Skip to main content Skip to search

Archives for Blog

6 Helpful Facts for American Expat Taxpayers

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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

If you have any questions about provided information in the article, submit the questionnaire and create your private portal today! We assign a CPA to your individual case and you can ask as many as questions you have through the messages there.

Read more

Dear Expat American, Do You Have a Foreign Bank Account?

By now you should be aware of your U.S. income tax filing requirement. Every U.S. citizen who meets the filing threshold must file a U.S. tax return regardless of the current resident country. Basically, you must continue to file U.S. tax returns even for the income you generate in your foreign residence. In addition to reporting the income, foreign financial accounts also need to disclosed when the accounts hold a certain aggregate amount of money- this is known as Report of Foreign Bank and Financial Accounts (FBAR). The FBAR filing deadline approaches, and it is indeed a good time to start preparing.

 

These need to be reported

The majority of the FBAR reporting will be done for the foreign bank account balances, but here are other accounts that will require your attention.

  • Brokerage account
  • Trust
  • Foreign mutual funds
  • Foreign stock/ securities held in a foreign financial institution’s account
  • Financial account held at a foreign branch of a US bank
  • Foreign-issued life insurance or annuity contact with a cash value

 

Threshold that you wish you wouldn’t exceed

$10,000 is the dollar amount threshold that determines whether or not you file an FBAR each year. At any point during a calendar year, if your foreign bank accounts exceed the aggregate value of $10,000 (for example, this can be achieved either through $10,000 in one account or $2,500 in four accounts), you are required to file. Joint accounts exceeding $10,000 or separate accounts by a married couple exceeding $10,000 are no exception. U.S. companies are to comply with the reporting duty as well.

 

Know the deadline and file timely

What would consider to be unwise is filing an FBAR late after carefully putting together difficult forms. The deadline for 2015 FBAR filing is June 30, 2016. No extensions are allowed this year. For the coming years, the FBAR reporting deadline is on the same day as the tax filing day- April 15th.

By the way, FBAR reporting is done through the U.S. Department of Treasury, not the IRS, so submit the forms to the relevant authority.

 

Unless you want to deal with these penalties…

The penalty for failing to file a complete and correct FBAR is substantial. For non-willful violations, the civil penalty of maximum $10,000 per violation is given. It is unclear if a “violation” can be applied to individual accounts, meaning if you fail to disclose five of your foreign accounts this year, it is unclear whether the fine would amount to be $50,000 just for one year of non-filing. For willful violations, you will be fined either $100,000 or 50% of the entire balance of the account at the time of willful violation- whichever is greater. The fines can add up very quickly, and the amount isn’t something you could simply overlook.

 

Feeling a little uneasy? There are solutions

Fortunately, a number of amnesty programs may be able to save you from a financial blow. Here are your options-

  • Streamlined Filing Compliance Procedures

If a taxpayer non-willfully does not report foreign assets, he or she can submit six years of FBAR and three years of tax return under the streamlined procedure. Depending on the status, there are two streamlined procedures; one called “the streamlined procedures residing in the United States” and the other called “the streamlined procedures residing outside the United States.” For eligible U.S. taxpayers residing outside the United States, all penalties will be waived under the streamlined procedures

Non-resident taxpayers might be better positioned than resident taxpayers to achieve their goal of a non-willful, no penalty resolution under the Streamlined Procedures. Taxpayers likely consider a Streamlined submission if they are comfortable and have sufficient factual basis to certify their “non-willful” status. If there are any uncertainties or potentially difficult factual scenarios involved, consult with experienced counsel. The purpose of seeking experienced counsel is to discover the seriousness of the situation and to be guided into the best resolution at the least overall cost.

 

  • The Offshore Voluntary Disclosure Program

The Offshore Voluntary Disclosure Program (OVDP) is a voluntary disclosure program specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets. The OVDP is designed to provide to taxpayers with such exposure (1) protection from criminal liability and (2) terms for resolving their civil tax and penalty obligations.

 

  • Quiet Disclosure

The IRS is aware that some taxpayers have made “quiet disclosures” by filing amended returns, by filing delinquent FBARs, and paying any related tax and interest for previously unreported income from the OVDP assets without otherwise notifying the IRS. Taxpayers who have already made “quiet disclosures” are encouraged to participate in the OVDP by submitting an application, along with copies of their previously filed returns (original and amended), and all other required documents and information to the IRS’s Voluntary Disclosure Coordinator. Taxpayers are encouraged to avail themselves of the protection from criminal prosecution and the favorable penalty structure offered under the OVDP. Unlike a voluntary disclosure through the OVDP, quiet disclosures provide no protection from criminal prosecution and may lead to civil examination and the imposition of all applicable penalties.

 

The best approach is to work with a CPA who works in close communication with a tax attorney. In some cases, the lawyer’s input can benefit immensely when the situation involves a possible settlement process or criminal procedure. Locus has both CPAs and international tax attorneys on staff to provide the most effective tax services to delinquent expat taxpayers. Get started with us for your concerns or questions today and receive a personalized consultation!

 

Read more

Earning less than 10K, Do I still Have to File a Tax Return?

Contrary to popular belief, the U.S. tax filing obligation does not end when you move to a new country. The IRS taxes all Americans on their worldwide income, meaning your income in euros, yens, pounds, pesos, or whatever the currency your paycheck comes as all have to be reported on a tax return. Would there be an exception, though? Kind of.

One of the very few legal ways you, as an American, wouldn’t file U.S. taxes is when your income does not surpass the certain tax threshold. American individuals who make a very moderate income would fall under the category. Generally, university and graduate school students with a small side income from their TA or RA position would assume this benefit. Take a look at the chart below as a guideline.

So When Are You Required to File?

2016 tax return threshold

 

If you are single and earned a combined income of less than $10,300 in 2015, your taxable income would be reduced to zero, lifting your federal or state tax obligation. In the States, still, a certain amount of income may be automatically withheld, but the entire amount would be refunded after filing a tax return. As an expat, without any withheld income to claim, there seems to be no apparent reason to file for a return.

But what if, what if there are benefits to consider for filing taxes even when you don’t have to? Bear with me here, and just take a look at these reasons to file. Would the positive outweigh the negative? Additionally, it is important to recognize that individuals considering “not filing” as an option would make for a very easy tax filing case. If something that could be done in less than an hour could provide so many benefits, the task, all of a sudden, looks less daunting.

Benefit #1. Don’t miss out on refund opportunities

: Of course if you had any withheld income, file your return and reclaim your earned money; however, even without the withheld income, you might be eligible for a paycheck from the government just by filing a tax return. Refundable earned-income tax credit or child tax credit are good examples of tax credits you can apply for if your earned income does not exceed certain threshold and / or you have dependent children. Yes, it is kind of a government subsidy to low income Americans, but again, you will be eligible only if you file the returns. A tax credit means more money in your pocket, but no tax return means no credit.

Benefit #2. Lower the risk in case of an audit

: The statue of limitations period for a tax audit is three years. That is if you file a return. Without filing a tax return, the statute of limitations becomes not so limited- in fact, there is no limitation without filing a return.
Here is an example- if you filed a 2015 return with mistakes, and the IRS discovers those mistakes after three years, say in 2019, they can generally no longer come after you for the 2015 return. If you don’t file a 2015 return, and, for any reason the IRS wants to dig up your past, they have the legal ground to open a case against your 2015 personal tax situation at any point in the future, forever. All that potential risk for not filing a simple tax return seems to be an easy problem to solve.
 

Benefit #3. Capital loss? At least take what you can from it

: If you had investment losses, the amount of losses can offset otherwise taxable capital gains next years. However, you must file a 2015 return to earn the credit from a tax-saving capital loss that will carry over to 2016 and later years.

Benefit #4. Business owner and suffered a loss?

: Similar to Benefit #3, the net operating loss (NOL) for 2015 from the business operations could be used to claim a refund- if you have suffered from a multiple years of losses, you would be able to claim as far back as 2013 tax year, and carry over the losses to offset future years taxable income. How to find out if you are eligible? Well you have to first file for taxes.

Benefit #5. Last but not the least, life is made easier with proper documents 

: Perhaps having a copy of your 2015 tax return wouldn’t make your daily lives easier, but occasions such as applying for a loan, submitting government-sponsored program paperwork, or getting divorced all require a copy of your tax return. Would you want to delay the process in any of those mentioned situation because you haven’t filed a simple tax return?

 

Are you curious if you would be eligible to receive refunds or tax benefits? Contact us today! Locus assigns a personal CPA to individual cases, and we do not charge a fee till the filing is complete. Sign up today to be in touch with an expat tax professional to discuss your personal case.

Read more
locus tax return

What Actually Happens When I Don’t File Taxes as an Expat?

If you are not aware by now, Americans are taxed on their worldwide income, meaning your income from abroad is considered taxable income to the U.S. government. Through a number of exclusions, many expats usually end up paying no taxes to the IRS, but the “filing” portion of a tax return is required of most all expat individuals- unless your income is less than the standard deduction which is $10,300 for single and $20,600 for joint filing. To simply put, even though you live outside the U.S., you still need to file tax return even though you may not owe any tax. Expats also are required to disclose international financial holdings which could range from a day-to-day bank account to a retirement fund.

The IRS collects around 55 billion USD in addition to tax revenue from back taxes and penalties through rigorous policing, and the discovery, auditing, and prosecution of delinquent expat taxpayers are made much easier through enforcement laws such as FBAR and FATCA. It’s becoming harder and harder to “lay low.” When caught with the delinquent status, the U.S. government will take drastic measures to force you to come current and make you pay what you owe. Till you comply with the strict rules set out by the IRS, the following consequences may make your life unnecessarily difficult.

  1. Withheld paychecks
  2. Possible imprisonment
  3. Denied application for the Foreign Earned Income Exclusion
  4. Penalties and interest accruement
  5. Liens placed on physical properties
  6. Seizure or freezing of financial accounts often w/o prior notice
  7. Increased statute of limitation for audit
  8. Loss of unclaimed tax refunds
  9. Passport revocation or denied renewal
  10. Automatic imposition of 30 percent withholding on transfers between financial institutions
  11. Non-dischargeable IRS-assessed taxes in case of bankruptcy
  12. Automatic tax filing by the IRS with an unfair calculation for owed taxes
  13. Massive time and energy loss to remedy

The system may seem unfair, but rules are rules. The consequences for the delinquent status can be severe.  It has become far more difficult to escape the IRS’ reach, and it is encouraged that all expats to consult with international tax experts to figure out the filing requirements and deduction opportunities.

Are you concerned about filing tax return as an American expat?

Contact us right away! We assign a personal CPA to your case, so you can receive a personalized tax filing service.

Read more

Financial Considerations before a Foreign Assignment

Soon-to-be-expats or current expats through foreign assignment, when it comes to personal finances, should be aware of current and long-term impacts of the international relocation.

 

A. Generally speaking, what are financial factors I should look into?

Immediate expenditures such as the cost of relocation, housing, taxes, transportation, and education should be reviewed carefully. Before making the decision to move abroad, you must consider if the offered financial package would satisfy your financial obligations, maintain your living standard, and continue to meet your financial objective. One important step to take is carefully examining duplicate expenses that would incur at your home location as well as the foreign assignment country (health insurance, rent, and etc.)

As for the long-term financial goals, see if the foreign assignment would affect your retirement benefits at all.

 

B. How would my expatriate compensation package compare to my current package?

The compensation package offered to an ordinary American employee is generally different than the one offered to an international assignee. The three most common approaches for international assignees are:

  1. Home-based: Based on the living standard of home country peers
  2. Host-based: Based on the living standard of host country peers
  3. Headquarters: Based on the living standard of the organization’s headquarters

Multinational organizations choose a different approach, but generally, an international assignee will receive the home-based compensation. However, with the fluctuating exchange rates, different tax systems, and costs-of-living, it is important to note that the compensation will be inevitably different.

 

C. Would my foreign assignment affect my equity in the company?

Unless told by the employer, your equity should not be affected; however, equity compensation is taxed differently in other countries when it involves vesting or sale. It is encouraged that you consult with your tax advisor to see how your equity would be affected in your destination country.

 

D. What about by my health insurance?

To be covered abroad, you may need to apply for extra coverage.  Most likely you will continue to contribute to the company’s health insurance and still be covered abroad. For specific health conditions that need extra attention, you are encouraged to speak to the relocation manager to find out the available medical services and even recommended doctors. In some countries, you may even be covered under their state-run health system.

 

E. How about my retirement plan?

This one heavily depends on the organizations’ retirement plan structure. You may or you may not be able to stay in your current retirement plan during your foreign assignment abroad. In case you can’t stay in the program, you discuss with a financial expert to find out other ways you can continue to contribute to your retirement.

Read more

Panama Papers, What are the Ramifications to American Expats?

The Panama Papers, a massive data leak, has revealed a wide-spread tax scheme involving offshore structures that many have employed to evade taxes. More than 200,000 false companies were used to anonymously hold property and bank accounts. Some of these paper companies were traced back to a wide range of wealthy individuals and families in which the names like Vladimir Putin, Lionel Messi, and Jackie Chen were mentioned.

The reaction to the Panama Papers has obviously been negative, most notably the Prime Minister of Iceland, Sigmundur David Gunnlaugsson, was booed out of his office after his wife’s name surfaced in one of the leaked documents. The leak sheds a harsh light on the private financial activities of many rich and powerful people. Through the coverage of the event, there is also a growing assumption of guilt for ordinary, honest American expats who opened a bank account abroad out of necessity. The leaked documents don’t include the overwhelming majority of 8 million American expats living abroad currently. However, both the governmental and public perception of offshore accounts holders will continue to remain skeptical.

A typical American expat is considered an offshore accounts holder -it’s just that his/her financial account isn’t located in a tax haven under a false name like those included in the Panama Papers. To the general public, without the deep understanding of the situation, all offshore accounts holders may bear the responsibility to this scandal, meaning a billionaire tax evader may not be too distinct even in comparison to an American teacher abroad who have not realized the need to report the worldwide income. They both simply are offshore account holders who are evading taxes.

To a certain extent, this leak proves that information sharing laws such as FATCA fails to serve its original intent, which was to identify tax evaders. What the Panama Papers certainly prove is that tax evasion is very much possible and prevalent if one taps into the right resources and network. Already the public voices are calling for stricter policies to increase financial transparency, and just as FATCA and FBAR were originally created with a similar purpose, the legislative measures can once again affect the honest Americans living abroad while failing to pursue actual evasion cases. This means individuals purposefully evading taxes may be caught more frequently, but this also could mean non-willful evasion may be punished more harshly with must less tolerance for mistakes.

However, to live in a constant fear is to admit your unpreparedness. Financial transparency is the ultimate shield taxpayers should use against any punishment. With enough guidance and tax planning, expats should be able to comply with reporting requirements easily. Regardless of the duration, purpose, or location of the life abroad, Americans will have to report their worldwide income to the IRS. Events like the Panama Papers may make reporting requirements stricter and more complicated, but what remains unchanged is that with enough preparation, especially with expat tax professionals, the IRS should not be able to touch you.

Read more

An Explanation for Taxes for American Petroleum Engineers Abroad

Petroleum Engineer has been touted as one of the most lucrative professions of today. With a cool six-figure salary, many have joined what is called a “black gold rush” starting in early 2000’s. Among the hopefuls, a good number of engineers realized the high demand for skilled workers to extract the wealth of oil and gas in other parts of the world and took their talents overseas where they were often offered even bigger salaries. An average of $58,818 bonus definitely did not hurt either, and skilled American engineers flocked to the Middle East seeking this personal fortune.

 

While big paychecks may have guaranteed a comfortable lifestyle to these engineers, it came with a certain set of setbacks as well. The high income is scrutinized by the higher tax rate, and combining that with an expat status can quickly amount to be a total headache. But as usual, with enough preparation, there is nothing to fear.

 

Qatar, Saudi Arabia, and Kuwait are among the international oil production heavyweights and also the most active recruiters of American petroleum engineers. To understand exactly what the tax requirements are for American expats, we must first understand the tax situation of their current resident countries. Here is a quick summary of each country’s tax policy.

 

Qatar

  • No taxes on employee earnings or employer-provided benefits on either local or expatriate employees
  • No estate or gift taxes
  • No social security taxes
  • Allowable deductions for interest payments, salaries, rentals, depreciation, and etc

Saudi Arabia

  • No tax payable on salaries for foreign employees
  • Tax on overseas-earned income for self-employed foreigners
  • No zakat or religious wealth tax for foreigners
  • Tax deduction on most business expenses

Kuwait

  • No personal income tax, employment tax, and wealth tax
  • 7% social security tax

As mentioned in other posts, U.S. expats bear the tax reporting requirement regardless of their income source or their current residence. With a number of preferential tax benefits, including the Foreign Earned Income Exclusion, offered to expats, the amount of taxes one must pay to the IRS could totally be reduced to zero.

 

Keeping all that information in mind, let’s take a look at an example —-

 

Kevin is an engineer working for Qatar Petroleum. As an expat, Kevin will have to file his U.S. tax return for all the years he has lived in Qatar. Kevin fears that he’d pay taxes in both Qatar and the U.S.; however, Kevin satisfies a certain set of requirements and qualifies to receive the benefits of the Foreign Earned Income Exclusion, which would reduce his U.S. taxable income by $100,800. He makes $120,800 a year, meaning even after the Foreign Earned Income Exclusion kicks in, he will have to pay taxes for the remaining $20,000 to the IRS. Worry not, Kevin may qualify for foreign housing exclusion which would exclude or deduct a portion of his foreign housing amounts. Kevin can also use the foreign tax credit paid or accrued to further lower the chance of paying taxes to the U.S. government. He will still have to report all these as a part of his tax return, but he may not owe a penny to the IRS. After all, he may keep the majority of his hard earned money if he understands and prepares carefully.

 

Are you curious whether or not you qualify for expat deductions that could potentially lower your taxable income? Get in touch with one of our CPAs today and find out how you can save money!

Read more

Two Relatable Tax Scenarios for Americans Working Abroad

For someone forever seeking the adventure of cultural exchange but bearing the financial responsibility of oneself and others, perhaps an overseas position assigned by a U.S. company can be a happy solution. That is also the most-likely-scenario of Americans working abroad. But when it comes to the tax situation, the foreign assignment may not look all fun and rosy anymore. Let’s not dampen the experience, however. To do some serious preparation is to enjoy your time abroad.

It’s always important to remember that the U.S. government taxes its citizens’ worldwide income. Of course, American expats can take advantage of a number of exclusions and credit opportunities to avoid double taxation so that they aren’t paying double the amount of taxes. With the Foreign Earned Income Exclusion (FEIE), expats could treat up to $100,800 of the income as not taxable by the IRS. 

As for the taxes paid to your foreign resident country, you may also receive tax credits to lower your U.S. tax liability in which the very basic qualifications are: 1) tax home is in a foreign country, 2) and he earns income from personal services performed in a foreign country. So let’s take a look at below two scenarios, and see how they will play out.

 

Americans working abroad – Situation 1.
American Citizen Hired in the U.S. but Working and Residing Abroad
Scenario: Software developer working remotely from Mexico for a company based in Los Angeles.

In this case, she will pay taxes in her current resident country, Mexico, and because she is American, she will be subject to U.S. taxes. Assuming she makes less than $100,800, her U.S. tax liability could be offset by the FEIE (although she will still have to file a tax return.) However, she must be careful to check her W-2 form provided by her American employer as her America company may not know her current residence and may withhold her income tax, which she should be able to avoid paying through the FEIE. If that was the case, the withheld amount stated on the W-2 form would be refunded in full through filing a tax return.

Her work-at-home status may also qualify some of her business expenses to be tax deductible. What exactly constitutes business expenses is up for debate; however, she must keep track of all possible expenses at all times so that she may determine qualified expenses later on for tax purposes.

 

Americans working abroad – Situation 2.
American Citizen Hired by a Foreign Subsidiary of a U.S. Company
Scenario: Financial analyst working at an American bank’s partner bank in Hong Kong.

For the most part, this case wouldn’t differ much from the above situation in terms of U.S. taxes. One difference may be that a good number of employees sent abroad by the company receives a generous financial package that may cover the cost of flight, relocation, education, health insurance, and housing. Determining whether those expenses are considered business or personal is rather difficult in real life. What is clear is that personal expenses are not deductible while business expenses are. For that reason, it is important for international assignees to carefully discuss the financial situation with an expert and discover opportunities to lower the taxable income lawfully.

Additionally, he would report all his financial accounts held in Hong Kong when filing his return. FATCA and FBAR compliance should be one of the top priorities for him as they can get him in serious trouble for non-compliance.

 

These two cases are overly simplified to give a simple idea on what to expect and prepare when taking a job overseas. Individual cases vary from one another depending on the marital status, a number of dependents, income level, and many other variables. To exactly identify deduction and credit opportunities for the duration of you stay in a foreign country, it is highly advised that expats carefully study and plan their tax plans before, during, and after the international assignment.

If you found one of the stories relatable and have more questions, don’t hesitate to contact us today!

Read more

Expat tax filing may increase the chance of an audit

You’ve probably heard about an audit, but you may consider it as a concept that only applies to evil corporations and tax-evading, dishonest taxpayers. You would be right to think that. Those who belong to above categories should fear an IRS audit. But what about us, hardworking, honest American expats? Of course, no one is invincible from being audited but because expats live and work outside the states, which makes it harder for the IRS to verify income, expats may face more scrutiny. The expat status alone could lead individuals to become more exposed of incorrect filings or tax evasions. Expat tax filing is certainly more complicated than a regular filing; thus, increasing the chance of an audit that much more likely. In the past, the Statute of Limitations for an audit was three, but it has now increased to six years, meaning that reviewing the past returns should also be considered important.

To avoid an audit is to file taxes correctly

Even if you file according to the rules of the IRS, there still is a chance of an audit- the audit itself may be annoying, but the real problem would be the penalties and back taxes for incorrect filing. Here are four questions you should ask yourself to lower the audit risk.

  1. What are my income sources?

It should be obvious that the purpose of an audit is to catch underreported gross income which lowers the tax liability. Therefore, including all income sources to report a correct amount of gross income is a key. Additionally, an overstatement of unrecovered cost or other basis is considered an omission of gross income, so any wrongful act to decrease the taxable income should be avoided.

  1. Which documents should I keep track of?

Mistakes happen, and to minimize the slippage, you should keep track of all financial records. This includes bank statements, investment records, and pay stubs. (for a more comprehensive list, check out our previous blog post: http://goo.gl/OESaVk)

  1. Am I filing out the right forms?

All the more forms need to be filled out when the tax situation is complicated. Often different deductions and tax credits require separate forms, meaning you must first understand what you qualify for; and second locate the right forms to apply for those benefits. Oh, and don’t forget about the forms required to comply with FATCA regulations.

  1. Meet the filing deadline.

An airtight tax return is no use unless you actually file it on time. A missed deadline could lead to missed deductions and credits and increase the audit risk. Here are important tax deadlines to be remember in 2016.

Deadlines

  • April 18th– Usually the tax filing deadline in the U.S. is April 15th, but thanks to the Emancipation Day holiday, everyone gets a 3-day extension this year. If you, as an expat, wishes to delay the filing date, you can trigger the automatic 2-month extension by simply not filing your taxes by April 18th.
  • June 18th– The automatic 2-month extension ends on this day, meaning expats will have to file by this date unless they are requesting for another extension.
  • June 30th– This is the day to electronically report all your foreign bank and financial accounts (FBAR) information. The Bank Secrecy Act may require you to report overseas accounts every year, so it may be wise to remember this date for the coming years.
  • October 15th – Whatever the reason behind the extensions, as long as you properly request for one, you can delay the filing till this date. This is the last possible deadline to file your U.S. tax return. You will have to pay taxes owed to the IRS on this date to avoid failure-to-pay and failure-to-file penalties.

 

Still unsure you are filing your taxes correctly?

Locus can help! Register today and get in touch with a CPA to discuss your unique situation!

Read more

An Explanation of U.S. Taxes for English Teachers Abroad

Teaching English abroad is an opportunity to achieve both the prolonged cultural immersion and professional advancement. It is an attractive option for many recent grads as well as seasoned professionals looking for a “responsible” way to travel while making a difference to students. But just as all other American professionals abroad, English teachers aren’t free from the U.S. tax obligations. Yes, even if you earned your income outside the U.S., you still have to at least file for U.S. taxes. Take a look at this list of considerations expat American teachers should become aware of.

Keep Track of Time

1. The Foreign Earned Income Exclusion is what will save expats from paying taxes twice on the same income. And in order to receive this exclusion, one must pass one of the following two tests.

A. Physical Presence Test– You must spend at least 330 days out of 365 days outside the U.S.

B.Bona Fide Residence Test– You must live in a foreign country for an entire calendar year with the intention to permanently stay outside the U.S.

2. Generally, most teachers on a year contract will meet the Physical Presence Test. Additionally, you don’t have to reside in one country for 330 days. You can freely travel to other countries as long as you don’t spend more than 30 days in the U.S. in a year.

Keep track of Expenses

  1. It is important to keep track of wages and salaries earned through an employment. A U.S. based employer would likely to provide a W-2 form, and you may receive an equivalent form from your current educational institution. If your employer does not provide a salary report, you must collect your monthly wage statement such as a pay stub.
  2. Some schools and private tutoring institutions provide their teachers with free housing, moving stipend, and flight tickets. When filing a tax return, you may be required to include those employment benefits to calculate gross income, so it may be wise to keep track of those expenses as well.

Avoid dual Social Security Taxes

  1. Without proper coordination, American teachers abroad would be covered under two Social Security systems simultaneously for the same work. When this happens, one would be required to pay Social Security taxes in both countries. Totalization agreements eliminate dual Social Security taxation and help fill gaps in benefit protection for workers who have worked in the U.S. and another country.
  2. As of now, if you work in these following places, you may avoid dual Social Security taxation: Italy, Germany, Switzerland, Belgium, Norway, Canada, United Kingdom, Sweden, Spain, France, Portugal, Netherlands, Austria, Finland, Ireland, Luxembourg, Greece, South Korea, Chile, Australia, Japan, Denmark, Czech Republic, Poland, and Slovak Republic

No matter the situation, the rules surrounding the U.S. expat taxes are complicated. During the preparation, it is important to be aware of different filing requirements and deduction opportunities. And it is perfectly normal to feel overwhelmed- that’s why tax professionals exist. Having a personal CPA to file taxes can expedite the process while guaranteeing accuracy.

Are you currently teaching English abroad?

Locus Tax can help! Get in touch with one of our CPAs today for your tax consultation.

Read more