Expatriate tax preparation can sometimes feel like a tough process. It doesn’t have to be! Understanding what docs to provide will make the process go smoother on both sides.
Once you engage an accounting practice for your overseas tax return preparation you will likely be provided with a “Tax Questionnaire.” This form will ask you to provide basic information. This information includes your name, address, ID numbers and dependent info. It will also ask you a series of questions. These will be about other activities in which you may have engaged that could affect your taxes. These forms may seem a bit much to fill out. Remember, filling this form out properly usually saves plenty of time in the long run!
Prior Year’s Overseas Tax Return
Providing your prior year tax return will assist with your current year’s return in many ways. First, it will supply a reference point. The preparer will also use it to compare against your current year return to look for any changes. You may have overlooked income or deductions in prior years. Your preparer will tell you if you missed anything. Information from your prior year’s return is also necessary to electronically file after your current year’s return is complete.
Do you travel back and forth between the US and a foreign country? Your income and deductions must be split for time in and out of the United States. This is for the Foreign Earned Income Exclusion and the housing deduction. Providing an accurate and detailed travel calendar is essential for overseas tax return preparation.
Wages, Compensation or Tips
Wages from an employer are typically reported to you. These come on a W-2, P60, P45 or your host country’s equivalent. If you are self-employed, please provide records of your earnings and deductions for the calendar year. These are some of the most important documents required for your overseas tax return. You may live in a country that does not have any income taxes. This will require you to self-report your income. You may need to explain it to the IRS with bank statements or something similar.
Interest or Dividend Income
Interest and/or dividend income is typically provided to you by you bank or brokerage house. This will come on Form 1099 or the foreign equivalent and it is vital that you provide this to your tax accountant, even if the account has been closed. You should have one of these statements for each interest-bearing account.
Stocks and Other Securities
Your investment broker will provide you with a statement. This statement should detail all stocks and securities that were sold or purchased in the year. This information is necessary for your expat tax preparation. Please ensure that the statement supplies the original “basis” of securities sold as well as the sale or purchase dates. This is required to accurately calculate the gain or loss on the sale of the securities.
Real Estate Transactions
If you bought or sold real estate in the current year, there are tax implications. The purchase price, date of the transaction and the purpose of the property may be needed for your overseas tax return. If you own rental property, you will need to provide a financial statement detailing the income and applicable expenses, as well as when acquired and how many terms it was rented for the tax year being worked on. Check out The Complete Guide to Real Estate Investment for even more information.
Pensions, Annuities, Profit Sharing, IRA or Other Accounts
Withdrawals from your pension, IRA, or equivalent retirement account(s) must be reported. The financial institution or your employer will usually send you a 1099-R. They may also send the foreign equivalent. They will report withdrawals at the end of each year. This must be included on your overseas tax return.
Social Security Benefits
Social Security benefits will be reported to you via Form 1099-SSA. This should be given to whoever is preparing your overseas tax return. Your preparer should also double check the Social Security agreements. If your host country has an agreement, this can impact your taxes. This is especially important if you are self-employed.
If you have business, trust or partnership interests, you need to report them. You will be provided with a Schedule K-1 or equivalent. Be sure to send any miscellaneous income that may have been reported to you on Form 1099-MISC. Other sources of income reported on your overseas tax return include unemployment reported via 1099-G or any alimony or child support received.
Interest & Taxes Paid
Interest that you paid on a mortgage for your home or against an outstanding student loan is deductible on your overseas tax return. There are other deductible taxes as well. This includes foreign income taxes, real and personal property taxes, and local excise taxes. Please provide documents for any deductible taxes and interest paid by you.
Foreign Housing Expenses
Qualified individuals may elect to deduct a certain amount for foreign housing expenses. Your preparer can determine whether you qualify. You will be asked to provide details of your foreign housing expenses, including rent, utilities, property insurance, repairs and parking. To learn more about the foreign housing expenses, see our US Expat Taxes Explained series.
Your children and other dependents can be a source of deductions or credits. Please make sure to provide all dependent information. You also need to explain expenses incurred for child care for children under 13. If you have children enrolled in higher education and pay for their education, you may also receive a deduction or credit. This can help cover the tuition expenses, so be sure to provide information on these expenses.
Other potentially deductible expenses that should be provided include medical expenses not covered by insurance, charitable donations, alimony and child support paid, gifts to relatives or others, and unreimbursed business expenses.
Foreign Bank Accounts
If you have foreign bank accounts, they may need to be reported. If you have over $10,000 aggregate balance overseas in any year, you must report these account(s) to the Treasury by April 15th of each year. This is not part of your overseas tax return. It is reported separately. Most preparers will either file on your behalf or advise you how to file using FBAR Form FinCen 114 (Formerly known as TD 90-22.1).
Finally, one last piece of advice!
If you feel as if you are still missing a tax document, don’t ignore it! Contact the issuer to have it resent. It may have been lost in the mail so you did not receive it, but it may have been reported to the IRS. If it was reported to the IRS but omitted on your overseas tax return, the omission may be caught by the IRS. This could prompt an audit of your overseas tax return.
Need further help with your expatriate tax preparation?
First, have a look at our post Preparing, Organizing, & Saving Expat Tax Documents. If you have further questions about overseas tax returns or would like to learn more about our expatriate tax preparation services, please contact us.