To help you out, we have outlined the most common documentation you'll want to gather to report your income, applicable deductions and foreign bank accounts.
Sources of income
Proof of Employment Income
The first thing you'll need to find might be the most obvious: sources of income. The type of documentation you'll look for is a W-2, P60, P45 or your host country's equivalent. If you are self-employed, you'll need records of your earnings and deductions for the calendar year. If you live in a no-tax country, you won't receive these documents so you'll need to self-report your income. Keep accurate records through pay stubs or bank statements in case the IRS requests proof of income.
Interest and/or dividend income is typically provided to you by your bank or brokerage house. Look for a Form 1099 or the foreign equivalent. Even if the account is now closed, you will need to report it. You should have one of these income statements for each interest-bearing account.
Real Estate Transactions
Did you buy or sell real estate this year? If yes, there are likely some tax implications. The purchase price, date of the transaction and the purpose of the property may be required. If you own rental property, you will want to gather your financial statements that detail the income and applicable expenses. Many of your expenses could be deductible which would save you a lot on your US expat taxes.
Withdrawals from your pension, IRA, or equivalent retirement account(s) must be reported to the IRS each year. Usually you will receive a 1099-R from the financial institution (or your employer).
If you receive Social Security benefits, you'll want to make sure you have a copy of Form 1099-SSA so you can accurately report those earnings.
If you travel back and forth between the US and a foreign country, your income may need to be split for time in and out of the US. Specifically, accurate travel records will help prove you qualify for the Physical Presence test, which then makes you eligible for the Foreign Earned Income Exclusion (FEIE). Why is this important? Well, for the 2014 tax year, the FEIE allows to you to exclude the first $99,200 of foreign earned income (and that number jumps to $100,800 in 2015). To pass the Physical Presence test you must be inside a foreign country for 330 of any 365-day period. They must be 330 FULL days, so time spent in the air (or by sea) does not count towards that 330 day total. Pay close attention to your travel dates to ensure you qualify--just one extra day in the US or in-transit could cost you thousands. Keeping an accurate and detailed travel calendar is essential for ensuring you qualify for big deductions.
Foreign Housing Expenses
You may elect to deduct a certain amount of your foreign housing expenses if you qualify. Qualifying expenses may include rent, utilities, property insurance, parking and any expenses related to storing your possessions. You will need specific documentation of these expenses. More details about the Foreign Housing Exclusion can be found here.
Interest & Taxes
Any interest paid on a mortgage for your home or against an outstanding student loan is deductible. These will be provided to you on statements from the bank or lending institution. Certain other taxes may be deductible, too such as foreign income taxes, real and personal property taxes, and local excise taxes.
Your children and other dependents can be a source of deductions or credits. In addition, child care costs for children under 15 can be deducted from your US expat tax return so contact the child care provider for a statement of your payments.
Other notable reporting requirements
Foreign Bank Accounts
If you have over $10,000 in foreign bank accounts during the tax year, you must report these account(s) to the US Treasury Department by June 30 of each year. This is a requirement of FBAR (Foreign Bank Account Reporting) and it is important. While you don't need to send copies of your bank statements when you file, you will need to have them in order to accurately report the balance(s). Remember that the $10,000 filing threshold is an aggregate amount, so if you had $4,000 in one account and $7,000 in another, you'll need to report both accounts.
Expats with specified foreign assets that exceed certain thresholds must be reported on Form 8938 to satisfy the requirements of FATCA, Foreign Account Tax Compliance Act. The reporting thresholds are as follows:
- Single filers: Value of assets exceed $200,000 at the end of the tax year or $300,000 at any time during the tax year.
- Married filers: Value of assets exceed $400,000 at the end of the tax year or $600,000 at any time during the tax year.
This is filed along with your US expat tax return, so if you file for an extension, the extension applies to Form 8938 as well. Gather any statements related to financial overseas assets and if you are working with a qualified expat tax preparer, they can help you determine which assets must be reported.
Gathering the documentation now to support your income, deductions and foreign assets will save you a lot of time (and hassle!) when are ready to file your US expat tax return.
This post was written by David McKeegan, co-founder of Greenback Expat Tax Services, which provides expert US expat tax preparation for Americans living abroad. To learn more about what documents you need to gather and/or report, contact us today!