If you prepare your US taxes while living in the US, you may wonder why you should hire an expat tax preparer. With the complicated deductions, exclusions, tax dates and exchange rates, US expat taxes are much more complex than standard US taxes. Here are 10 reasons why you should hire an expert CPA to file your expat taxes.
1. You Are Required to File US Taxes
No matter where you live, what currency you were paid in, what taxes were paid to other countries or where the income was earned, you are required to file US expat taxes if you have earned over the minimum thresholds. Considering your tax return responsibilities in your host country, do you really want to fill out income taxes twice?
2. US Expat Taxes are Complicated
You may be able to fill out Form 1040, but for US expat taxes, your return is going to require Form 2555 and Form 1116 for the Foreign Earned Income Exclusion, Foreign Housing Deduction or Exclusion, and the Foreign Tax Credit. These forms can be confusing to interpret, even for experienced taxpayers. Don’t forget the other schedules that must also be attached with your Form 1040 when you file US expat taxes.
3. Reconcile Tax Information
While some expatriates are fortunate enough to not have to worry about reconciling tax dates, many jurisdictions — including Australia, the United Kingdom, Hong Kong and New Zealand — all have different tax dates. The US will require that you (or your tax preparer) complete your returns using the US tax year. This means reviewing tax statements from multiple years, payment history and finding the correct income. This is not impossible to do, but it probably is not what you want to do on your Saturday afternoon.
4. Currency Exchange for US Expat Taxes
The IRS requires that your income is reported in US dollars. The IRS allows the opportunity to calculate your income on the annual, monthly or daily exchange rate. This can translate into significant tax savings if the income you were paid in fluctuated, even moderately, over the tax year. Mistakes can be costly and easy to make; an expat tax preparer can ensure the correct conversion rates are used while eliminating the hassle of searching for rates and converting all of your income and deductions.
5. The IRS is Serious
The IRS estimates that up to $100 billion is lost each year due to tax abuse, and it is consistently bringing on new agents to track down those avoiding US expat taxes overseas. If they locate an individual who has not paid the required US expat taxes, penalties are applied to his or her returns, as well as interest on underpayment. This can then trigger further investigations into offshore bank accounts. Unless you want to increase your burden caused by US expat taxes (or end up behind bars, or lose your rights as a US citizen), you should keep compliant. If you are behind on US expat taxes, you should contact us immediately to avoid potential issues.
6. Tax Law is Boring
The laws for US expat taxes change every year, and sometimes these changes can be significant. Overlooking one of these changes can be easy to do, and quite costly and time-consuming to correct. It can lead to significant penalties and fines. Another issue is that if one of your returns is found to be incorrect, the IRS will likely look into previous years to ensure they were prepared correctly. Unless you want to spend your free time reading the laws for US expat taxes, you might want to leave this up to those who have made it their area of expertise.
7. State Taxes
Every state is different in regards to how they tax their citizens who live overseas. Some states have no income tax and thus require no returns for expatriates. Other states, such as California, New Mexico or South Carolina, may still have you pay taxes as your domicile is in this state. This can be caused by a valid driver’s license, voter registration, bank accounts or property, among other things. An expat tax preparer will know what each state requires and know how to cut ties with the state to avoid taxation, if desired by their client.
8. Tax Software for Expats
The thing with tax software for US expat taxes is that there is not expat tax software. Tax software is designed for relatively simple tax returns and is not designed to handle the exclusions, deductions, currency conversion or schedules that are required for US expat taxes. Tax returns and forms will need to be calculated by hand, which will make this more time-consuming than what you may have been used to with your typical US return.
9. Reasonably Priced Preparation
While some tax preparation services are costly, they don’t have to be! At Greenback Expat Tax Services, we charge a flat rate to complete your US Federal tax return, including all schedules and forms. This includes a search for any applicable exclusion or deduction for US expats, which is often not included in the preparation fees of other firms. Your returns will be prepared quickly and accurately, while not breaking the bank.
10. You Have Better Things to Do With Your Time
Expats tend to be very busy people who are constantly on the move. Do you really want to slow things down by taking the time to stay in all weekend to prepare your US expat taxes? There are hundreds of potential scenarios that can result in significant US expat tax savings. Although many do not believe it, our accountants actually enjoy hunting for ways to save you money on your US expat taxes. Go live your life wherever you may be, and we can handle your US expat taxes.
Want More Information on Choosing an Expat Tax Preparer?
Have a look at our discussion on the difference between enrolled accountants and expat CPAs when it comes to your US expat taxes. If you have further questions or would like to know more about our expat tax services, please contact us.
Copyright Greenback Expat Tax Services December 15, 2011