. The American Recovery and Reinvestment Act modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers.

Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.

The Lifetime Learning Credit: This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program.  Eligible taxpayers may qualify for up to $2,000 per tax return.

The Hope Credit: The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years.

You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

Category: Credits

In general, these expenses will not be deductible or eligible for a credit unless they are accrued from an eligible educational institution.

Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. An eligible educational institution is a school offering higher education beyond high school. It is any college, university, vocational school or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. If you aren’t sure if your school is an eligible educational institution:

• Ask your school if it is an eligible educational institution

• See if your school is on the U.S. Federal Student Aid Code List

Categories: Credits, Deductions

Currency Exchange

When completing the FBAR, the exchange rates posted by the U.S. treasury for the given tax year should be used for converting foreign currency to U.S. dollars. The Treasury Reporting Rates of Exchange can be found here.

All income and expenses on your tax return must be reported in U.S. dollars. In general, you can use the exchange rate on the day a payment or expense was received or paid, or an average annual exchange rate. To use the average annual exchange rate, your income and expenses need to be earned or paid evenly throughout the year. The IRS average annual exchange rates for most currencies are posted here:

https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

Deductions

Yes, you are typically allowed the same deduction for mortgage interest. However, effective with tax year 2018, foreign property/real estate taxes paid are no longer eligible as an itemized deduction. The deductions are taken on Schedule A, assuming the standard deduction is less than the total of your itemized deductions. You may be able to deduct/exclude other foreign housing costs, depending on your situation.

Category: Deductions

Students and their parents may be able to deduct qualified college tuition and other related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American opportunity, Hope, or Lifetime Learning credits.

You cannot claim any of the education credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

Category: Deductions

In general, these expenses will not be deductible or eligible for a credit unless they are accrued from an eligible educational institution.

Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. An eligible educational institution is a school offering higher education beyond high school. It is any college, university, vocational school or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. If you aren’t sure if your school is an eligible educational institution:

• Ask your school if it is an eligible educational institution

• See if your school is on the U.S. Federal Student Aid Code List

Categories: Credits, Deductions

In general, these charitable donations will not be deductible on your U.S. tax return. To be deductible, charitable donations need to be made to qualified organizations. A qualified organization is generally one that has received 501(c)(3) status from the IRS. If you are unsure, you can ask any organization whether it is a qualified organization, and most will be able to tell you. Or you can use the tool here to search for qualified organizations.

Category: Deductions

FBAR (Foreign Bank Account Reporting)

The annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts is April 15.  This date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41 (the Act).  Specifically, section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the Federal income tax filing season. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year (please note that this may change in future years).

Tag: FBAR

A specified individual is:

  • A U.S. citizen
  • A resident alien of the United States for any part of the tax year (see Pub. 519 for more information)
  • A nonresident alien who makes an election to be treated as a resident alien by filing a joint income tax return

A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico (See Pub. 570 for definition of a bona fide resident)

Specified foreign financial assets include the following:

  • Financial accounts maintained by a foreign financial institution
  • The following foreign financial assets if they are held for investment and not held in an account maintained by a financial institution:
  • Stock or securities issued by someone that is not a U.S. person (including stock or securities issued by a person organized under the laws of a U.S. possession)
  • Any interest in a foreign entity
  • Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person (including a financial contract issued by, or with, a counterparty that is a person organized under the laws of a U.S. possession).

You must file Form 8938 if:

You are a specified individual (U.S. tax resident) and you have an interest in specified foreign financial assets required to be reported. In addition, the aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you:

Specified individuals living in the U.S.:

  • Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
  • Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

 

Specified individuals living outside the U.S.:

  • Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.

Type of AccountForm 8938FBAR
Financial (deposit and custodial) accounts held at foreign financial institutionsYesYes
Financial account held at a foreign branch of a U.S. financial institutionNoYes
Financial account held at a U.S. branch of a foreign financial institutionNoNo
Foreign financial account for which you have signature authorityNo, unless you otherwise have an interest in the account as described aboveYes, subject to exceptions
Foreign stock or securities held in a financial account at a foreign financial institutionThe account itself is subject to reporting, but the contents of the account do not have to be separately reportedThe account itself is subject to reporting, but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial accountYesNo
Foreign partnership interestsYesNo
Indirect interests in foreign financial assets through an entityNoYes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity.
Foreign mutual fundsYesYes
Domestic mutual fund investing in foreign stocks and securitiesNoNo
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantorYes, as to both foreign accounts and foreign non-account investment assetsYes, as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash valueYesYes
Foreign hedge funds and foreign private equity fundsYesNo
Foreign real estate held directlyNoNo
Foreign real estate held through a foreign entityNo, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estateNo
Foreign currency held directlyNoNo
Precious Metals held directlyNoNo
Personal property, held directly, such as art, antiques, jewelry, cars and other collectiblesNoNo
“Social Security”- type program benefits provided by a foreign governmentNoNo

Filing Prior Year Tax Returns

You must file a federal income tax return for any tax year in which you meet the filing requirements to file a tax return. For most taxpayers, if your gross income is equal to or greater than the personal exemption amount and standard deduction combined (per the Form 1040 Instructions for the corresponding tax year), a tax return must be filed. There is no statute of limitations for unfiled tax returns. Thus, the recommended number of prior years to file will depend on the facts and circumstances of your particular situation, which should be discussed with your tax professional.

Filing Requirements

In general, the reporting requirements for foreign rental properties are the same as domestic rental properties if owned by a U.S. citizen or green card holder. You must include Schedule E with your tax return and report all rental income received during the year. You can take deductions for many expenses related to the property, such as mortgage interest, repairs, depreciation, insurance, and management or association fees. If you paid foreign taxes on the income generated from your rental property, you may be able to utilize the Foreign Tax Credit. Rental income is generally considered passive income and cannot be excluded under the Foreign Earned Income Exclusion unless you are actively in business as a real estate professional.

If you own your business abroad, the structure of your company will impact your filing requirements. Factors that may have an effect on your obligations include:

  • The structure of the company
  • Where the company was established
  • The number of shareholders

If you own a sole proprietorship or a single-member U.S. LLC, the IRS won’t consider the company a separate entity for tax purposes, and you will be able to report your profits and losses directly on the Schedule C of your individual tax return. However, if you have a U.S. partnership or LLC that elects to be treated as a partnership, the company needs to file its own Form 1065 U.S. Return of Partnership Income. You will also need to file K-1s for each of your members.

If you have an LLC that you have elected to treat as a corporation, the IRS considers your company to be its own entity, and it will need to file its own return. Alternatively, if you qualify, you can allow your LLC to claim S Corporation status and pass on income to its shareholders. To claim S Corporation status, your company must have only one class of stock, no more than 100 shareholders and no ineligible shareholders.

As an entrepreneur or business owner working abroad, your federal income tax return isn’t the only form you may need to file to meet your obligations in the United States. Here are some of the other forms you may need to file each year.

Form 8858 – Information Return of U.S. Persons With Respect to Foreign Disregarded Entities

If you own shares in foreign entities that are not considered entities under United States law, you must file this form along with your individual income tax return every year.

Form 5471 – Information Return of U.S. Persons With Respect to Certain Foreign Corporations

If you own more than 10 percent of a foreign corporation’s stock, you must file Form 5471 each year when you file your income tax return.

Form 8832 – Entity Classification Election

If you own a foreign LLC, you need to file Form 8832 in order to treat your company as a sole proprietorship or partnership. If you don’t file this form, the IRS will consider the company a foreign corporation, which leads to more reporting requirements.

Form 3520 – Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts

If you receive a foreign gift, or if you make a transfer to a foreign trust, you must file Form 3520 within 90 days. This is an informational form.

General filing requirements for most taxpayers can be found here: https://www.irs.gov/pub/irs-pdf/p501.pdf

Yes, you must file a U.S. tax return in order to claim the Foreign Earned Income Exclusion, even if there is no resulting tax liability. In general, the exclusion needs to be claimed on a timely filed return. You may still be able to file late returns and claim the exclusion if you have not been notified by the IRS.

The due date for individual tax returns is April 15th. You may be allowed an automatic two-month extension of time to file your return and pay any federal income tax that is due. You will be allowed the extension if you are a U.S. citizen or resident alien and on the regular due date of your return:

  • You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico
  • You are in military or naval service on duty outside the United States and Puerto Rico

Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return. To use this automatic two-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension. Additional extensions may be filed to extend the due date to October 15th.

Filing Status

Yes, it is possible to request an ITIN (individual taxpayer identification number) for your spouse if they don’t already have a U.S. tax identification number, so that a joint tax return can be filed. However, in order to file a joint tax return, your non-resident spouse will be required to make an election as part of the return, which will be subject to U.S. taxation and the reporting of their worldwide income (just like a U.S. citizen/permanent resident). In addition, as a result of this election to be considered a “tax resident,” the non-resident spouse will also be subject to other disclosure requirements, such as the FBAR.

Generally, we don’t recommend filing a joint return with a non-resident spouse due to becoming subject to ongoing U.S. tax reporting requirements, unless the spouse has little to no current worldwide income for the foreseeable future.

Category: Filing Status

Foreign Earned Income Exclusion

Self-employed taxpayers must pay self-employment tax on their net business income based on the IRS’ current rates, unless you are in a country with a Totalization Agreement. For 2017, the Social Security tax rate is 6.2 percent of the first $127,000 you earn during the year. If you’re self-employed, this means you must pay a 12.4 percent Social Security tax (consisting of payments both as an employee and employer). The Medicare tax rate for 2017 is 1.45 percent, so self-employed taxpayers must pay a 2.9 percent tax. This tax applies to all of the income you earn during the year. You will need to pay estimated self-employment taxes on a quarterly basis to avoid interest and penalties.

An individual’s tax on any foreign earned income above the exclusion amount is computed as if the foreign earned income exclusion was not claimed. The individual’s tax will be the excess of the tax that would be imposed if his or her taxable income were increased by the amount(s) excluded, and the tax that would be imposed if his or her taxable income were equal to the excluded amount(s). For this purpose, the excluded amount(s) will be reduced by the aggregate amount of any deductions or other exclusions otherwise disallowed.  The tax rate is based on both excluded and non-excluded income.

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, which must be 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 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.

Certain taxpayers may be able to exclude employer-provided housing amounts and deduct housing costs not provided by the employer. The exclusion is limited to the extent that it exceeds 16 percent of the maximum exclusion. Qualified housing expenses include:

  • Rent
  • The fair rental value of housing provided in kind by your employer
  • Repairs
  • Utilities (other than telephone charges)
  • Real and personal property insurance
  • Nondeductible occupancy taxes
  • Nonrefundable fees for securing a leasehold
  • Rental of furniture and accessories
  • Residential parking

Qualified expenses do not include deductible interest and taxes, housing expenses claimed on Form 8829, the principal portion of your mortgage payment, furniture purchases, capital improvements or the cost of domestic labor.

When choosing between the foreign earned income exclusion and foreign tax credit, it is an easy choice to use the credit only if you didn’t earn any wages and received only retirement income. On the other hand, if you didn’t pay any taxes to your foreign country and you did earn income, the exclusion is the better choice. Further, depending on your income and the rate of tax in your resident country, it may make more sense to use a combination of the exclusion and credit; then again, it may not. Either way, a proper analysis and comparison are recommended to determine what is most beneficial for the current tax year (but also prospectively for future years).

Foreign Pensions

Foreign pensions cannot be excluded on Form 2555.  Foreign earned income for purposes of the foreign earned income exclusion does not include pensions and annuity income (including social security benefits and railroad retirement benefits that are treated as social security).

Just as with domestic pensions or annuities, the taxable amount generally is the Gross Distribution minus the Cost (investment in the contract). Income received from foreign pensions or annuities may be fully or partly taxable, even if you do not receive a Form 1099 or other similar document reporting the amount of the income. In general, your foreign pension and retirement plan should also be reported on the FBAR and Form 8938, if required. Depending on how the plan is structured, there may be additional reporting requirements on Forms 8621 and 3520. We suggest contacting a tax professional that specializes in taxation for expats if you are unsure of the filing requirements related to your foreign pension or retirement plan.

Foreign mutual funds typically fall under the Passive Foreign Investment Company (PFIC) classification and are taxed through a system that is much more punitive and disadvantageous than their domestic counterparts. If you own foreign mutual funds, you will most likely have to include Form 8621, the Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, with the filing of your return. We recommend consulting with an expert if you are unsure of the filing obligations related to your foreign investments.

Foreign Tax Credit

Taxpayers can choose to deduct foreign taxes paid on Schedule A or claim a credit on Form 1116. The taxpayer must choose either the itemized deduction or credit for any given year. While every taxpayer’s situation is different, it is generally preferred to claim a credit for foreign income taxes paid.

If you’re a cash basis taxpayer, you can only take the foreign tax credit in the year you pay the qualified foreign tax unless you elect to claim the foreign tax credit in the year the taxes are accrued. Once you make this election, you can’t switch back to claiming the taxes in the year paid in later years.

You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. The excluded income is not subject to double-taxation and not available for a credit as a result.

If you can’t claim a credit for the full amount of qualified foreign income taxes you paid or accrued in that particular year, you’re allowed a carryback and/or carryover of the unused foreign income tax. You can carry back the unused foreign tax for one year and then carry it forward for 10 years.

The following foreign taxes do not qualify:

1.      Taxes eligible for a refund (even if not claimed)

2.      Taxes used to provide a subsidy to you or someone related to you

3.      Taxes not required by law, because you could have avoided paying the taxes to the foreign country

4.      Taxes that are paid or accrued to a country if the income giving rise to the tax is for a period (the sanction period) during which:

  • a.       The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism
  • b.      The United States has severed or doesn’t conduct diplomatic relations with the country
  • c.       The United States doesn’t recognize the country’s government, unless that government is eligible to purchase defense articles or services under the Arms Export Control Act

5.      Withheld foreign taxes on dividends for foreign stocks that don’t meet required minimum holding periods

6.      Withheld foreign taxes on gains and income from other foreign properties that don’t meet required minimum holding periods

Forms

The FBAR is an annual report that must be filed by any U.S. person who has a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account, exceeding certain thresholds.

A U.S. person includes U.S. citizens, U.S. residents, entities, including but not limited to, corporations, partnerships or limited liability companies, created or organized in the United States or under the laws of the United States, along with trusts or estates formed under the laws of the United States.

The report must be filed if the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. The FBAR is due on April 15th, but FinCEN will allow filers an automatic extension to October 15th. For willful violations, the penalty may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation. Non-willful violations that are not due to reasonable cause can be subject to penalties up to $12,459 per violation.

Category: Forms

Form 8938 is used to report specified foreign financial assets if the total value of all foreign financial assets is more than the reporting threshold:

Specified individuals living in the U.S. include:

·         Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

·         Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

 

Specified individuals living outside the U.S.:

·         Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

·         Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year

 

Required taxpayers who fail to file Form 8938 by the due date may be subject to a $10,000 penalty. In addition, if you are notified of the failure by the IRS and continue not to file Form 8938, you may be subject to an additional $10,000 penalty for each 30-day period the form is not filed, limited to $50,000. Further, if an underpayment of tax is involved with an undisclosed specified foreign financial asset, you may be subject to a penalty equal to 40 percent of the underpayment.

Category: Forms

Form 3520 and 3520-A are forms required to be filed to report certain transactions with foreign trusts, ownership of foreign trusts and the receipt of large gifts from foreign persons. A foreign gift is money or other property received by a U.S. person from a foreign person that the recipient treats as a gift or bequest and excludes from gross income. Foreign gifts must be reported if they exceed:

·         More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate)

·         More than $15,797 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships)

Taxpayers who cannot demonstrate reasonable cause for failing to file on time or reporting incorrect information may be subject to an initial penalty equal to the greater of $10,000 or the following (if applicable):

·         35 percent of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust.

·         35 percent of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution.

·         5 percent of the gross value of the portion of the foreign trust’s assets treated as owned by a U.S. person for failure by the U.S. person to report the U.S. owner information. Such U.S. person is subject to an additional separate 5 percent penalty (or $10,000 if greater), if the foreign trust (a) fails to file a timely Form 3520-A, or (b) does not furnish all required information or includes incorrect information.

Additional penalties may be imposed if the owner continues noncompliance after being notified by the IRS.

Category: Forms

Form 5471 is required to be filed by U.S. citizens and residents who are officers, directors or shareholders in certain foreign corporations. In general, this form is required if you own (directly, indirectly or constructively) 10 percent or more of the voting power of a controlled foreign corporation. You may also be required to file if you acquire or dispose of sufficient stock in a foreign corporation that shifts your ownership interest above or below the 10 percent threshold.

A $10,000 penalty may be imposed for each annual accounting period of each foreign corporation that fails to furnish the required information. If notified by the IRS and noncompliance continues after 90 days, an additional $10,000 penalty is charged for each 30-day period, limited to $50,000.

Category: Forms

Form 8621 is required by U.S. citizens and residents that are direct or indirect shareholders of a Passive Foreign Investment Company (PFIC). Absent any exception, each stock that is held during the year is required to be reported on a separate Form 8621 under the following circumstances:

·         Receives certain direct or indirect distributions from a PFIC

·         Recognizes gain on a direct or indirect disposition of PFIC stock

·         Is reporting information with respect to a QEF or section 1296 mark-to-market election

·         Is making an election reportable in Part II of the form

·         Is required to file an annual report pursuant to section 1298(f). See the Part I instructions, later, for more information regarding the person that must file pursuant to section 1298(f)

A foreign corporation is a PFIC if it meets either the income or asset test described below:

·         Income test – 75 percent or more of the corporation’s gross income for its taxable year is passive income (as defined in section 1297(b)).

·         Asset test – At least 50 percent of the average percentage of assets (determined under section 1297(e)) held by the foreign corporation during the taxable year are assets that produce passive income or that are held for the production of passive income.

There is not a specific penalty for failure to file Form 8621. However, the regulations coordinate the Form 8621 filing requirements with the Form 8938 filing requirements. Section 6038D requires a U.S. individual to disclose any directly held foreign financial assets on Form 8938, if the aggregate value of the individual’s foreign financial assets exceeds the filing threshold. An exception to the disclosure requirement applies to any foreign financial asset the individual reports on another disclosure form, such as Form 8621. A U.S. individual shareholder who fails to disclose a directly held PFIC investment on either Form 8621 or Form 8938 when required can be subject to a $10,000 penalty under §6038D(d).

Category: Forms

Green Card Holders

As a green card holder, you generally are required to file a U.S. income tax return and report worldwide income no matter where you live.

However, if you surrender your green card or the U.S. Citizen & Immigration Service determines that you have abandoned your green card and it is taken away from you, you will need to follow the nonresident alien requirements for filing a Form 1040NR, a U.S. Nonresident Alien Income Tax Return.

Income

The source of earned income and employee benefits generally depends on the physical location of the taxpayer when earning the income. If earned in a foreign country, it is considered foreign source.

The source of unearned income generally depends on the location of the payor or the property that generates the income. As a result, dividends and interest received from the U.S. government or domestic corporations is considered a U.S. source.

Category: Income

In general, the IRS considers mostly all forms of compensation worldwide as income. This includes:

  • Salaries and commissions
  • Education, travel, housing and other allowances

Other cash and benefits received for personal service

Category: Income

The rules for reporting the sale of your primary residence are generally the same as if the property was located in the United States. The IRS allows an exclusion of $250,000 ($500,000 if filing jointly) if you used and owned the property as your principal residence for two of the past five years. In general, taxpayers must not have excluded the gain from the sale of a former principal residence within the two-year period ending on the date of the sale. If the future sale of your home is due to a change in employment, health or unforeseen circumstances, you may qualify for a reduced exclusion, even if you fail to meet the ownership and use tests, or you used the exclusion within the two-year period ending on the date of the sale. There’s no limit to the number of times you can claim the exclusion.

Category: Income

Modified Adjusted Gross Income is your Adjusted Gross Income (AGI) plus the addition of certain deductions. Oftentimes, your AGI and MAGI can be identical. The following deductions (as applicable) are added back to calculate MAGI:

  • Student loan interest
  • One-half of self-employment tax
  • Qualified tuition expenses
  • Tuition and fees deduction
  • Passive loss or passive income
  • IRA contributions and taxable social security payments
  • The exclusion for income from U.S. savings bonds
  • The exclusion under 137 for adoption expenses
  • Rental losses
  • Any overall loss from a publicly traded partnership
Category: Income

Yes, you should report all income received, irregardless of the source and amount. The United States taxes its residents on their worldwide income.

Category: Income

Individual Taxpayer Identification Number

You need an ITIN if you are not eligible to get a social security number but must provide a taxpayer identification number on a U.S. tax return or information return.  Examples include the following:

  • A nonresident alien individual eligible to get the benefit of reduced withholding under an income tax treaty
  • A nonresident alien individual not eligible for an SSN who is required to file a U.S. tax return or who is filing a U.S. tax return only to claim a refund
  • A nonresident alien individual not eligible for an SSN who elects to file a joint U.S. tax return with a spouse who is a U.S. citizen or resident alien
  • A U.S. resident alien (based on the substantial presence test) who files a U.S. tax return but who is not eligible for an SSN
  • An alien spouse who is claimed as an exemption on a U.S. tax return but who is not eligible to get an SSN
  • An alien individual who is eligible to be claimed as a dependent on a U.S. tax return but who is not eligible to get an SSN
  • A nonresident alien student, professor or researcher who is required to file a U.S. tax return but who is not eligible for an SSN, or who is claiming an exception to the tax return filing requirement
  • A dependent/spouse of a nonresident alien U.S. visa holder, who is not eligible for an SSN

ITINs are for federal tax reporting only and are not intended to serve any other purpose. The IRS issues ITINs to help individuals comply with the U.S. tax laws and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs).

An ITIN does not provide authorization to work in the United States or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

An Acceptance Agent is a person or an entity (business or organization) who, pursuant to a written agreement with the IRS, is authorized to assist individuals and other foreign persons who do not qualify for a Social Security Number.  but who still need a Taxpayer Identification Number (TIN) to process a Form 1040 and other tax schedules. The Acceptance Agent facilitates the application process by reviewing the necessary documents and forwarding completed Forms W-7 to the IRS, which results in a much quicker process. Tax Samaritan is a certified Acceptance Agent.

In general, you can claim exemptions for individuals who qualify as your dependents. To be your dependent, the individual must be a U.S. citizen, U.S. national, U.S. resident alien or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins.

Children usually are citizens or residents of the same country as their parents. If you were a U.S. citizen when your child was born, your child generally is a U.S. citizen. This is true even if the child’s other parent is a nonresident alien, the child was born in a foreign country, or the child lives abroad with the other parent.

You must include the social security number (SSN) of each dependent on your return. If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent’s individual taxpayer identification number (ITIN), instead of an SSN.

You will need to contact the Social Security Administration, as the IRS does not issue SSNs. Use Form SS-5-FS, Application For A Social Security Card, which may be obtained from and filed with the Social Security Administration.

You need an ITIN as soon as you are ready to file your federal income tax return, since you need to attach the return to your application. To apply for an ITIN, complete Form W-7, the Application for IRS Individual Taxpayer Identification Number. See the related Instructions for Form W-7 for documents that will be needed and where the application is to be submitted. Refer to the website Individual Taxpayer Identification Number (ITIN) for specific information.

There are exceptions to the requirement to include a U.S. tax return with the Form W-7. For example, if you are a nonresident alien individual eligible to receive the benefit of reduced withholding under an income tax treaty, you can apply for an ITIN without having to attach a federal income tax return.  For a complete list of exceptions to the requirement to attach an income tax return, refer to the Exceptions Tables in the Instructions for Form W-7.

Late Filing

If you don’t meet your obligations, you may face the following penalties:

  • Failure to File Penalty: 5 percent of the unpaid balance for each month or part of a month the return is late. The maximum is 25 percent. If the return is more than 60 days late, the minimum penalty is the lesser of $135 or the tax due. There is no penalty if the return shows a refund.
  • Failure to Pay Penalty: 0.5 percent of the unpaid balance for each month or part of a month there is an unpaid balance. The maximum is 25 percent.

In certain circumstances, the IRS can take even more extreme action against you, such as revoking your passport.

To protect yourself from all of these consequences, consider talking to a tax professional about your responsibilities so you can make sure you are complying with all of the applicable laws. A tax professional can also help you resolve any problems you already have, such as unfiled returns or back taxes.

Category: Late Filing

You can amend your tax return to fix the error on Form 1040X. The primary statute of limitations expires three years after the filing date. If you are filing 1040X to claim a refund, you have two years from the payment of the tax or three years from the original (before any filing extension) due date of the return to make a refund claim.

Category: Late Filing

Offshore Voluntary Disclosure Program

The purpose of the Offshore Voluntary Disclosure Program (OVDP) is to bring taxpayers that have used undisclosed foreign accounts and assets, including those held through undisclosed foreign entities, to avoid or evade tax into compliance with United States tax and related laws. Taxpayers holding undisclosed foreign accounts and assets, including those held through undisclosed foreign entities, should make a voluntary disclosure, as it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution for all issues relating to tax noncompliance and failing to file FBARs.

In contrast, taxpayers simply filing amended returns or filing through the Streamlined Filing Compliance Procedures do not eliminate the risk of criminal prosecution. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, as well as an increased risk of criminal prosecution. The IRS remains actively engaged in identifying those with undisclosed foreign financial accounts and assets.

Other Taxes

The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8 percent to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts. The Net Investment Income Tax went into effect on Jan. 1, 2013. The NIIT affects income tax returns of individuals, estates and trusts, beginning with their first tax year beginning on (or after) Jan. 1, 2013.

Category: Other Taxes

Our Process

Our process is designed to make it quick and easy for the clients that we work with. Below is an overview of our 5-step process:

  1. Complete Our Tax Quote Questionnaire

Unlike most companies that offer a flat rate at the beginning and last-minute rate increases at the end, we believe in getting familiar with your tax situation before we get started, so that we can analyze your situation and draft a complete engagement letter for your review. Our quote questionnaire asks a few questions to understand your tax needs (such as whether you have foreign income, rental income, etc). The engagement letter details the scope of the work that we will perform for you and the cost for these services. This way, there are no surprises. Of course, if there are areas that are uncovered in subsequent steps (for example, you have stock sales that weren’t disclosed in the questionnaire), we will request and seek your approval for a change in engagement scope.

We are available to meet by phone or Skype to assist you in completing the quote questionnaire.

  1. Review/Sign Engagement Letter

This step engages us to prepare your tax return and/or resolve your tax problems. An invoice will be sent to you after receiving your signed engagement letter (we require an initial payment of 50 percent of the quoted fee to start work – we accept all major credit cards). Within one business day after receiving your payment, we will provide an invitation to register for our collaboration portal.

We will set up an engagement folder for “your access only” on our secure client collaboration portal to upload the documents that are needed to prepare your return.

We have created a very simple, powerful and secure way for us to collaborate, communicate and share files and information with our collaboration software. Our #1 goal is to make your experience with Tax Samaritan seamless and simplified.

Our all-inclusive tool combines the security of an online file portal and email communications into a centralized, secure and organized area.

Think along the lines of… no more sifting through emails or searching for attachments… All files, emails, comments and attachments related to your engagement will all be in one secure and organized location. We are keeping it very simple – no more wasting time.

Not only that… you will clearly see for your engagement – milestones, tasks and instructions in a private area set up just for “you” and for “us,” so that you’ll never wonder what’s outstanding and in need of a status update. Everything will be available and organized, accessible to only those involved in your engagement. You can see the status of your engagement in “real time.”

You will find that we offer our app (which, of course, is free to our clients) for the iPhone, Android, Google Chrome and the Web. Everything is in the cloud, accessible anywhere and anytime, and 100 percent secure.

We believe that this makes the tax preparation process even more worry-free and effortless for you.

As always, we are available to assist you at any step of this process along the way.

  1. Prepare Your Tax Return

Simply put, you provide the requested documents and information, and we do all the hard work behind the scenes.

If you don’t have access to a scanner to upload the documents, your documents can be faxed or mailed to us. In most cases, your return will be posted for your review within 15 business days after all the necessary documents and information to prepare your return have been provided. If you need your returns sooner, we can provide rush service upon request.

  1. Review Your Return

Once your return is prepared and ready for your review, your final payment will be due (the remaining 50 percent of your invoice). As soon as we receive payment, a draft of your tax return will be posted on the secure client portal for your review. We can schedule a meeting with you over the phone or skype (with screen share) to provide an overview of your return (we want you to have the opportunity to understand your return) or to clarify and answer any questions that you may have. We will be happy to make any changes or revisions to your return as needed.

  1. File Your Return

Once you have acknowledged that you are satisfied with your return, we will be able to e-file your returns to the IRS and states (if a current year tax return) or provide instructions on how to mail in your tax returns.

Category: Our Process

The majority of our clients are able to enjoy the ease of e-filing their federal tax returns. However, there are certain circumstances that may require your returns to be filed on paper. Either way, Tax Samaritan will help make the process as simple and easy as possible.

Category: Our Process

The FBAR disclosure form (the “FBAR” file) can be opened only in Adobe Acrobat. In order to open, please first save the file locally to your computer, then open Adobe Acrobat and open the file from within Adobe Acrobat. If you try to download and open the file directly after downloading, you generally will not be able to open the file properly.

Category: Our Process

We utilize a https://www.taxsamaritan.com/tax-return-getting-started/our-tax-process/collaboration portal where you can securely share files and communicate with us. In many cases, you will find a PDF or Excel questionnaire that can be downloaded, filled out and then uploaded to the portal. Our questionnaires are designed to make the information-gathering process easy, quick and simple. The questionnaires help compile necessary information and, most importantly, ensure that no deductions are missed.  You will find questionnaires to help gather information for Schedules A,C,D and E, as well as foreign bank account information, travel information and other general information.

Category: Our Process

Retirement

There are various requirements for contributions to IRA plans. In general, the taxpayer will need to have taxable compensation that is not excluded under the Foreign Earned Income Exclusion. If all of your income is excluded, your contribution may be deemed an excess contribution.

Category: Retirement

If you are a U.S. citizen or a resident alien, the rules for filing income, estate and gift tax returns and paying estimated tax are generally the same, whether you are in the United States or abroad. With taxation of worldwide income, your U.S. and foreign income is subject to U.S. income tax, regardless of where you reside. It is a citizenship-based income tax.

Elsewhere in the world, the basic rule is that taxes are based on residency and not on taxation of worldwide income based on citizenship.

Category: Retirement

State Taxes

The following states do not impose income tax on earned income:

·         Washington

·         Nevada

·         Alaska

·         Texas

·         Wyoming

·         South Dakota

·         Florida

Category: State Taxes

Your responsibilities will depend on the state you lived in before you moved overseas. The state income tax return residency rules for taxpayers that reside overseas vary greatly from state to state, and there are numerous ways that each state makes this determination.  Some states use a “time-based” test, while other states, such as California, look at whether you are considered to have “tax domicile” in the state. This is often not as simple as whether you are physically present in the state or not. There are many criteria used in determining whether the state is a taxpayer’s domicile. Each state has their own definition. It is true that one of the common determinants is the taxpayer’s prolonged physical presence. Some states base their determination on other factors, including where the individual has family ties, where he or she has been filing resident tax returns, where he or she is registered to vote or has a driver’s license, where he or she owns property, or where the person has bank accounts or other financial holdings.

We encourage taxpayers to review their state tax filing requirements and state residency with their tax professional to determine if they are considered a resident, part-year resident or non-resident state taxpayer.

Individuals are generally considered residents, and are thus fully liable for taxes, if they are domiciled in the state or if they are living in the state (usually at least six months of the year), but are not domiciled there.

A non-resident, according to most states’ definitions, is an individual who earns income sourced within the specific state, but does not live there, or is living there for only part of the year (usually fewer than six months).

There are currently seven states with no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In addition, New Hampshire and Tennessee have no tax on personal income, but do tax profits from the sale of bonds and property.

Taxpayers should keep in mind that states can challenge the residency status of a taxpayer, and that this is not unusual, especially with some of the more aggressive states – generally those states that perpetually have budget issues, such as California, Massachusetts, New York, Virginia, etc. To reduce your risk of future demands of state tax returns or liability, it is important that you research your state tax filing requirements and make the necessary changes prior to departure, ensuring the certainty that your filing choice will not be challenged in the future. If you maintain a home in the state, have a state-issued drivers’ license, financial accounts, voter registration status, etc., it is possible that some states may use any of these as proof that you were a resident of that state while living abroad.

For further assistance with determining your state income tax residency as part of an engagement for services, please be sure to contact Tax Samaritan or your tax professional. If you are preparing your own return, we recommend checking the regulations with the relevant state tax authority.

Category: State Taxes

Streamlined Procedure

The IRS allows U.S. taxpayers to come into compliance through the use of a streamlined filing procedure. Certain restrictions need to be met to qualify for the domestic or foreign streamlined procedure. In general, the purpose is to allow taxpayers to file amended or delinquent returns and resolve their tax and penalty obligations, all with one procedure. The program allows taxpayers to come into compliance by filing the last three years of delinquent or amended returns, and six years of delinquent or amended FBAR reports. To qualify, you must meet the following criteria:

  • Taxpayers must certify that their conduct was not willful.
  • The IRS has not initiated a civil examination of taxpayer’s returns for any taxable year.
  • Taxpayers that are eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay all previous penalty assessments.
  • Taxpayers who want to participate in the streamlined procedures need a valid Taxpayer Identification Number.

Tax returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS. Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return. They may also be subject to verification procedures, in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors and other sources.

Tax Treaties

The United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Most income tax treaties contain what is known as a “saving clause,” which prevents a citizen or a resident of the United States from using the provisions of a tax treaty in order to avoid taxation of U.S. source income.

Treaties should be carefully examined to find if you are entitled to a:

·         Tax credit

·         Tax exemption

·         Reduced rate of tax

·         Other treaty benefit or safeguard

The United States has tax treaties with the following countries:

Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Trinidad, Tunisia, Turkey, Turkmenistan, Ukraine, Union of Soviet Socialist Republics (USSR), United Kingdom, United States Model, Uzbekistan and Venezuela

Category: Tax Treaties

Totalization Agreements are agreements designed to help taxpayers avoid paying too much in taxes. At this time, the United States has Totalization Agreements with the following countries: Australia, Austria, Belgium, Canada, Czech Republic, Chile, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom.

These agreements prevent dual Social Security taxation, which occurs when a taxpayer from one country spends time working in another country and must pay Social Security taxes to both countries on the same earnings. In addition, these agreements help to fill in gaps in benefit protection for individuals who have split their careers between the United States and a foreign country. The agreements assign coverage to just one country and exempt the taxpayer from the payment of Social Security taxes in the other country.

Category: Tax Treaties

Working With Tax Samaritan

You can expect to receive the tax returns for your review within 15 business days from receiving the requested documentation needed to prepare your return(s). During peak times/deadlines, returns may be delayed by a few days, but your return status will always be accessible.

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About Tax Samaritan

We specialize in tax solutions and wealth management for U.S. taxpayers, with a special focus on assisting Americans living abroad. Our tax and financial services are very straightforward. Tax solutions and wealth management is much more than just a tax return and a retirement account, as it encompasses all parts of your financial life, including tax and investment planning. We want to help solve your tax and financial issues and enhance your financial situation. Today, https://www.taxsamaritan.com/tax-return-getting-started/tax-quote/Tax Samaritan does this with insightful questions about your tax situation and a focus and detailed attention on your return that is no different than preparing our own personal returns. We view your return and financial situation with a holistic approach.

  • A tax and wealth management firm that can you help navigate the complex expat tax issues such as the foreign earned income exclusion, foreign tax credit, the FBAR, tax treaties, social security totalization agreements and other advanced tax topics. This knowledge comes from the preparation of thousands of expat tax returns for American taxpayers overseas.
  • Tax Professionals that understand the unique tax issues and challenges that are applicable to U.S. taxpayers abroad.

A relationship that doesn’t end after we file your return or solve your tax problem. We believe in a long-term relationship and in keeping you up-to-date on new developments in tax laws that apply to you. We will also be available whenever you need us.

Affordable Care Act

U.S. citizens living abroad are subject to the individual shared responsibility provision. However, U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period, regardless of whether they enroll in any health care coverage. In addition, U.S. citizens who are bona fide residents of a foreign country (or countries) for an entire taxable year are treated as having minimum essential coverage for that year. In general, these individuals qualify for the foreign earned income exclusion under section 911. Individuals may qualify for this rule, even if they cannot use the section 911 exclusion for all of their foreign earned income because, for example, they are employees of the United States. The exemption can be claimed on Form 8965 when you file your tax return.

Credits

The American Opportunity Credit: This credit can help parents and students pay part of the cost of the first four years of college. The American Recovery and Reinvestment Act modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers.

Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.

The Lifetime Learning Credit: This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program.  Eligible taxpayers may qualify for up to $2,000 per tax return.

The Hope Credit: The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years.

You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

Category: Credits

In general, these expenses will not be deductible or eligible for a credit unless they are accrued from an eligible educational institution.

Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. An eligible educational institution is a school offering higher education beyond high school. It is any college, university, vocational school or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. If you aren’t sure if your school is an eligible educational institution:

• Ask your school if it is an eligible educational institution

• See if your school is on the U.S. Federal Student Aid Code List

Categories: Credits, Deductions

Currency Exchange

All income and expenses on your tax return must be reported in U.S. dollars. In general, you can use the exchange rate on the day a payment or expense was received or paid, or an average annual exchange rate. To use the average annual exchange rate, your income and expenses need to be earned or paid evenly throughout the year. The IRS average annual exchange rates for most currencies are posted here:

https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

When completing the FBAR, the exchange rates posted by the U.S. treasury for the given tax year should be used for converting foreign currency to U.S. dollars. The Treasury Reporting Rates of Exchange can be found here.

Deductions

Students and their parents may be able to deduct qualified college tuition and other related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American opportunity, Hope, or Lifetime Learning credits.

You cannot claim any of the education credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

Category: Deductions

In general, these expenses will not be deductible or eligible for a credit unless they are accrued from an eligible educational institution.

Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. An eligible educational institution is a school offering higher education beyond high school. It is any college, university, vocational school or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. If you aren’t sure if your school is an eligible educational institution:

• Ask your school if it is an eligible educational institution

• See if your school is on the U.S. Federal Student Aid Code List

Categories: Credits, Deductions

Yes, you are typically allowed the same deduction for mortgage interest. However, effective with tax year 2018, foreign property/real estate taxes paid are no longer eligible as an itemized deduction. The deductions are taken on Schedule A, assuming the standard deduction is less than the total of your itemized deductions. You may be able to deduct/exclude other foreign housing costs, depending on your situation.

Category: Deductions

In general, these charitable donations will not be deductible on your U.S. tax return. To be deductible, charitable donations need to be made to qualified organizations. A qualified organization is generally one that has received 501(c)(3) status from the IRS. If you are unsure, you can ask any organization whether it is a qualified organization, and most will be able to tell you. Or you can use the tool here to search for qualified organizations.

Category: Deductions

FBAR (Foreign Bank Account Reporting)

Type of AccountForm 8938FBAR
Financial (deposit and custodial) accounts held at foreign financial institutionsYesYes
Financial account held at a foreign branch of a U.S. financial institutionNoYes
Financial account held at a U.S. branch of a foreign financial institutionNoNo
Foreign financial account for which you have signature authorityNo, unless you otherwise have an interest in the account as described aboveYes, subject to exceptions
Foreign stock or securities held in a financial account at a foreign financial institutionThe account itself is subject to reporting, but the contents of the account do not have to be separately reportedThe account itself is subject to reporting, but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial accountYesNo
Foreign partnership interestsYesNo
Indirect interests in foreign financial assets through an entityNoYes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity.
Foreign mutual fundsYesYes
Domestic mutual fund investing in foreign stocks and securitiesNoNo
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantorYes, as to both foreign accounts and foreign non-account investment assetsYes, as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash valueYesYes
Foreign hedge funds and foreign private equity fundsYesNo
Foreign real estate held directlyNoNo
Foreign real estate held through a foreign entityNo, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estateNo
Foreign currency held directlyNoNo
Precious Metals held directlyNoNo
Personal property, held directly, such as art, antiques, jewelry, cars and other collectiblesNoNo
“Social Security”- type program benefits provided by a foreign governmentNoNo

The annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts is April 15.  This date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41 (the Act).  Specifically, section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the Federal income tax filing season. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year (please note that this may change in future years).

Tag: FBAR

A specified individual is:

  • A U.S. citizen
  • A resident alien of the United States for any part of the tax year (see Pub. 519 for more information)
  • A nonresident alien who makes an election to be treated as a resident alien by filing a joint income tax return

A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico (See Pub. 570 for definition of a bona fide resident)

Specified foreign financial assets include the following:

  • Financial accounts maintained by a foreign financial institution
  • The following foreign financial assets if they are held for investment and not held in an account maintained by a financial institution:
  • Stock or securities issued by someone that is not a U.S. person (including stock or securities issued by a person organized under the laws of a U.S. possession)
  • Any interest in a foreign entity
  • Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person (including a financial contract issued by, or with, a counterparty that is a person organized under the laws of a U.S. possession).

Generally, all foreign accounts for which you have a financial interest or signature authority will need to be reported on the FBAR, as long as the combined total exceeds $10,000 at any time during the year. In addition, these accounts are required to be reported on Form 8938 if they exceed the following thresholds:

Specified individuals living in the U.S.:

  • Unmarried individual (or married filing separately): If the total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
  • Married individual filing jointly: If the total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

Specified individuals living outside the U.S.:

  • Unmarried individual (or married filing separately): If the total value of all assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.
  • Married individual filing jointly: If the total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.

All income from foreign accounts in which you have a financial interest must be reported on your individual tax return.

The following financial accounts and the assets held in such accounts are not specified foreign financial assets and do not have to be reported on Form 8938:

·         A financial account that is maintained by a U.S. payer, such as a domestic financial institution. In general, a U.S. payer also includes a domestic branch of a foreign bank or foreign insurance company and a foreign branch or foreign subsidiary of a U.S. financial institution.

Examples of financial accounts maintained by U.S. financial institutions include: U.S. mutual funds accounts, IRAs (traditional or Roth), Section 401(k) retirement accounts, Qualified U.S. retirement plans and Brokerage accounts maintained by U.S. financial institutions.

·         A financial account that is maintained by a dealer or trader in securities or commodities if all of the holdings in the account are subject to the mark-to-market accounting rules for dealers in securities, or an election under section 475(e) or (f) is made for all of the holdings in the account.

·         There are also exceptions for duplicative reporting (Forms 3520, 5471, 8621, 8865).

You must file Form 8938 if:

You are a specified individual (U.S. tax resident) and you have an interest in specified foreign financial assets required to be reported. In addition, the aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you:

Specified individuals living in the U.S.:

  • Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
  • Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

 

Specified individuals living outside the U.S.:

  • Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.

Filing Prior Year Tax Returns

You must file a federal income tax return for any tax year in which you meet the filing requirements to file a tax return. For most taxpayers, if your gross income is equal to or greater than the personal exemption amount and standard deduction combined (per the Form 1040 Instructions for the corresponding tax year), a tax return must be filed. There is no statute of limitations for unfiled tax returns. Thus, the recommended number of prior years to file will depend on the facts and circumstances of your particular situation, which should be discussed with your tax professional.

Filing Requirements

The due date for individual tax returns is April 15th. You may be allowed an automatic two-month extension of time to file your return and pay any federal income tax that is due. You will be allowed the extension if you are a U.S. citizen or resident alien and on the regular due date of your return:

  • You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico
  • You are in military or naval service on duty outside the United States and Puerto Rico

Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return. To use this automatic two-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension. Additional extensions may be filed to extend the due date to October 15th.

General filing requirements for most taxpayers can be found here: https://www.irs.gov/pub/irs-pdf/p501.pdf

In general, the reporting requirements for foreign rental properties are the same as domestic rental properties if owned by a U.S. citizen or green card holder. You must include Schedule E with your tax return and report all rental income received during the year. You can take deductions for many expenses related to the property, such as mortgage interest, repairs, depreciation, insurance, and management or association fees. If you paid foreign taxes on the income generated from your rental property, you may be able to utilize the Foreign Tax Credit. Rental income is generally considered passive income and cannot be excluded under the Foreign Earned Income Exclusion unless you are actively in business as a real estate professional.

If you own your business abroad, the structure of your company will impact your filing requirements. Factors that may have an effect on your obligations include:

  • The structure of the company
  • Where the company was established
  • The number of shareholders

If you own a sole proprietorship or a single-member U.S. LLC, the IRS won’t consider the company a separate entity for tax purposes, and you will be able to report your profits and losses directly on the Schedule C of your individual tax return. However, if you have a U.S. partnership or LLC that elects to be treated as a partnership, the company needs to file its own Form 1065 U.S. Return of Partnership Income. You will also need to file K-1s for each of your members.

If you have an LLC that you have elected to treat as a corporation, the IRS considers your company to be its own entity, and it will need to file its own return. Alternatively, if you qualify, you can allow your LLC to claim S Corporation status and pass on income to its shareholders. To claim S Corporation status, your company must have only one class of stock, no more than 100 shareholders and no ineligible shareholders.

As an entrepreneur or business owner working abroad, your federal income tax return isn’t the only form you may need to file to meet your obligations in the United States. Here are some of the other forms you may need to file each year.

Form 8858 – Information Return of U.S. Persons With Respect to Foreign Disregarded Entities

If you own shares in foreign entities that are not considered entities under United States law, you must file this form along with your individual income tax return every year.

Form 5471 – Information Return of U.S. Persons With Respect to Certain Foreign Corporations

If you own more than 10 percent of a foreign corporation’s stock, you must file Form 5471 each year when you file your income tax return.

Form 8832 – Entity Classification Election

If you own a foreign LLC, you need to file Form 8832 in order to treat your company as a sole proprietorship or partnership. If you don’t file this form, the IRS will consider the company a foreign corporation, which leads to more reporting requirements.

Form 3520 – Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts

If you receive a foreign gift, or if you make a transfer to a foreign trust, you must file Form 3520 within 90 days. This is an informational form.

Yes, you must file a U.S. tax return in order to claim the Foreign Earned Income Exclusion, even if there is no resulting tax liability. In general, the exclusion needs to be claimed on a timely filed return. You may still be able to file late returns and claim the exclusion if you have not been notified by the IRS.

Many taxpayers abroad can e-file their tax return without any issues, but there are certain circumstances where a taxpayer will have to mail their return.

Filing Status

Yes, it is possible to request an ITIN (individual taxpayer identification number) for your spouse if they don’t already have a U.S. tax identification number, so that a joint tax return can be filed. However, in order to file a joint tax return, your non-resident spouse will be required to make an election as part of the return, which will be subject to U.S. taxation and the reporting of their worldwide income (just like a U.S. citizen/permanent resident). In addition, as a result of this election to be considered a “tax resident,” the non-resident spouse will also be subject to other disclosure requirements, such as the FBAR.

Generally, we don’t recommend filing a joint return with a non-resident spouse due to becoming subject to ongoing U.S. tax reporting requirements, unless the spouse has little to no current worldwide income for the foreseeable future.

Category: Filing Status

Foreign Earned Income Exclusion

The “foreign earned income exclusion” is strictly based on “foreign earned income” only (i.e. foreign wages or self-employment income). Passive income, such as interest, dividends, capital gains and retirement distributions, are not considered “earned income.”

An individual’s tax on any foreign earned income above the exclusion amount is computed as if the foreign earned income exclusion was not claimed. The individual’s tax will be the excess of the tax that would be imposed if his or her taxable income were increased by the amount(s) excluded, and the tax that would be imposed if his or her taxable income were equal to the excluded amount(s). For this purpose, the excluded amount(s) will be reduced by the aggregate amount of any deductions or other exclusions otherwise disallowed.  The tax rate is based on both excluded and non-excluded income.

Certain taxpayers may be able to exclude employer-provided housing amounts and deduct housing costs not provided by the employer. The exclusion is limited to the extent that it exceeds 16 percent of the maximum exclusion. Qualified housing expenses include:

  • Rent
  • The fair rental value of housing provided in kind by your employer
  • Repairs
  • Utilities (other than telephone charges)
  • Real and personal property insurance
  • Nondeductible occupancy taxes
  • Nonrefundable fees for securing a leasehold
  • Rental of furniture and accessories
  • Residential parking

Qualified expenses do not include deductible interest and taxes, housing expenses claimed on Form 8829, the principal portion of your mortgage payment, furniture purchases, capital improvements or the cost of domestic labor.

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, which must be 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 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.

When choosing between the foreign earned income exclusion and foreign tax credit, it is an easy choice to use the credit only if you didn’t earn any wages and received only retirement income. On the other hand, if you didn’t pay any taxes to your foreign country and you did earn income, the exclusion is the better choice. Further, depending on your income and the rate of tax in your resident country, it may make more sense to use a combination of the exclusion and credit; then again, it may not. Either way, a proper analysis and comparison are recommended to determine what is most beneficial for the current tax year (but also prospectively for future years).

Unfortunately, income from working abroad as an employee of the U.S. Government does not qualify for either of the exclusions or the housing deduction. If you paid foreign income taxes, it is likely that you will qualify for the Foreign Tax Credit that can be used to offset double taxation. More information about the foreign tax credit can be read here:

http://www.taxsamaritan.com/tax-preparation/expatriate-tax/foreign-tax-credit/

To qualify for the exclusion, you must be either a bona fide resident of a foreign country or be physically present in the foreign country for 330 full days during any 12 consecutive months. The 330 days do not need to be consecutive. A full day in any foreign country counts. If you qualify for the exclusion and a portion of your physical presence period is during the previous or following calendar year, the exclusion is prorated:

(“Number of days in your qualifying period that fall within the calendar tax year” / “Number of days in the calendar tax year”)  X  Maximum foreign earned income exclusion

Self-employed taxpayers must pay self-employment tax on their net business income based on the IRS’ current rates, unless you are in a country with a Totalization Agreement. For 2017, the Social Security tax rate is 6.2 percent of the first $127,000 you earn during the year. If you’re self-employed, this means you must pay a 12.4 percent Social Security tax (consisting of payments both as an employee and employer). The Medicare tax rate for 2017 is 1.45 percent, so self-employed taxpayers must pay a 2.9 percent tax. This tax applies to all of the income you earn during the year. You will need to pay estimated self-employment taxes on a quarterly basis to avoid interest and penalties.

The U.S. is the only country that has taxation of worldwide income for all of its citizens, no matter where they live and regardless of how long they have been overseas. In fact, the U.S. is one of the the only countries that imposes what is known as a “diaspora tax” on its citizens.

If you are a U.S. citizen or a resident alien, the rules for filing income, estate and gift tax returns, along with paying estimated tax, are generally the same, whether you are in the United States or abroad. With taxation of worldwide income, your U.S. and foreign income is subject to U.S. income tax, regardless of where you reside. It is a citizenship-based income tax.

Foreign Pensions

Just as with domestic pensions or annuities, the taxable amount generally is the Gross Distribution minus the Cost (investment in the contract). Income received from foreign pensions or annuities may be fully or partly taxable, even if you do not receive a Form 1099 or other similar document reporting the amount of the income. In general, your foreign pension and retirement plan should also be reported on the FBAR and Form 8938, if required. Depending on how the plan is structured, there may be additional reporting requirements on Forms 8621 and 3520. We suggest contacting a tax professional that specializes in taxation for expats if you are unsure of the filing requirements related to your foreign pension or retirement plan.

Foreign mutual funds typically fall under the Passive Foreign Investment Company (PFIC) classification and are taxed through a system that is much more punitive and disadvantageous than their domestic counterparts. If you own foreign mutual funds, you will most likely have to include Form 8621, the Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, with the filing of your return. We recommend consulting with an expert if you are unsure of the filing obligations related to your foreign investments.

Foreign pensions cannot be excluded on Form 2555.  Foreign earned income for purposes of the foreign earned income exclusion does not include pensions and annuity income (including social security benefits and railroad retirement benefits that are treated as social security).

Foreign Tax Credit

The Foreign Tax Credit is a credit for income taxes paid to a foreign country, and it is designed to help minimize the burden of double-taxation.

In order to qualify for the foreign tax credit, taxpayers must meet all four of the following requirements:

  • The tax must be imposed on you by a foreign country.
  • You must have paid or accrued the tax.
  • The tax must be the legal and actual foreign tax liability.
  • The tax must be an income tax.

Keep in mind that the foreign tax credit only applies to taxes imposed on foreign income. You can’t claim a credit for taxes you may have paid on U.S.-sourced income.  You can’t claim the credit for any taxes you paid that could be refunded or forgiven, either.

The following foreign taxes do not qualify:

1.      Taxes eligible for a refund (even if not claimed)

2.      Taxes used to provide a subsidy to you or someone related to you

3.      Taxes not required by law, because you could have avoided paying the taxes to the foreign country

4.      Taxes that are paid or accrued to a country if the income giving rise to the tax is for a period (the sanction period) during which:

  • a.       The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism
  • b.      The United States has severed or doesn’t conduct diplomatic relations with the country
  • c.       The United States doesn’t recognize the country’s government, unless that government is eligible to purchase defense articles or services under the Arms Export Control Act

5.      Withheld foreign taxes on dividends for foreign stocks that don’t meet required minimum holding periods

6.      Withheld foreign taxes on gains and income from other foreign properties that don’t meet required minimum holding periods

If you’re a cash basis taxpayer, you can only take the foreign tax credit in the year you pay the qualified foreign tax unless you elect to claim the foreign tax credit in the year the taxes are accrued. Once you make this election, you can’t switch back to claiming the taxes in the year paid in later years.

Taxpayers can choose to deduct foreign taxes paid on Schedule A or claim a credit on Form 1116. The taxpayer must choose either the itemized deduction or credit for any given year. While every taxpayer’s situation is different, it is generally preferred to claim a credit for foreign income taxes paid.

You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. The excluded income is not subject to double-taxation and not available for a credit as a result.

If you can’t claim a credit for the full amount of qualified foreign income taxes you paid or accrued in that particular year, you’re allowed a carryback and/or carryover of the unused foreign income tax. You can carry back the unused foreign tax for one year and then carry it forward for 10 years.

Forms

The FBAR is an annual report that must be filed by any U.S. person who has a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account, exceeding certain thresholds.

A U.S. person includes U.S. citizens, U.S. residents, entities, including but not limited to, corporations, partnerships or limited liability companies, created or organized in the United States or under the laws of the United States, along with trusts or estates formed under the laws of the United States.

The report must be filed if the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. The FBAR is due on April 15th, but FinCEN will allow filers an automatic extension to October 15th. For willful violations, the penalty may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation. Non-willful violations that are not due to reasonable cause can be subject to penalties up to $12,459 per violation.

Category: Forms

Form 8938 is used to report specified foreign financial assets if the total value of all foreign financial assets is more than the reporting threshold:

Specified individuals living in the U.S. include:

·         Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

·         Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

 

Specified individuals living outside the U.S.:

·         Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

·         Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year

 

Required taxpayers who fail to file Form 8938 by the due date may be subject to a $10,000 penalty. In addition, if you are notified of the failure by the IRS and continue not to file Form 8938, you may be subject to an additional $10,000 penalty for each 30-day period the form is not filed, limited to $50,000. Further, if an underpayment of tax is involved with an undisclosed specified foreign financial asset, you may be subject to a penalty equal to 40 percent of the underpayment.

Category: Forms

Form 8621 is required by U.S. citizens and residents that are direct or indirect shareholders of a Passive Foreign Investment Company (PFIC). Absent any exception, each stock that is held during the year is required to be reported on a separate Form 8621 under the following circumstances:

·         Receives certain direct or indirect distributions from a PFIC

·         Recognizes gain on a direct or indirect disposition of PFIC stock

·         Is reporting information with respect to a QEF or section 1296 mark-to-market election

·         Is making an election reportable in Part II of the form

·         Is required to file an annual report pursuant to section 1298(f). See the Part I instructions, later, for more information regarding the person that must file pursuant to section 1298(f)

A foreign corporation is a PFIC if it meets either the income or asset test described below:

·         Income test – 75 percent or more of the corporation’s gross income for its taxable year is passive income (as defined in section 1297(b)).

·         Asset test – At least 50 percent of the average percentage of assets (determined under section 1297(e)) held by the foreign corporation during the taxable year are assets that produce passive income or that are held for the production of passive income.

There is not a specific penalty for failure to file Form 8621. However, the regulations coordinate the Form 8621 filing requirements with the Form 8938 filing requirements. Section 6038D requires a U.S. individual to disclose any directly held foreign financial assets on Form 8938, if the aggregate value of the individual’s foreign financial assets exceeds the filing threshold. An exception to the disclosure requirement applies to any foreign financial asset the individual reports on another disclosure form, such as Form 8621. A U.S. individual shareholder who fails to disclose a directly held PFIC investment on either Form 8621 or Form 8938 when required can be subject to a $10,000 penalty under §6038D(d).

Category: Forms

Form 5471 is required to be filed by U.S. citizens and residents who are officers, directors or shareholders in certain foreign corporations. In general, this form is required if you own (directly, indirectly or constructively) 10 percent or more of the voting power of a controlled foreign corporation. You may also be required to file if you acquire or dispose of sufficient stock in a foreign corporation that shifts your ownership interest above or below the 10 percent threshold.

A $10,000 penalty may be imposed for each annual accounting period of each foreign corporation that fails to furnish the required information. If notified by the IRS and noncompliance continues after 90 days, an additional $10,000 penalty is charged for each 30-day period, limited to $50,000.

Category: Forms

Form 3520 and 3520-A are forms required to be filed to report certain transactions with foreign trusts, ownership of foreign trusts and the receipt of large gifts from foreign persons. A foreign gift is money or other property received by a U.S. person from a foreign person that the recipient treats as a gift or bequest and excludes from gross income. Foreign gifts must be reported if they exceed:

·         More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate)

·         More than $15,797 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships)

Taxpayers who cannot demonstrate reasonable cause for failing to file on time or reporting incorrect information may be subject to an initial penalty equal to the greater of $10,000 or the following (if applicable):

·         35 percent of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust.

·         35 percent of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution.

·         5 percent of the gross value of the portion of the foreign trust’s assets treated as owned by a U.S. person for failure by the U.S. person to report the U.S. owner information. Such U.S. person is subject to an additional separate 5 percent penalty (or $10,000 if greater), if the foreign trust (a) fails to file a timely Form 3520-A, or (b) does not furnish all required information or includes incorrect information.

Additional penalties may be imposed if the owner continues noncompliance after being notified by the IRS.

Category: Forms

Green Card Holders

As a green card holder, you generally are required to file a U.S. income tax return and report worldwide income no matter where you live.

However, if you surrender your green card or the U.S. Citizen & Immigration Service determines that you have abandoned your green card and it is taken away from you, you will need to follow the nonresident alien requirements for filing a Form 1040NR, a U.S. Nonresident Alien Income Tax Return.

Income

In general, the IRS considers mostly all forms of compensation worldwide as income. This includes:

  • Salaries and commissions
  • Education, travel, housing and other allowances

Other cash and benefits received for personal service

Category: Income

To figure out the basis of property you receive as a gift, you must know three amounts:

  • The adjusted cost basis to the donor just before the donor made the gift to you
  • The fair market value (FMV) at the time the donor made the gift
  • The amount of any gift tax paid on Form 709

If the FMV of the property at the time of the gift is less than the donor’s adjusted basis, your adjusted basis depends on whether you have a gain or loss when you dispose of the property.

Your basis for figuring a gain is the same as the donor’s adjusted basis, plus or minus any required adjustments to the basis while you held the property.

Your basis for figuring a loss is the FMV of the property when you received the gift, plus or minus any required adjustments to the basis while you held the property.

If you use the donor’s adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.

If the FMV is equal to or greater than the donor’s adjusted basis, your basis is the donor’s adjusted basis at the time you received the gift.

Category: Income

The basis of property inherited from a decedent is generally one of the following:

  • The fair market value (FMV) of the property on the date of the decedent’s death

The FMV of the property on the alternate valuation date if the executor of the estate chooses to use the alternate valuation

Category: Income

Modified Adjusted Gross Income is your Adjusted Gross Income (AGI) plus the addition of certain deductions. Oftentimes, your AGI and MAGI can be identical. The following deductions (as applicable) are added back to calculate MAGI:

  • Student loan interest
  • One-half of self-employment tax
  • Qualified tuition expenses
  • Tuition and fees deduction
  • Passive loss or passive income
  • IRA contributions and taxable social security payments
  • The exclusion for income from U.S. savings bonds
  • The exclusion under 137 for adoption expenses
  • Rental losses
  • Any overall loss from a publicly traded partnership
Category: Income

Yes, you should report all income received, irregardless of the source and amount. The United States taxes its residents on their worldwide income.

Category: Income

The rules for reporting the sale of your primary residence are generally the same as if the property was located in the United States. The IRS allows an exclusion of $250,000 ($500,000 if filing jointly) if you used and owned the property as your principal residence for two of the past five years. In general, taxpayers must not have excluded the gain from the sale of a former principal residence within the two-year period ending on the date of the sale. If the future sale of your home is due to a change in employment, health or unforeseen circumstances, you may qualify for a reduced exclusion, even if you fail to meet the ownership and use tests, or you used the exclusion within the two-year period ending on the date of the sale. There’s no limit to the number of times you can claim the exclusion.

Category: Income

Yes, you will most likely need to include Schedule E with your tax return if you’ve received rental income, even if there is a net loss. Losses from rental properties may help reduce your overall tax liability and must be claimed on your tax return.

Category: Income

The source of earned income and employee benefits generally depends on the physical location of the taxpayer when earning the income. If earned in a foreign country, it is considered foreign source.

The source of unearned income generally depends on the location of the payor or the property that generates the income. As a result, dividends and interest received from the U.S. government or domestic corporations is considered a U.S. source.

Category: Income

Individual Taxpayer Identification Number

You need an ITIN if you are not eligible to get a social security number but must provide a taxpayer identification number on a U.S. tax return or information return.  Examples include the following:

  • A nonresident alien individual eligible to get the benefit of reduced withholding under an income tax treaty
  • A nonresident alien individual not eligible for an SSN who is required to file a U.S. tax return or who is filing a U.S. tax return only to claim a refund
  • A nonresident alien individual not eligible for an SSN who elects to file a joint U.S. tax return with a spouse who is a U.S. citizen or resident alien
  • A U.S. resident alien (based on the substantial presence test) who files a U.S. tax return but who is not eligible for an SSN
  • An alien spouse who is claimed as an exemption on a U.S. tax return but who is not eligible to get an SSN
  • An alien individual who is eligible to be claimed as a dependent on a U.S. tax return but who is not eligible to get an SSN
  • A nonresident alien student, professor or researcher who is required to file a U.S. tax return but who is not eligible for an SSN, or who is claiming an exception to the tax return filing requirement
  • A dependent/spouse of a nonresident alien U.S. visa holder, who is not eligible for an SSN

ITINs are for federal tax reporting only and are not intended to serve any other purpose. The IRS issues ITINs to help individuals comply with the U.S. tax laws and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs).

An ITIN does not provide authorization to work in the United States or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

You need an ITIN as soon as you are ready to file your federal income tax return, since you need to attach the return to your application. To apply for an ITIN, complete Form W-7, the Application for IRS Individual Taxpayer Identification Number. See the related Instructions for Form W-7 for documents that will be needed and where the application is to be submitted. Refer to the website Individual Taxpayer Identification Number (ITIN) for specific information.

There are exceptions to the requirement to include a U.S. tax return with the Form W-7. For example, if you are a nonresident alien individual eligible to receive the benefit of reduced withholding under an income tax treaty, you can apply for an ITIN without having to attach a federal income tax return.  For a complete list of exceptions to the requirement to attach an income tax return, refer to the Exceptions Tables in the Instructions for Form W-7.

An Acceptance Agent is a person or an entity (business or organization) who, pursuant to a written agreement with the IRS, is authorized to assist individuals and other foreign persons who do not qualify for a Social Security Number.  but who still need a Taxpayer Identification Number (TIN) to process a Form 1040 and other tax schedules. The Acceptance Agent facilitates the application process by reviewing the necessary documents and forwarding completed Forms W-7 to the IRS, which results in a much quicker process. Tax Samaritan is a certified Acceptance Agent.

You will need to contact the Social Security Administration, as the IRS does not issue SSNs. Use Form SS-5-FS, Application For A Social Security Card, which may be obtained from and filed with the Social Security Administration.

In general, you can claim exemptions for individuals who qualify as your dependents. To be your dependent, the individual must be a U.S. citizen, U.S. national, U.S. resident alien or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins.

Children usually are citizens or residents of the same country as their parents. If you were a U.S. citizen when your child was born, your child generally is a U.S. citizen. This is true even if the child’s other parent is a nonresident alien, the child was born in a foreign country, or the child lives abroad with the other parent.

You must include the social security number (SSN) of each dependent on your return. If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent’s individual taxpayer identification number (ITIN), instead of an SSN.

Late Filing

If you don’t meet your obligations, you may face the following penalties:

  • Failure to File Penalty: 5 percent of the unpaid balance for each month or part of a month the return is late. The maximum is 25 percent. If the return is more than 60 days late, the minimum penalty is the lesser of $135 or the tax due. There is no penalty if the return shows a refund.
  • Failure to Pay Penalty: 0.5 percent of the unpaid balance for each month or part of a month there is an unpaid balance. The maximum is 25 percent.

In certain circumstances, the IRS can take even more extreme action against you, such as revoking your passport.

To protect yourself from all of these consequences, consider talking to a tax professional about your responsibilities so you can make sure you are complying with all of the applicable laws. A tax professional can also help you resolve any problems you already have, such as unfiled returns or back taxes.

Category: Late Filing

You can amend your tax return to fix the error on Form 1040X. The primary statute of limitations expires three years after the filing date. If you are filing 1040X to claim a refund, you have two years from the payment of the tax or three years from the original (before any filing extension) due date of the return to make a refund claim.

Category: Late Filing

Offshore Voluntary Disclosure Program

The purpose of the Offshore Voluntary Disclosure Program (OVDP) is to bring taxpayers that have used undisclosed foreign accounts and assets, including those held through undisclosed foreign entities, to avoid or evade tax into compliance with United States tax and related laws. Taxpayers holding undisclosed foreign accounts and assets, including those held through undisclosed foreign entities, should make a voluntary disclosure, as it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution for all issues relating to tax noncompliance and failing to file FBARs.

In contrast, taxpayers simply filing amended returns or filing through the Streamlined Filing Compliance Procedures do not eliminate the risk of criminal prosecution. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, as well as an increased risk of criminal prosecution. The IRS remains actively engaged in identifying those with undisclosed foreign financial accounts and assets.

Other Taxes

The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8 percent to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts. The Net Investment Income Tax went into effect on Jan. 1, 2013. The NIIT affects income tax returns of individuals, estates and trusts, beginning with their first tax year beginning on (or after) Jan. 1, 2013.

Category: Other Taxes

Our Process

The FBAR disclosure form (the “FBAR” file) can be opened only in Adobe Acrobat. In order to open, please first save the file locally to your computer, then open Adobe Acrobat and open the file from within Adobe Acrobat. If you try to download and open the file directly after downloading, you generally will not be able to open the file properly.

Category: Our Process

We utilize a https://www.taxsamaritan.com/tax-return-getting-started/our-tax-process/collaboration portal where you can securely share files and communicate with us. In many cases, you will find a PDF or Excel questionnaire that can be downloaded, filled out and then uploaded to the portal. Our questionnaires are designed to make the information-gathering process easy, quick and simple. The questionnaires help compile necessary information and, most importantly, ensure that no deductions are missed.  You will find questionnaires to help gather information for Schedules A,C,D and E, as well as foreign bank account information, travel information and other general information.

Category: Our Process

Our process is designed to make it quick and easy for the clients that we work with. Below is an overview of our 5-step process:

  1. Complete Our Tax Quote Questionnaire

Unlike most companies that offer a flat rate at the beginning and last-minute rate increases at the end, we believe in getting familiar with your tax situation before we get started, so that we can analyze your situation and draft a complete engagement letter for your review. Our quote questionnaire asks a few questions to understand your tax needs (such as whether you have foreign income, rental income, etc). The engagement letter details the scope of the work that we will perform for you and the cost for these services. This way, there are no surprises. Of course, if there are areas that are uncovered in subsequent steps (for example, you have stock sales that weren’t disclosed in the questionnaire), we will request and seek your approval for a change in engagement scope.

We are available to meet by phone or Skype to assist you in completing the quote questionnaire.

  1. Review/Sign Engagement Letter

This step engages us to prepare your tax return and/or resolve your tax problems. An invoice will be sent to you after receiving your signed engagement letter (we require an initial payment of 50 percent of the quoted fee to start work – we accept all major credit cards). Within one business day after receiving your payment, we will provide an invitation to register for our collaboration portal.

We will set up an engagement folder for “your access only” on our secure client collaboration portal to upload the documents that are needed to prepare your return.

We have created a very simple, powerful and secure way for us to collaborate, communicate and share files and information with our collaboration software. Our #1 goal is to make your experience with Tax Samaritan seamless and simplified.

Our all-inclusive tool combines the security of an online file portal and email communications into a centralized, secure and organized area.

Think along the lines of… no more sifting through emails or searching for attachments… All files, emails, comments and attachments related to your engagement will all be in one secure and organized location. We are keeping it very simple – no more wasting time.

Not only that… you will clearly see for your engagement – milestones, tasks and instructions in a private area set up just for “you” and for “us,” so that you’ll never wonder what’s outstanding and in need of a status update. Everything will be available and organized, accessible to only those involved in your engagement. You can see the status of your engagement in “real time.”

You will find that we offer our app (which, of course, is free to our clients) for the iPhone, Android, Google Chrome and the Web. Everything is in the cloud, accessible anywhere and anytime, and 100 percent secure.

We believe that this makes the tax preparation process even more worry-free and effortless for you.

As always, we are available to assist you at any step of this process along the way.

  1. Prepare Your Tax Return

Simply put, you provide the requested documents and information, and we do all the hard work behind the scenes.

If you don’t have access to a scanner to upload the documents, your documents can be faxed or mailed to us. In most cases, your return will be posted for your review within 15 business days after all the necessary documents and information to prepare your return have been provided. If you need your returns sooner, we can provide rush service upon request.

  1. Review Your Return

Once your return is prepared and ready for your review, your final payment will be due (the remaining 50 percent of your invoice). As soon as we receive payment, a draft of your tax return will be posted on the secure client portal for your review. We can schedule a meeting with you over the phone or skype (with screen share) to provide an overview of your return (we want you to have the opportunity to understand your return) or to clarify and answer any questions that you may have. We will be happy to make any changes or revisions to your return as needed.

  1. File Your Return

Once you have acknowledged that you are satisfied with your return, we will be able to e-file your returns to the IRS and states (if a current year tax return) or provide instructions on how to mail in your tax returns.

Category: Our Process

The majority of our clients are able to enjoy the ease of e-filing their federal tax returns. However, there are certain circumstances that may require your returns to be filed on paper. Either way, Tax Samaritan will help make the process as simple and easy as possible.

Category: Our Process

Retirement

If you are a U.S. citizen or a resident alien, the rules for filing income, estate and gift tax returns and paying estimated tax are generally the same, whether you are in the United States or abroad. With taxation of worldwide income, your U.S. and foreign income is subject to U.S. income tax, regardless of where you reside. It is a citizenship-based income tax.

Elsewhere in the world, the basic rule is that taxes are based on residency and not on taxation of worldwide income based on citizenship.

Category: Retirement

There are various requirements for contributions to IRA plans. In general, the taxpayer will need to have taxable compensation that is not excluded under the Foreign Earned Income Exclusion. If all of your income is excluded, your contribution may be deemed an excess contribution.

Category: Retirement

State Taxes

The following states do not impose income tax on earned income:

·         Washington

·         Nevada

·         Alaska

·         Texas

·         Wyoming

·         South Dakota

·         Florida

Category: State Taxes

Your responsibilities will depend on the state you lived in before you moved overseas. The state income tax return residency rules for taxpayers that reside overseas vary greatly from state to state, and there are numerous ways that each state makes this determination.  Some states use a “time-based” test, while other states, such as California, look at whether you are considered to have “tax domicile” in the state. This is often not as simple as whether you are physically present in the state or not. There are many criteria used in determining whether the state is a taxpayer’s domicile. Each state has their own definition. It is true that one of the common determinants is the taxpayer’s prolonged physical presence. Some states base their determination on other factors, including where the individual has family ties, where he or she has been filing resident tax returns, where he or she is registered to vote or has a driver’s license, where he or she owns property, or where the person has bank accounts or other financial holdings.

We encourage taxpayers to review their state tax filing requirements and state residency with their tax professional to determine if they are considered a resident, part-year resident or non-resident state taxpayer.

Individuals are generally considered residents, and are thus fully liable for taxes, if they are domiciled in the state or if they are living in the state (usually at least six months of the year), but are not domiciled there.

A non-resident, according to most states’ definitions, is an individual who earns income sourced within the specific state, but does not live there, or is living there for only part of the year (usually fewer than six months).

There are currently seven states with no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In addition, New Hampshire and Tennessee have no tax on personal income, but do tax profits from the sale of bonds and property.

Taxpayers should keep in mind that states can challenge the residency status of a taxpayer, and that this is not unusual, especially with some of the more aggressive states – generally those states that perpetually have budget issues, such as California, Massachusetts, New York, Virginia, etc. To reduce your risk of future demands of state tax returns or liability, it is important that you research your state tax filing requirements and make the necessary changes prior to departure, ensuring the certainty that your filing choice will not be challenged in the future. If you maintain a home in the state, have a state-issued drivers’ license, financial accounts, voter registration status, etc., it is possible that some states may use any of these as proof that you were a resident of that state while living abroad.

For further assistance with determining your state income tax residency as part of an engagement for services, please be sure to contact Tax Samaritan or your tax professional. If you are preparing your own return, we recommend checking the regulations with the relevant state tax authority.

Category: State Taxes

Streamlined Procedure

The IRS allows U.S. taxpayers to come into compliance through the use of a streamlined filing procedure. Certain restrictions need to be met to qualify for the domestic or foreign streamlined procedure. In general, the purpose is to allow taxpayers to file amended or delinquent returns and resolve their tax and penalty obligations, all with one procedure. The program allows taxpayers to come into compliance by filing the last three years of delinquent or amended returns, and six years of delinquent or amended FBAR reports. To qualify, you must meet the following criteria:

  • Taxpayers must certify that their conduct was not willful.
  • The IRS has not initiated a civil examination of taxpayer’s returns for any taxable year.
  • Taxpayers that are eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay all previous penalty assessments.
  • Taxpayers who want to participate in the streamlined procedures need a valid Taxpayer Identification Number.

Tax returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS. Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return. They may also be subject to verification procedures, in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors and other sources.

Tax Treaties

Totalization Agreements are agreements designed to help taxpayers avoid paying too much in taxes. At this time, the United States has Totalization Agreements with the following countries: Australia, Austria, Belgium, Canada, Czech Republic, Chile, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom.

These agreements prevent dual Social Security taxation, which occurs when a taxpayer from one country spends time working in another country and must pay Social Security taxes to both countries on the same earnings. In addition, these agreements help to fill in gaps in benefit protection for individuals who have split their careers between the United States and a foreign country. The agreements assign coverage to just one country and exempt the taxpayer from the payment of Social Security taxes in the other country.

Category: Tax Treaties

The United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Most income tax treaties contain what is known as a “saving clause,” which prevents a citizen or a resident of the United States from using the provisions of a tax treaty in order to avoid taxation of U.S. source income.

Treaties should be carefully examined to find if you are entitled to a:

·         Tax credit

·         Tax exemption

·         Reduced rate of tax

·         Other treaty benefit or safeguard

The United States has tax treaties with the following countries:

Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Trinidad, Tunisia, Turkey, Turkmenistan, Ukraine, Union of Soviet Socialist Republics (USSR), United Kingdom, United States Model, Uzbekistan and Venezuela

Category: Tax Treaties

Working With Tax Samaritan

You can expect to receive the tax returns for your review within 15 business days from receiving the requested documentation needed to prepare your return(s). During peak times/deadlines, returns may be delayed by a few days, but your return status will always be accessible.

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