Larry's 2015 U.S. Tax Guide for U.S. Expats, Green Card Holders and Non-Resident Aliens in User-Friendly English. Laurence E. 'Larry'
too!
* You have an automatic extension through 15 June, just because you live outside the U.S. and you can get a virtually automatic extension of time to file through 15 October of the succeeding tax year but if you owe the IRS anything, you are going to have to pay interest to the IRS (and perhaps, underestimation payment penalties, too!). These start accruing 16 April - so you are not totally off the hook by filing extensions....You can also get an additional extension of time to file through 15 December. While this is not ‘automatic’, I have rarely seen anyone turned down if they apply on a timely basis for these additional two months.
* If you have a bank account overseas - and if you are living anywhere in the world, let’s face it, you are likely to have a local bank account - or several - or a brokerage account overseas, the Department of the Treasury wants you to tell them about these accounts in an annual form that has to be filed by 30 June of the subsequent year for which you must efile before 30 June 2015 for your 2014 calendar year/U.S. tax year.
FinCEN114 is the name of the form. FinCEN does not stand for ‘financial center’ it stands for Financial Crimes Enforcement Network. From what used to be an information return paper filed with the Detroit, Michigan IRS Service Center is now a mandatory form that can only be efiled. If you use a Mac, you can’t always access the system with ‘regularity’ because not only is FinCEN114 not readily accessible with an Apple computer but if you are in Windows, and do not use Internet Explorer, you’re going to have problems, too. True, there is marked improvement this year over last year but this, in my opinion, is still pathetically below the standards that we should expect.
If you need to find out something about the IRS, go to their site: www.irs.gov. If you need to sign up for Obamacare, go to www.healthcare.gov. Fine. You can easily remember these URLs. How about this one: http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html. That’s how you access and file FinCEN114!
Think you can remember this? Who is the responsible party for allowing a URL like this? How the hell can you be ‘user friendly’ and have compliance when, you make it difficult to comply - assuming, of course, that you even know that you are supposed to comply?
In essence, for every country where you have an account or accounts totaling $US10,000 or more, then all bank and brokerage names, addresses, account numbers and the highest amount, in U.S. dollar equivalent, at any one time during 2014 must be listed for that country. Yes, you can file this form late or you can file an amended return – there is a place for you to explain why you are doing this. Seriously: File this return on time! There really is sufficient time for you to do so…..but if you have to be late, file late!!!
If you are living outside of the U.S., married, filing jointly and your FinCEN114 shows an ‘accumulation’ of over $US400,000 you are liable for also including Form 8938 with your individual income tax return. Yes, this is a duplication of the filing you are making with FinCEN114 – only because there are different computer systems and data bases, here, and they don’t quite talk with one another – why the IRS didn’t bother to outsource this to some shop in India to get it right at the start is beyond me. Anyhow, bitch and moan while duplicating the submission of similar information – there ain’t much you can do about it.
* If you are liable as of 31 December 2014 for income tax from the foreign country you reside in regardless of whether you’ve paid it, yet, in 2014, you can actually use that amount towards computing and getting a foreign tax credit. Be aware though that you never get dollar for dollar tax credit: the proportion of foreign earned income and foreign housing exclusion to your total income in 2014 is the proportion of the taxes you paid (or are liable for) overseas that are not eligible for dollar-for-dollar tax credit!
* If you have set up a corporation as your business overseas, you are responsible for filing an annual information return, form 5471 that must be filed, annually, as part of your individual income tax return. In fact, you must file this form if you only own 10 percent of a business - this is part of ‘foreign investments’ that U.S. tax filers are responsible for reporting - and penalties for not filing are simple: it will cost you a flat rate, $US 10,000 that will be assessed by IRS letter if they inquire of you before you file with them. If you earn any income from that corporation, that must be reported, as well, even though it is eligible for foreign earned income exclusion. If you are self-employed and report your annual business income on a 1040 Schedule C while you will still be eligible for foreign earned income exclusion, but you will not be exempt from Social Security obligations even though your work is outside of the U.S. Likewise, if you are a partner in an overseas partnership, then you are responsible for filing Form 8865, the partnership ‘equivalent’ of the corporation Form 5471. Oh, what if you’ve got an under-10 percent ownership in that corporation or partnership but your interest in that business entity is over $U.S. 50,000? Then you have to report it on Form 8938. Alas, our tax system is not user-friendly and sadly, it appears to be getting worse on an annual basis.
*Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. Go to the followingT URL: http://www.irs.gov/pub/irs-pdf/p54.pdf. The 2014 edition (for tax year 2014) of this guide became available on the IRS website, 19 December 2014. If, perhaps, the IRS took a bit more time to make this 38 page booklet a bit more user-friendly, there would not be need for me to write this book. Alas, while Publication 54 is something you really should all look at, bear in mind that it just might serve as a holistic sleeping pill.
* How long do I keep my paperwork regarding taxes? That question was posed to me, subsequent to writing most of this essay. Damn, that is a good question! I honestly don’t know what to tell you: what if a couple of years from now you discover you have omitted something important from your prior tax filings and have absolutely no alternative than to go through the Offshore Voluntary Disclosure Program? Well the extortionists who run this program (think I am going too far in saying this? Read the Taxpayer Advocate’s 2015 report to Congress and tell me this in not extortion!) want 8 years of filings. That would mean tax years 2007 and subsequent. If you have good reason for it, then save whatever you wish to save from earlier years but I think you can safely junk most of that earlier-year stuff.
That’s it - these are the absolute basics.....according to me, at least......now let us get on to some specific details - at least the details I deem important for you to know. Bear in mind that this is ‘one man’s opinion’ and you should rely upon more than just this - even a cursory look at both tax forms and instructions really is becoming necessary.
First, how to become an expat for tax filing purposes…..
Scenario # 1: You are moving from the U.S. to some strange, exotic land
Let us suppose….You are reading this book for the first time, while you are still in the U.S. You are soon to embark on your trip overseas, to work for the first time outside of the U.S. Perhaps you are an experienced veteran of the work force, taking your specialty overseas for an international employer who has just signed you to a multi-year contract. Or perhaps you are a young professional going into the field of law or going to work for an investment banking house or perhaps you are a teacher, going to teach at an international school. Let’s use the latter occupation, teacher, as an example for this scenario because those young bankers or lawyers will not have much time off to put their initial, qualifying year for foreign earned income exclusion in jeopardy. You, the teacher, on the other hand, are more apt to screw yourself up because of a misunderstanding of the time you must be overseas during your first year overseas – a year that begins from the date of your arrival in your new place of residence through the next 365 days. For tax year 2014 – and that means ‘calendar year’ because the IRS operates on a calendar year reporting basis - you are entitled to a maximum of $US99,200 as foreign earned income exclusion. If you are married and your spouse is working overseas, too, then each of you would be entitled to exclude a maximum of $US99,200