The United States tax laws are very complex and difficult. Living, working or investing in a foreign country makes matters even more complex.
The purpose of U.S. Tax International is to:
To assist individuals and businesses that are faced with the complexities of living, working or investing abroad.
To understand and take advantage of these laws in order to pay the least amount of tax possible.
Some examples of these complexities are:
Reporting of foreign bank and investment accounts.
Working for a U.S. company with branch offices in a foreign country.
Working for a foreign company.
Being self employed in a foreign country.
Starting your own business and using the corporate laws of the foreign country.
Investing in a foreign corporation and becoming a 10% or more stock holder.
Placing your personal assets into a foreign corporation.
U.S. Citizens Living and/or Investing in a Foreign Country
Living and or working in a foreign country does not release you from your responsibility to the United States Internal Revenue Service.
The fact is you may have increased responsibilities, which if not fulfilled, could lead you into a Pandoraâ€™s Box of trouble.
Do not think that just by living, working, or investing in a country outside of the United States you are protected from the strong arm of the U.S. Internal revenue Service.
It is very easy to convince yourself by listening to friendly advice from some long time expats that you do not have to concern yourself with the IRS. They might tell you there is no way the IRS can do anything to you while you are living here. They might tell you that they have been living here for a long time and have had no problems. They might ask how the IRS can audit you from outside of the U.S.
Are they going to send an auditor here just for you?
Some of this may be true, but only to a point. For starters the IRS can do what is called a mail-in audit. Second, no matter how insignificant you may feel your income is, beware.
The IRS carefully chooses its audits to set examples for others, not just for the amount of money they think they can get. While you are out of the U.S. It is a bit difficult for the IRS to do much of anything to you if all of your assets and family members are also outside of the U.S.
The problem arises when you return to the U.S. on a permanent or a temporary basis. You could be faced with answering many difficult questions, paying numerous penalties, and not being permitted to return to your foreign country of residence.
Living and working outside of the U.S. can be a great experience for everyone involved. However, you need to be aware of, and follow the rules of the U.S. government. To make the best of your time living overseas it is a good idea to be well informed, and avoid being surprised by the long arm of the Internal Revenue Service. Use the rules to your advantage.
Working in a Foreign Country
Living, working and investing in a foreign country does have its tax advantages. One of the biggest advantages and one of the most misunderstood is the Foreign Earned Income Exclusion.
With this exclusion you have the potential to deduct up to $82,400.00 of your earned income from your tax return for each year that you qualify. The most important thing is that the exclusion is for income you earn as a wage earner. This is income you receive as a self-employed person or as an employee for a U.S. or foreign company. This does not include interest, dividends or capital gain income.
For the self employed person this exclusion does not include the self employment tax (Social Security). If you are married and if your spouse qualifies, there is also the possibility to exclude up to another $82,400.00 of earned income. Thatâ€™s a total of $164,800.00.
This exclusion is not automatic. The first requirement of this exclusion is that you must file your tax return. The IRS can disqualify you from the exclusion just on the basis that you have not filed a tax return. Then, to make things even worse, that income becomes taxable and carries with it penalties that could equal 100% of the original tax.
The BasicsWorking in a Foreign Country BANKING & INVESTMENTS Starting a Business Home Exclusion Building a Family Self Employment Taxes Social Security Why File U.S. Tax Q & A's
Banking and Other Investment Accounts
Another new responsibility you have for living in a foreign country is the reporting of bank accounts that you have outside of the U.S. to the U.S. Treasury Department.
If the total value of all your foreign accounts worldwide exceeds $10,000.00 (for even one minute of one day) you must report these accounts.
This also includes accounts that you have signature power over and are not directly owned by you.
The form does not carry any tax and is easy to file, but failure to do so is not easy to resolve. The interest or dividends you received during the year must be included on your individual tax return. See U.S. Treasury form TD f 90-22.1.
The filing due date is June 15, or when you file your tax return, whichever comes first.
The BasicsWorking in a Foreign Country Banking & Investments STARTING A BUSINESS Home Exclusion Building a Family Self Employment Taxes Social Security WhY File U.S. Tax Q & A's
Investing in and/or Owning Your Own Business
If you invest in a foreign corporation or start a business corporation of your own, there are some advantages.
One of the advantages is that you are generally not taxed on the profits until you either take the earnings as a dividend or in the form of a wage. Even then you may escape tax on the income because of the foreign tax credit or the foreign earned income exclusion.
If you are an officer, director, or more than a 10% stock holder of a foreign corporation, you are required to attach an additional set of forms to your tax return. The amount of information that you must supply on these forms depends on the amount of ownership in the corporation and position with the company.
Failure to file this form can result in a variety of fines and penalties in the hundreds of thousands of dollars. The fact that the company is not making a profit does not release you from filing this form. Even if you have an inactive corporation for your car, home or other assets you are required to file this form with your tax return.
In todayâ€™s world of computers and internet, the exchange of information between countries is commonplace. The United States has an exchange of information treaty with many countries.
Form 2848 Power of Attorney and Declaration of Representative
Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts
Buying and Selling Your Home
If you sell your foreign home and you meet the time requirements, you could be eligible for the $250.000 home exclusion.
Because you are selling your home that is in a foreign country, it would be wise to show the sale on your tax return and show you are taking the exclusion.
This will be extremely helpful if and when you decide to return the U.S. with the proceeds.
The BasicsWorking in a Foreign Country Banking & Investments Starting a Business Home Exclusion BUILDING A FAMILY Self Employment Taxes Social Security Why File U.S. Tax Q & A's
Building a Family
If you get married to a non U.S. Citizen you must choose to file your tax return as married filing a joint return, or married filing separately.
In either case your new spouse needs to apply for a taxpayer identification number.
If you choose to file a joint return with your spouse, the income your spouse earned worldwide during the tax year must be included in your income.
Generally speaking if your spouse has little or no income, it could save you tax money by filing jointly.
If your spouse has an income it may be best for you to file a return as married filling separately. You can not file as single. If your new spouse has children that are not U.S. citizens, they do not qualify as your dependants. This is true even if you support them 100%.
If you and your spouse have a child together, it is important that you inform the U.S. Embassy of your new family member. This will enable you to apply for a social security number and U.S. citizenship. This should be done promptly.
U.S. Social Security, Medicare, and Self-Employment Taxes
If you are an offshore employee of a U.S. corporation, that employer will normally withhold Social Security and Medicare taxes on your W-2 earnings.
If you are working for a U.S.-based employer in one of the 20-plus countries with which the U.S. has established a Social Security Totalization Treaty, you may cite a closer connection to the foreign country and participate in that countryâ€™s social insurance system, and not have U.S. Social Security and Medicare taxes withheld from your U.S. pay.
If you are a bonafide employee of a foreign employer and are subject to foreign laws governing their social security tax, you are not required to pay U.S. Social Security tax.
If you are self-employed (an independent contractor), you are obligated to pay, in addition to your income tax, a U.S. Self-Employment tax that is both employer and employeeâ€™s share of Social Security and Medicare taxes.
You must file a Schedule C with your U.S. tax return and pay U.S. Self-Employment Tax on your net earnings by filing a Schedule S-E.
The Self-Employment Tax rate is 15.3% of net Schedule C income before any foreign income exclusion and the taxable net self-employment rate is not reduced by the previously mentioned foreign tax credits.
Net earnings are income after all legal business expenses are deducted, and include the income earned both in a foreign country and in the United States.
The BasicsWorking in a Foreign Country Banking & Investments Starting a Business Home Exclusion Building a Family Self Employment Taxes SOCIAL SECURITY Why File U.S. Tax Q & A's
Receiving Social Security & Other Retirement Benefits
This is the same as if you were living in the United States. Combined with other income your benefits could be taxable.
Make sure that your foreign income is included in your taxable income.
If your income is solely from Social Security it is not taxable and you do not have to file a return.
Beware! If you notice reduction in your Social Security and other retirement benefits, it could be assumed by the paying agency since you are living outside of the United States, that you may not be a U.S. citizen. The paying agency could withhold 28% of your benefits.
The only way to have this money refunded is by filing a timely tax return and requesting the refund.
Do yourself a favor, do not ignore your responsibly to the U.S. government. File your income tax returns on time and avoid the possibility of unwanted and unnecessary trouble in the future.
US Citizens Living in a Foreign Country
Why File U.S. Tax Returns?
Okay, you are no longer living in the U.S.A. You moved all your assets and belongings to a foreign country and you intentions are to never return.
The fact is that the U.S. law states that all citizens must file an income tax return on their worldwide income, regardless of where they live.
Why file a tax return?
What problems can the IRS or the U.S. government give you for not filing a return?
What is at risk for not filing?
How can the IRS get information about me, my business and my income?
Here is some food for thought.
1) You get married to a foreign person, and you and your new spouse want to travel to the U.S. to see your family. One of the requirements for your spouse to obtain a U.S. visa, is for you to produce copies of your past 3 years of tax returns.
2) You decided to return to the U.S. You have not filed a tax return for years. What will the IRS say when you start filing returns again? How do you answer the question; how were you able live and feed yourself?
3) You made some money and you want to invest some of this money in the U.S. stock market or U.S. banks. How do you explain where the money came from? Better have the paperwork ready to prove what you say.
4) The statute of limitations on tax returns starts when the return is filed, so if you do not file a return when does the timing for the statute of limitations start? The answer could be never.
5) You did well in your foreign country and would like to return to the U.S., buy a home and put money into bank accounts. How do you prove where the money came from? Will the government think maybe it is drug money?
6) While living in a foreign country, you gain a large amount of wealth and would like to leave your wealth to your family members who are also living in the U.S. How do they explain their inheritance? What problems will they have? Could they be faced with your non compliance penalties and taxes?
7) Passport renewal. At present you are not required to present copies of your prior years' tax returns to the embassy to renew your passport, but with new and advanced technology; could this soon be a requirement?
8) Your child wants to go to college in the U.S. He or she may need some assistance. Will you have to prove your income? Will you have to produce copies of your past tax returns?
9) You have not filed a tax return for years. You have met all the minimum requirements for Social Security and now you want to receive your Social Security benefits.
10) If you are working in a foreign country, you can exclude from tax over $80,000.00 of earned income. The key here is "exclude". Before you can exclude it, you first must include it by filing a return. If you do not file a tax return to exclude the income, you risk losing the exclusion. If you lose the exclusion, the IRS can include it in taxable income. Why take the chance? File a return.
As a professional tax preparer for over 25 years, specializing in U.S. citizens living in a foreign country, these are just a few of the more common ways U.S. citizens find themselves in trouble by not filing a tax return.
Living in a Foreign Country and U.S. Taxation
For U.S. citizens living in foreign countries, there is little or no relief in income-tax filing requirements. Often we are faced with new requirements and situations, and given wrong advice from fellow citizens.
As a professional U.S. income tax preparer specializing in U.S. citizens living in foreign countries, I have provided answers to some frequently asked questions.
Now that I am living in a foreign country, do I need to file a U.S. income tax return?
Most U.S. citizens must file an annual income tax return on their worldwide income. As a general rule, think like you are living in the United States and if you think you need to file a return, you are probably correct. It is better to file than not. Where you live has no bearing on your filing requirements.
My only income is from a company located in a foreign country , and I pay taxes to this foreign country. Do I have to include this income on my U.S. tax return?
U.S. citizens must include all worldwide income on their tax returns. This income could qualify for the $82,400 foreign earned income exclusion, but the exclusion is not automatic. You must include the income on your tax return and then exclude it. If you do not meet the requirements for the exclusion, then the tax you paid to the foreign country could possibly be taken as a foreign tax deduction or tax credit.
I live in a foreign country and work for a U.S. company. Does this income qualify for the $82,400 foreign earned income exclusion?
If you meet the other requirements for the foreign earned income exclusion, the wages you receive from your U.S. employer can also be excluded. Your employer is still required to withhold Social Security and Medicare from your wages.
I have my own small business in a foreign country and work as a self-employed person. My business is not incorporated. Does this income qualify for the foreign earned income exclusion?
Yes. This income can qualify for the exclusion just as if you were working for a U.S. employer. Caution: The exclusion is for federal income tax only. You will still be required to pay self-employment tax (Social Security and Medicare taxes) on your profits.
I receive dividends from foreign companies. Are the dividends â€śforeign earned income,â€ť and do they qualify for the exclusion?
No. The foreign earned exclusion does not apply to income such as interest, dividends, capital gains, pensions, annuities and gambling. The exclusion applies strictly to earned income â€“ in other words, your wages, salaries, bonuses, commissions, fees and other compensation for services rendered. Note: If you own 10% or more of a foreign corporation, you are required to file with your individual income tax return, IRS form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations).
I receive interest from my foreign bank account. Do I have to report this interest on my U.S. income tax return?
Yes. U.S. citizens must include in their income, monies received worldwide. This includes interest and dividend income. In addition, if the aggregate value for your foreign accounts is greater that $10,000 at any time during the year, a Report of Foreign Bank and Financial Accounts must be submitted to the U.S. Treasury Department.
I transferred money from the United States to a foreign country. Is there anything special that I need to do?
If a U.S. citizen has a financial interest in or signature authority over any financial accounts, including bank, securities or other types of financial accounts in a foreign country, and if the aggregate value of these accounts exceeds $10,000 at any time during the year, the accounts must be reported to the U.S. Treasury Department.
Last year I got married to a foreign national citizen. Can I file a joint return with my spouse, who is not a U.S. citizen?
Yes, but in doing so, you make the election to report your income and your spouseâ€™s income worldwide. If your spouse does not work, or has very little or no income, it could be to your advantage to file a joint return. If your spouse does not have a taxpayer identification number, one must be obtained.
My foreign national wife has a child from a previous marriage. The child is living with us. Can I claim the child as a dependent on my tax return?
To be claimed as a dependent, the dependent must be a U.S. citizen or a resident of the United States, or, in certain cases, a legally adopted child of a U.S. citizen.
I have been living in a foreign country for years and have not filed a tax return. What should I do?
It is to your advantage to seek professional help to determine whether or not you need to file.
My business is incorporated in a foreign country. Currently it is not making a profit, and I am not receiving a paycheck. Does this have to be included on my tax return?
Yes. If you own 10% or more of a foreign corporation, you are required to file with your individual income tax return IRS form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations). This includes inactive corporations not making a profit.
How Much Do We Charge?
The fees involved in addressing any tax problem or question you may face are based on either a time basis or - for filing of tax returns - on the complexity of the return involved. You will receive a quote of estimated cost for services after the problem or issue has been clarified.
U.S. Tax International is a company with offices in San JosĂ© Costa Rica and Palm Beach County Florida. We believe in giving our clients the personal and confidential service they deserve.
Having an office located overseas for over 15 years, we have gained the experience that enables us to provide services at an international level. We understand the important issues that U.S. individuals and businesses are faced with during their overseas endeavors.
U.S. Tax International was established 12 years ago in San JosĂ©, Costa Rica by Randall J. Lindner E.A. under the name of U.S. Tax & Accounting Service. Mr. Lindner has over 25 years of experience in accounting, business management and U.S. taxation.
Executive Accounting and Bookkeeping Service, Inc. was established in 1978 in Florida and co founded by Jerry P. Collins E.A., and Randall J. Lindner E.A. Mr. Collins also has over 25 years of experience in accounting, business management and U.S. taxation.
Step 1 is for us to become acquainted. To do this you can place a call to our U.S. or Costa Rican phone number. If you prefer, send us an email with your phone number and the best time for us to call you. We will respond to your email confirming a date and time we will call you. We are located in time zone S. From the time zone map please indicate what time zone you are in. This first step is optional. We can communicate totally by email.
Two, fax, email or mail us a copy of your prior year's income tax return. This will give us a good starting point.
If you received any end of year tax statements such as W-2â€™s 1099 etc. Send us this information in the same manner as you sent the copy of your prior year's return.
We will study and review your information to determine how and what steps we will take to reduce your income tax liability. We will also inform or advise you if there are any other steps you can take to reduce you tax liability the next year.
Once our final review is complete, we will send you your completed tax return. You can choose which way you would prefer to have your completed return delivered to you; by email in PDF format (the fastest), via fax, or by Federal Express, DHL or UPS.