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United States Tax Treaties with Other Countries
As an American Expat you will want to know about all the benefits for expat taxes while you are overseas.
The United States has signed tax treaties with many different countries (actually over 60). Every country and treaty has different exemptions and tax savings features. Tax treaties help eliminate or lower taxes for American citizens and/or green card holders living abroad. Although each treaty has its own qualifications, most are based on residency, nationality, and reason for being abroad.
The tax treaties are not designed to help save taxes that you actually owe to the US. As a matter of fact, most of the income tax treaties have what is known as the “saving clause” which stops an American expat from using tax treaties to sidestep taxation of United States basis income.
If you are traveling abroad as a student, teacher, researcher or trainee for a brief period of time, most tax treaties offer the exemption of taxation in the host country. However, these classifications will not exempt from the US tax that you may owe on your income.
Since all countries do not have a tax treaty or the treaty may not cover your specific income, you may owe tax to the US at the same rate that you would owe if you lived onshore.
Some states require you to file even if you are living overseas. Consult with an Expat Tax Expert and see if your state requires you to file.
The United States government is continually working on expanding tax treaties to other countries. For more information on tax treaties check out the IRS Tax Treaty Section.
Still have questions? Contact us today and we can see if you are covered under a treaty and get you started on your tax return today!
Expat Tax Tips: How to get IRS Tax Forms
Having a hard time trying to find the tax forms you need to file your tax return? Expatriate Tax Returns is here to tell you that the IRS provides free tax forms and publications on an extensive variety of topics! Here is a list of four easy ways to acquire tax forms and publications from the IRS:
Not sure what forms you need for your tax return, just contact us and we will be more than happy to help you along! Taxes can be confusing especially being overseas.
Get your questions answered and your returns done …CONTACT US TODAY!
Foreign Tax Credit
Living abroad as an expat you have the opportunity to claim a Foreign Tax Credit to avoid dual taxation. Dual taxation is when two different countries impose tax on the same income. By completing Form 1116 and attaching it to your Individual U.S. expat tax return, you can claim this credit and avoid paying US tax on income that you have already paid on in your foreign tax home.
To qualify for the Foreign Tax Credit you must:
Claiming the Foreign Tax Credit directly offsets your U.S. taxes for any income earned overseas. This can only be used to offset U.S. taxes on your interest, dividends or compensation earned abroad. It cannot exceed the amount of U.S. taxes you pay on the foreign income. If it does exceed that amount, you can carry forward the balance to future tax years.
Contact Expatriate Tax Returns if you need more information or to help you to determine if you are eligible for this credit!
Obamacare and U.S. Expats
American Expats should know these important facts about Obamacare. Obamacare is also called The U.S. Patient Protection and Affordable Care Act (PPACA) and was supported by the Supreme Court in June 2012. For all U.S. citizens it will be mandatory to carry affordable healthcare coverage or pay a penalty tax. The annual penalty tax is $95 on individuals who do not carry adequate insurance coverage. This program starts on January 1, 2014. By 2016, the penalty tax is slated to increase to $695.
How will this affect you, an American Expat, while you are living overseas?
As of right now, Americans living overseas will not be able to purchase healthcare coverage and you will not be obligated to pay the penalty fee. Obamacare is focused on domestic insurance plans and it is only available to residents of the United States.
Americans living overseas who are eligible for the Foreign Earned Income Exclusion are supposed to have the mandatory amount of health insurance. However, if you do not have the mandatory insurance coverage you will not be charged a penalty fee.
Questions? Call us today 877-382-9123. Expatriate Tax Returns is here to help you!
Bona Fide Residence Test
The Bona Fide Residence Test is often misunderstood by expatriate taxpayers. In order to qualify there are many rules and regulations.
Residency in a foreign country alone does not qualify you for this classification.
Qualifications for the Bona Fide Resident Test
To be eligible for the Bona Fide Resident Test you must meet all four of the requirements below:
- U.S. Citizen (or a U.S. resident alien of countries that share a U.S. tax treaty)
- You have a residency in a foreign country
- You have been in living in your foreign country for the entire calendar year starting January 1 thru December 31.
- You have no intentions of coming back to the U.S. anytime soon.
- If you are under an employment contract, it must be considered long term or without a specific end date.
The qualifications for the Bona Fide Resident Test can be confusing. If you have questions or concerns about this please contact us.
Qualifying for the test can save you thousands of dollars each year. The IRS will handle each claim case by case, since a large part is based on future intent. If you need assistance in determining your status, give us a call…we are happy to help you through the required qualifications
Physical Presence Test
Everybody loves a tax break! The Physical Presence Test is designed for American Expats who are only away from home for 11 months or more. This exclusion can decrease or remove any U.S. income tax you may owe.
Qualifications for Physical Presence Test
The requirements for the Physical Presence Test are as followed:
- U.S. Citizen or resident alien
- Outside the USA for 330 days out of 365 days
- Legally living in a foreign country (cannot claim status from Cuba, North Korea, etc…)
- When traveling to and from the United States, each day spent will be subtracted from the total
- Each day on U.S. territories is also subtracted from the total
The main thing is to remain outside of the U.S. for at least 330 days in a 365 day period. The 365 day period is not based on the calendar year, it is based on the prior 12 months for calculation purposes.
This test can start on any day of the month. For example, if your first full day being overseas was June 28th, 2010, the period can be calculated up to June 27th, 2011. No exceptions apply to the Physical Presence Test.
Still have questions? Contact us today and we can help determine if you qualify!
The number one question that runs through the “expat mind” at tax time is: what happens if I don’t file my US taxes? Would the IRS even notice? What are the consequences if I get caught? We are here to tell you what to expect.
Failure to File
Generally speaking, if you owe no tax there will be no assessed penalties or interest even if you file late.
If you owe tax, not filing by the deadline or the extension deadline, you will be penalized with a failure-to-file assessment which is 5% of the amount of unpaid taxes. Each month that the return is late you add another 5% to the amount owed, but it cannot exceed 25% of the amount unpaid tax.
Not Paying your Taxes
If you filed your tax return on time but you could not pay your taxes, the assessed penalty is .05% monthly of the unpaid amount not to exceed 25% of the amount owed.
If you wish to make a payment arrangement with the IRS, the process is usually pretty user friendly, but penalties and interest still accrue until the debt is paid in full.
As a US Expat you will get a slight break if you pay your tax by the June 15 due date. From the period between April 15, when the tax is due and June 15, you will be assessed interest only if you pay the balance in full by the June due date of the return.
If you are a self-employed or owe more than $1,000 of tax, you must pay quarterly estimates that cover your prior year’s tax liability. Neglecting to pay estimates will mean immediate assessment of penalty and interest even though you may pay all of your tax by the April 15th due date.
If you need to file a State income tax return, most follow the same rules as the Federal. Since each State can be a little different, once we start your Federal return we will inform you of any State requirements at that time.
Non Filing American Expats
Not filing your tax return can lead to criminal charges! If you are afraid that you owe the IRS money and do not want to file because of it, we advise you to rethink your position. In addition, if you wait and the statute of limitations for the foreign income exclusion is passed, you could find yourself paying a lot of tax that you would not have owed had you filed on time.
All refunds are waived on returns filed after 3 years from the due date. So, if you have money coming back be sure to file within that 3 year time frame or lose it!
The kinder, friendlier IRS is there to help you by offering extensions, payment arrangements, and offers in compromise.
The days of hiding from the IRS are slowly coming to an end! With global technology and the new foreign bank disclosure rules it will be easier for the IRS to contact you.
If your tax situation is out of hand …we’re here to help. Find us before they find you!
The Benefits of Being an American Expat Living Overseas
When you are given the opportunity to move abroad…consider it an adventure! And enjoy every moment.
Prior to moving, make sure that you handle all of your business here in the states. Pay all of your bills, notify all of your creditors of your change in address, and be sure to take all of your important papers with you, just in case you need them while living abroad.
While overseas experience the cultural change in every way possible. Try new, exotic foods; get to know your community; take walking tours of your city so that you are able to navigate it like a “local”.
Whether you choose to live in a small, intimate community or a large bustling city, you will experience many expat benefits.
The smaller community life will enable you to meet and socialize with the “locals” while enjoying a lower cost of living. The more touristy towns provide wonderful sites to behold, but there is definitely a higher cost to living in the more popular locations.
Whether you live in a small town or a bustling city, take advantage of opportunities to engage with other American expats through social groups, clubs, international schools and other events. Having some American friends can make the “living abroad” transition a whole lot easier.
If you have difficulty in finding an “expat connection”, consider joining an advertised expat community either locally or online…they provide a wealth of information and resources.
Just to let you know…as an American living overseas it is essential to know that you need to file your U.S. taxes. American Expats can claim a number of tax credits and deductions that will help you avoid dual taxation. Let us help you with any questions you may have about your tax situation or in finalizing your expat tax return!
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