Larry's 2011 Tax Guide for U.S. Expats & Green Card Holders....in User-Friendly English!. Laurence E. 'Larry'
has thus far escaped complete spellcheck scrutiny - you've got a typo! Take a look at the last column, boldface title box under Part D, page 2: the form's got 'foreing' and it obviously should be 'foreign'!
It is a great pleasure to correct the IRS in any matter, whenever I can!!
Happy Thanksgiving!!!
Larry Lipsher
Guangzhou, PRC
25 November
2010
I wrote this on Thanksgiving Day, 2010. Little did I ever expect to receive an answer, two days later, when, I had assumed, that the IRS, like most of America, would be home, eating leftover turkey, watching football on television.
Here’s the answer to me.....over the Thanksgiving weekend:
RE: Form 8938
...
From:
Terry Ralph M < [email protected]>
Mr. Lipsher,
Thank you for your correspondence unfortunate at this time there are no instructions available. When they become available we will forward you a link or copy. Ralph Terry
Thus, your guess is currently as good as mine when it comes to anticipating what the instructions will say regarding who should record what on Form 8938 and, if one has filed one’s tax return prior to the actual issuance of Form 8938, early in 2011, whether or not it will necessitate filing an amended individual income tax return if one has already filed his/her return without a required Form 8938. My gut reaction is that if this form is issued before mid-March, it will become a 2010 tax form. If there is any additional delay, then contrary to FATCA (you’ll read about FATCA, later on, too!), this will become a 2011 tax return form. Only time will tell…..and you can certainly find out from either the IRS ( www.irs.gov) or Li Fei Lao ( www.lifeilao.com)
All this adds up to the fact that there are few – very few U.S. expats or green card holders residing outside of the U.S. who are not going to have to file tax returns………for the rest of us, well…..we’re stuck – we all have to file, providing more data than we used to submit.
Yes, it is a pain in the rear end….but the law’s the law and let me state as clearly as I can, that while I feel the law stinks, I do not advocate violating it!
What is income - at least what the IRS considers income - and which categories you fall under in having to classify your income. For all intents and purposes, this is a good ‘executive summary’ of what the U.S. tax system is like.
Why is this in bold face? Well, dear reader, this is important enough to be placed in bold face! FIRST: GO TO THE IRS WEBSITE: www.irs.gov ! There’s an awful lot that you will find in the IRS site - some say that there’s too much and thus too difficult to navigate. Nonetheless, give it a try!!!!!!!!!
Anyhow, here it is, the list of what you have to declare as taxable income - at least, according to the IRS, almost (but not quite) using their very own words:
All wages, salaries and tips, no matter where from
Taxable interest (yes, there is a nontaxable variety, as well.....)
Dividends - both qualified and not qualified (a lower tax rate for the latter) State tax refunds- this only applies if you itemized your deductions last year Alimony received
Self-employment, sole-proprietorship business income or loss Capital gains or losses (maximum loss: $US3,000)
Other gains (the capital gain laws are complicated!) IRA distributions
Taxable portion of pensions or annuities
Rental real estate (or loss), royalties and a whole slew of K-1 reporting Farm income or loss
Social security benefits
Other income (but losses, too: this is where you offset your foreign earned income with your foreign income exclusions.
That's it! All of the above is added up to become your total income, which, if you have any, you have got to report it. If you don't have any, you don't have to report it (unless your gross income is over $US9,350, as a single person, for 2010).
Then there are various adjustments you can use to further reduce total income to Adjusted Gross Income from which you either itemize your deductions or take a standard deduction. Frankly, most expats take the standard deduction, accounting for all of their excludable housing expenses on the form 2555 they file. The Foreign Earned Income Exclusion, Form 2555, is ONLY applicable to expats, but that's why you are reading this, in the first place! - read on for further details...and remember, both Form 2555 and the ‘lite’ edition of this form, Form 2555EZ are both contained within the appendix of this book - along with their instructions.
And now we come to the classifications under which you fall for tax reporting purposes. There are four categories into which you basically ‘fit’ and these each determine the amount of your standard deduction.
MFJ or QW - Married Filing Jointly or Qualified Widow (hopefully, you do not come under the Qualifying Widow/Widower category but if you do, then there are tax benefits) will be able to take an additional deduction amounting to $US11,400 from your income in order to arrive at your taxable income.
Single Not married? This is your category. Yes, you can still have dependents, but you would generally be filing as a single taxpayer, entitled to a $US5,700 standard deduction, half the amount that a married couple gets.
MFS Married Filing Separately If your spouse is not a citizen of the U.S., then you have an interesting option vis a vis reporting responsibilities - especially if you own little but your spouse is ‘loaded’. If you have a non-U.S. citizen spouse with substantial assets and income, he or she simply might not want to report to the IRS. Frankly, there are many expats or green card holders who have income producing assets and have placed those assets in spousal name to ‘escape’ reporting. Alarmed at putting it all in your spouse's name? Don't be: even the things I owned were no longer mine, so long ago in an equal division of property California divorce where equal division meant that my ex got all the assets while I got all the liabilities. If you file MFS, you've got a $US5,700 standard deduction for 2010.
HOH Head of Household If you have dependents living with you and are not married, there are some tax advantages and some tradeoffs in filing as HOH. True, you are going to get an $US8,400 standard deduction for 2010 but in the process, you will lose the exemption for the person qualifying you to take HOH. Speak to your tax advisor about which is better for you : either HOH or MFS, if you have dependents.
O.K. After you've taken your standard (or itemized deductions if you have a large enough amount to itemize and it is to your advantage) deduction, then you can take a personal exemption for you and an exemption, as well, for all those who qualify as your dependents for whom you list both names, relationship and either Tax Identification Number - TIN - or Social Security Number - SSN. If you do not have that number available and you are liable for taxes, the IRS will not allow you the exemption without getting that number....so you'd better apply for one! Go to the IRS site and download Form W-7 and the instructions for that form – you’re going to have to file this form and commensurate back up papers, along with your tax return for the year to a ‘special’ address in Philadelphia, PA to get that TIN. A special word of advice: The IRS loses things – make sure you have copies of everything that you file when you apply for the TIN – you might have to file again…and again…and again. Alas, the tax bureaucracy in the U.S. is not what it might have previously been – papers filed get lost far more frequently than the IRS will ever willingly admit!
Aha! We've now arrived at your taxable income........now you have to compare this with what your Alternative Minimum Tax - AMT - might be and you’re going to have to pay the higher amount. Soon to follow, just a mere two sections