Larry's 2013 Tax Guide for U.S. Expats & Green Card Holders in User-Friendly English. Laurence E. 'Larry'
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 have their URLs listed within the appendix of this book – go directly to the IRS website to download these forms and 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 categories each determine the amount of your standard deduction.
•MFJ - Married Filing Jointly, or QW - 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 $US11,900 from your income in order to arrive at your taxable income.
•S - 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 $US5,950 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 $US5,950 standard deduction for 2012.
•HOH - Head of Household If you have dependents living with you and are not married, there are some tax advantages and some trade-offs in filing as HOH. True, you are going to get an $US8,700 standard deduction for 2012 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.
For an explanation of what the Alternative Minimum Tax is, go to that very specific section, right here in this my 2013 edition. I wrote a gem of an explanation for which I guarantee you this: As soon as you read it, you will understand what the AMT is....yet a week later, you'll have to re-read this, to remember what it is.....Sadly, the AMT is a tax that simply defies memory retention!
Regardless, from the this point on, there are various and sundry credits to which you might be eligible for, which will reduce your tax bill - if you owe any taxes.....and if you are a self-employed sole proprietor, reporting your income and expenses on a Schedule C, even though you may be eligible for the foreign earned income exclusion, you are going to be liable for Social Security and Medicare taxes which, for the 2013 tax year will be higher than 2012 because Congress chose not to renew the 2 percent temporary reduction. Thus, if you are a sole proprietorship, plan to save that additional 15.3 percent of your taxable Schedule C income. This Social Security tax obligation for the self-employed is frequently a very rude awakening for the ‘uninformed’…..if you fall into this category, consider yourself forewarned!
And now, for the very first time - at least as far as I know - your expat 2013 U.S. tax calendar:
1 January 2013. The tax year begins for individuals who are on a calendar year (come on, now - we're all calendar year taxpayers, whether we like it or not!). The 'Entire taxable year' Begins on January 1 (which falls on a Tuesday in 2013). You are on a ‘cash basis’ for tax purposes – if you receive any income in the calendar year, you’ll have to include it during that year. If you ‘earned’ income that you did not receive until the next year (payments that should have been made to you in 2012 that you did not actually receive until sometime during 2013?), then don’t worry about that income – it’ll be part of your 2013 taxable income – unless you receive a Form 1099 which includes that income…..
15 January 2013. This date is the deadline for final payment of estimated federal income taxes for the last voucher of the 2012 1040ES.
31 January 2013. You can 'technically' avoid that 15 January deadline for payment of estimated taxes if you actually file your final tax return and pay final taxes by 31 January. How you are going to do this, though, when the likelihood that all of the forms you are going to need to file correctly, will simply not have been issued by this date?
15 April 2013. Ah, you've all heard of this day - it is tax day, across the land, except for Massachusetts, where they run the Boston Marathon as part of their Patriot's Day holiday, entitling you to file one day late, your first quarter, 2013 1040ES is due on this date
15 April 2013. Your IRA payment just might be due by this date
15 April 2013. Generally, this is the date for filing form 1040 unless you are on extension....gift tax returns are also due on 15 April and it is also the final date for filing an amended tax return for the third previous tax year.
15 June 2013 - this one is important for expats! This day, my friends, is the deadline for filing the 2012 tax return. You'd better file it - and have proof of mailing as 'insurance', or you'd better file an extension of time through 15 October to file (and, if you have sent in a proper letter request from overseas, an additional 2 months to 15 December) You'll still have interest due and underestimated penalties if you underestimated your pre-payments and filed under extension, before your extension deadline, but you'll avoid some very costly penalties by filing your extension request - this extension form is virtually automatically approved. Oh, you can be the first to be penalized in this instance, if your extension application is denied - but I doubt it......! If you are a first time overseas filer, this is also the best date to file a specific form (2350) for filers who simply want to wait until they qualify under the physical presence test (we'll cover this one, later in the book!) in order to take advantage of foreign exclusions.
And...it is also the day for filing voucher #2 of the 1040ES.
30 June 2013. Treasury Department Form TDF90.22-1 must be received by this date. Now I realize that 30 June 2013 falls on a Sunday and I don’t really think the Department of the Treasury is going to ding you if you send yours out (with proof of mailing, of course!) on Monday, 1 July 2013, but I wouldn’t take a chance – get that TDF form filed by that date – or before!!
16 September 2013. Voucher # 3, third quarter payment of your 1040ES is due, today, if you are going to owe anything for 2012 - time to pay...! This one I’m sure of – 15 September is a Sunday, so payment day, a day later, is filing date!
15 October 2013. Contrary to what the IRS or your accountant might lead you to believe, you definitely can file for further extension through