Many expats are unaware that they need to file a US expat tax return each year they are living abroad. But now that you know, what do you need to gather? Here is an overview of the documents you may need to file and the different expat tax laws you should consider.
The first thing you need to gather is documentation of income sources such as:
- Record of wages (pay stubs, W-2s, 1099s, etc.)
- Bank interest statements
- Record of interest and/or dividends (This is likely to be a Form 1099 from a US financial institution or your year-end interest statement from your local bank).
- Rental income
- Record of sales and purchases of real estate and/or any property during the tax year
Next, you'll want to identify sources of expenses that you might be able to use as deductions. Some of the things that may be deductible are:
- Moving expenses
- Mortgage interest
- Brokerage fees
- Foreign housing costs
Let's take a moment to examine the possible deductions from your foreign housing costs. If you paid for any of the following, you can deduct them from your US expat tax return:
- Utilities (excluding telephone costs)
- Personal property insurance
- Leasing fees
- Furniture rental
- Parking expenses
Now, if your employers paid you for these incurred costs, that is considered taxable income to you. Thankfully you can use the Foreign Earned Income Exclusion or the Foreign Tax Credit to reduce your overall taxable income and US tax liability.
When you are determining exactly what you need to file, don't forget about FBAR, the Foreign Bank Account Report)! This is the most often overlooked US filing obligation, as it is relatively new. FBAR must be filed if you have $10,000 or more in a foreign bank account at any point during the tax year (or signing authority over any such account). Even if you only hit that balance one day in the year, FBAR must be filed. Keep in mind, this is an aggregate amount—meaning, if you have a combined total of $10,000 in more than one account, you must file. If you need to file, make sure you have all your bank account statements available so you can accurately fill it out.
FBAR was previously filed via Form TD 90-22.1 and it had to be mailed to the IRS. Filing is now done electronically via FinCEN Form 114 (which goes to the US Treasury, not the IRS) and there are no extensions. Penalties for failing to file FBAR can be steep, so it is important to file if you are required to do so.
Yet another acronym to be aware of! FATCA, the Foreign Account Tax Compliance Act, was enacted in 2010 to help the IRS uncover tax cheats who are hiding assets in offshore accounts. Many expats have foreign assets but are certainly not hiding them purposely from the US! But if you have assets that exceed a certain threshold, you must report them on Form 8938. Here are the thresholds:
- Filing Single: Balance in these accounts was over $200,000 on the last day of the year or over $300,000 at any point during the year.
- Married Filing Jointly: Balance in these accounts was over $400,000 on the last day of the year or over $600,000 at any point during the year.
US taxpayers living in the US have much lower reporting thresholds, which is something to keep in mind if you move back to the US but choose to retain your foreign assets.
So what exactly are foreign assets? Foreign assets are specified foreign financial assets, bank accounts, foreign stock, partnership interests, foreign mutual funds and foreign life insurance.
If you are required to file Form 8938, this is sent along with your regular US tax return by June 16, 2014. If you file for an extension, you get an extension on Form 8938 as well.
These isn't a comprehensive list of everything you need to know about filing your US taxes, so if you'd like to learn more, please visit www.greenbacktaxservices.com.
This post was written by David McKeegan, co-founder of Greenback Expat Tax Services. Greenback specializes in the preparation of US expat tax returns for Americans living abroad. Greenback offers straightforward pricing, a hassle-free process and CPAs and IRS Enrolled Agents who have extensive experience in the field of expat tax preparation. For a more in-depth look at your US expat tax obligations, download one of our free US tax guides right here!
If you'd like Greenback to prepare your US expat tax return, simply click here to get started or visit www.greenbacktaxservices.com for more information.