The U.S. tax code doesn’t change drastically overnight, so generally speaking, what you know as an American expat about your U.S. taxes would still hold true. However, the IRS does modify the tax codes each year to better reflect new legislative policies, and the expat Americans looking to file their U.S. taxes should be aware of these following changes.
- Do you know the 2-month automatic extension for expats?
If you are in a constant state of panic after missing the usual tax filing deadline, April 18th, don’t be. Every American expat receives an automatic 2-month extension. Plus, if you are unable to file your return within the automatic 2-month extension period, you may be able to get an additional 4-month extension of time to file your return, for a total of 6 months.
However, if you already know you owe taxes to the IRS, you should have paid that amount already. The deadline to pay for owed taxes was April 18th, so it is recommended that you settle any remaining balances now before collecting more interests.
- Tax benefits for expats increased and decreased simultaneously
Plus: The Foreign Earned Income Exclusion, which reduces taxable income, gradually increases every year. The benefit increased from $100,800 in 2015 to $101,300 for 2016. Also, the Foreign Earned Income Exclusion can be applied to each spouse’s income.
Minus: Beginning with the 2015 taxes, expats can no longer claim additional child tax credit after claiming both the Foreign Earned Income or Housing Exclusion.
- Reporting non-U.S. financial accounts is changed in 2017
FinCEN Form 114, more widely known as the FBAR, is filed separately from the federal tax return. The form is actually submitted to the Department of Treasury, not the IRS. The FBAR is required from expats if foreign financial accounts held an aggregate balance of $10,000 at any point during the calendar year.
The form does not necessarily trigger any taxes, and the 2016 FBAR is due on April 18th, 2017 via online submission. You may be able to get an additional 6-month extension.
- More hoops to prevent identity theft means slower process
Identity theft and tax scam cases have increased recently. Those individuals steal taxpayers’ information and file fake returns to claim the refunds. To prevent further cases, the IRS will validate 20 new pieces of information on tax returns.
More required information will protect taxpayers from frauds, but it also means that the process will be delayed. If you have already filed your return and wondering where the refund check is, you can go visit www.irs.gov/refunds to find out.
- Less known but beneficial deductions and credits should be exploited
There exist potential deductions and credits opportunities for college tuition, home energy incentives, traditional IRA contributions, and alimony paid. These items aren’t highly visible to ordinary taxpayers, but a qualified CPA can identify these opportunities easily.
- What about Obamacare?
Most expats would be exempt from Obamacare, the Affordable Care Act that requires everyone to have health insurance. Rule of thumb, if you qualify for the Foreign Earned Income Exclusion, you would be exempt from the health care requirement.
To claim the exemption, file form 8695 with your return.
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