Checklist

Keep a checklist for all documents necessary for filing

In preparation for your tax return as an expat, knowing exactly what documents are needed can make the filing easier and also protect you against an IRS audit. Check out the following list of documents you will need to keep track of for the 2016 filing.

Tax Organizer Form

The Tax Organizer Form, provided by your tax preparer, collects the very basic information such as your name, address, employment situation and income as well as your dependent’s information. Unique to the expat filing, the form will also ask for foreign accounts and deductions you qualified for in the past. It is a long form, but it is an essential questionnaire to get started on the filing process.

Prior Year’s Return

If you have a copy of your last year’s tax return, the tax preparer can gain many reference points to expedite the filing process. For instance, the tax preparer can apply for the Foreign Tax Credit, which can be extended yearly, based on your previous qualifications. Also the preparer can take another look at prior year’s return and may correct any misinformation to find overlooked tax benefits!

 

Travel Calendar

To qualify for expat tax benefits such as the Foreign Earned Income Exclusion and the Foreign Housing Deduction, it is important that you keep track of your travel dates. The IRS requires exact dates to be included in the return, so an accurate travel calendar can fortify your case for well-deserved benefits.

Income Documents

There are different sources of income a taxpayer may have. Check to see if you earned income through one of the following sources.

Wages, Compensation, Salaries: Wages and salaries earned through an employment may be the most common source of income. A U.S. based employer will likely to provide a W-2 form, and you may receive an equivalent form if you work for a foreign company. If your employer does not provide you with a salary report, you must collect your monthly wage statement such as a pay stub.

Self Employed, Sole Proprietorship: For self-employed taxpayers, pre-deduction gross income and categorized expenses will be the necessary income documents.

Interest and Dividend Income: Taxpayers are also required to keep track of the bank’s interest payment and the stock dividend payment. In the United States, you’d receive the 1099-Int or 1099-Div forms which will state the interest and dividend income. The foreign banks however may provide different documents to provide such information to their clients.

Stock and Securities Transactions: Any capital gains or losses from your U.S. and foreign investments must be reported in your filing. You are likely to receive a 1099-B with detailed income and reportable transactions from your U.S. investment company. As for your foreign investments, a year-end reporting statement may not be provided. In that case, you may need to personally keep track of the investment transactions. Both interest and dividend income, even when they are not taxable in your current country of residence, need to be reported to the IRS. If you inform your foreign investment manager of your tax obligations, s/he will likely provide you with proper documents that will make the reporting process a bit easier.

Rental Income: Many U.S. expats rent out their U.S. homes during their stays overseas. The rental income and expenses from both the U.S. and abroad properties must be accounted in the filing. For the U.S. property, your management company may provide the necessary information on a 1099-Misc form.

Real Estate Sales: If you made a permanent decision to move abroad, you have likely sold your house or land. Provide your tax preparer with documents from your purchase and the sale of the real estate. Important information to include are: date of purchase, purchase cost, date of sale, total proceeds from the sale, purpose of the property (personal use, business use, etc.), and any improvements to the property.

Social Security and Pension Payments: Your U.S. Social Security payments are reported on a form SSA 1099. Other retirement income, including pension, is included on a form 1099-R. If you receive similar social security benefit from your foreign residence, keep track of all the payments through your bank statements.

Miscellaneous Income: Keep track of miscellaneous income including gambling income, royalties, unemployment support, and disability check as these all need to be reported on a return.

Deduction Documents

Now that you are familiar with all income sources that will be taxed, let’s take a look at some documents that will help you receive much appreciated tax deductions.

Interest Paid: Mortgage interest is a deductible expense. For your U.S. interest payment, receive a form 1098 to keep. For your foreign interest payments, keep bank account statements

Property Tax paid: Property taxes can be used for several deductions. Keep track of the amount of taxes on your real estate that you paid to the government.

State Income Tax and Sales Tax Paid: Perhaps the most familiar items on the list, the state income tax paid last year and sales tax paid may be deductible.

Foreign Housing Expenses: You may apply for a tax deduction for the cost of your foreign housing. Qualifying expenses include the rent, utilities, property insurance, repairs, and parking. Be sure to keep track of all those expenses for a possible tax deduction.

Dependents: Keep track of Social Security numbers or ITINs for all your dependents. Also education costs and child care costs, for children under 13, may qualify for a deduction and different tax credits

Other Deductions: There are other expenses that may be able to reduce your taxable income. Donations to charity- cash or items- may qualify. Be sure to keep track of the amount, date, and charity’s information. Also medical expenses, those not provided through your insurance plan, can lower your taxable income. Other expenses include the alimony paid, unreimbursed business expenses, and administrative fees for your investment accounts.

Foreign Bank Account

If you are an expat, you’ve certainly heard about the FATCA and the FBAR, and that you are required to report your foreign bank and investment accounts. It is best to keep the physical paper statements for six years. The online statements usually are available for only 18 months, and the IRS may request for documents from several years back during an audit. Keep track of monthly statements sent by your foreign banking service provider just to be sure.