What documents do I need to have ready?
Generally speaking, the most useful documents to have available are US tax returns from previous years and expatriate tax returns for your host country. In addition, you will need statements of income, (including capital gains) and deductions, if you choose to itemize your deductions. Something else to have handy is information about all taxpayers included on the return, including dependents. For more information, please visit our US Expat Taxes Explained Series.
What other information do expatriates need to have on hand while preparing taxes?
Unique to US expat taxes, you are going to need to have proof of residency in a foreign country or prove that you were physically present in a foreign country for 330 days in a 12-month period in order to qualify for expatriate status. This could include residency permits or ID cards or a travel calendar explaining which countries you were present in throughout the tax year. Another key document to have available are the exchange rates on a daily (if using the daily exchange rate) or annual exchange rate.
What foreign exchange rate should I use?
The IRS requires all income or expenses to be reported in US dollars. The IRS accepts two methods of dollarization on expatriate tax returns, both of which having the potential to bring tax savings.
The IRS prefers that you itemize all income and expenses and use the exchange rate on the day payment was made or received. That said, there is the option to accrue all of your income or expenses and use the annual exchange rate. You need to look at both exchange rates and see which will convert your income into the lowest USD amount. This can save a significant amount, especially if you receive large bonuses, sell a property or are generally highly compensated.
Is there a computer program for expat taxes?
There is no computer program for expat taxes that we can recommend. TurboTax and the other tax preparation programs are able to handle simple returns, but they are not prepared to deal with the complexity of an expat tax return or the extra forms that must be submitted with your US expat taxes, such as Form 1116, Form 2555 or Form TD F 90-22.1 (FBAR). We file a lot of amended returns for people who tried the DIY method first. It’s better to save yourself the hassle and hire a professional in the first place.
What are the deadlines for US expat taxes?
Expatriates must be aware of the following deadlines for their US expatriate tax return.
- April 17th — US filing deadline and the date that TAX PAYMENTS ARE DUE, even for expats
- June 15th — Expatriates receive an automatic extension to file their US taxes to June 15th; note that taxes are due on April 17th 2012, and underpayment penalties and interest will be applied if taxes are not paid by April 17th, 2012
- June 30th — FBAR must be received by the US Department of the Treasury either by mail or with FBAR E-filing
- October 15th — Final deadline for expatriate tax returns for those who have filed for an extension
How do I file for an extension?
The IRS gives taxpayers living abroad an automatic extension beyond the US tax deadline (April 17th, 2012) to file their US expatriate tax returns. The extension is until June 15th. In the event that an extension is necessary to qualify as an expat, or in order to receive the necessary tax documents from your host country, you can apply for an additional extension until October 15th. For more information on how to file an extention, please visit the IRS website (most people will file Form 2350 or Form 4868, depending on their circumstances).
Is e-filing available for expat taxes?
Both the IRS and the US Department of the Treasury allow for e-filing if your Tax Return and Foreign Bank Account Reports, respectively, are filed on time. The IRS allows for e-filing for Federal Expatriate Tax Returns, including all schedules and forms. The US Department of the Treasury’s Fin CEN recently introduced FBAR e-filing for Form TD F 90-22.1. Note that e-filing is not available if you are filing multiple years of tax returns or FBARs. You also can not e-file if the returns or reports are being submitted after their original deadlines.
What forms and schedules do expatriates need to file?
No matter the situation, expatriates will need to complete Form 1040 (the exact same form you would need to file if you were living in the US). In addition, expatriates will also want to complete Form 2555 (Foreign Earned Income Exclusion) and Form 1116 (Foreign Tax Credit) to take advantage of the tools in place to avoid double taxation.
The Schedules you will need to file depend on your personal circumstances, but the most common ones are:
- Schedule A for Itemized Deductions
- Schedule B for Interest and Dividend Income
- Schedule C for Income and Expenses from Self-Employment
- Schedule D for Capital Gains or Losses and
- Schedule E if you own a rental property
If an expatriate is associated with any foreign financial accounts where the cumulative balances exceeded $10,000 at any time during the 2010 tax year, Form TD F 90-22.1 must be filed with the US Department of the Treasury. This form, called the FBAR, must be received by June 30th, or the taxpayer could risk the seizure of assets or a $10,000 fine.
