For the past 5 months, I have been teaching in East Africa. As I had 1/2 a year working in America, I am wondering what the best option for filing taxes is? I used to file myself on turbo tax, but am not sure how things work this time? I am paying taxes in my current country, but heard America still wants their cut. Any experience from a similar situation.
Could I still file myself, or should I see out a tax service. And if that is the case, any recommendations?
Thanks,
JB
filing taxes
Re: filing taxes
1. File for an extension AND prepay - if any - taxes owed for your US income only - even if it's an estimate (pay a little more - you'll get back whatever's too much).
2. Then file taxes for your total income from January until say, July, or August , when you have been working overseas 12 months.
3. If you can prove you've been a bona fide resident of another country for 12 months during that time, or been out of the USA for at least 330 days, you will not pay any taxes on your foreign-earned income as long as it's below $96,700.
4. You will pay taxes on your US income. Just figure out what the exact amount is (Turbo Tax is good for this), and either get a refund on any overages of you prepaid, or pay the extra you missed. (If there is extra you missed, you might have to pay a fine - I've had to - which is why paying extra is a good idea.)
You can have a tax accountant do this, or do it yourself - up to you. I had a tax accountant do it for me last year because my US income was complicated with a small business, but I would do it myself if it were to happen again.
2. Then file taxes for your total income from January until say, July, or August , when you have been working overseas 12 months.
3. If you can prove you've been a bona fide resident of another country for 12 months during that time, or been out of the USA for at least 330 days, you will not pay any taxes on your foreign-earned income as long as it's below $96,700.
4. You will pay taxes on your US income. Just figure out what the exact amount is (Turbo Tax is good for this), and either get a refund on any overages of you prepaid, or pay the extra you missed. (If there is extra you missed, you might have to pay a fine - I've had to - which is why paying extra is a good idea.)
You can have a tax accountant do this, or do it yourself - up to you. I had a tax accountant do it for me last year because my US income was complicated with a small business, but I would do it myself if it were to happen again.
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wrldtrvlr123
- Posts: 1173
- Joined: Sat Feb 06, 2010 10:59 am
- Location: Japan
Re: filing taxes
Good advice. File the extension if it will get you the 12 months out of country. I believe you could also qualify for a percentage of the exclusion (which would work for most of us since we don't get close to 90K+ per year in salary) but it's easier to just make sure you qualify for the whole thing.
We have been in and out of the US teaching over the last 10 years and always file ourselves. Actually Turbo Tax (who we have used for the last 5 years) will ask you about foreign earned income, will ask the questions to see if/how you qualify and will prepare the forms you need to claim the foreign income exclusion.
It's worth a try using their service/software. If it seems like you are having problems or it's not working out for you, you can always seek out an accountant.
We have been in and out of the US teaching over the last 10 years and always file ourselves. Actually Turbo Tax (who we have used for the last 5 years) will ask you about foreign earned income, will ask the questions to see if/how you qualify and will prepare the forms you need to claim the foreign income exclusion.
It's worth a try using their service/software. If it seems like you are having problems or it's not working out for you, you can always seek out an accountant.
Re: filing taxes
File for the extension. You might even need to file for a second extension. (It's allowed.) Once you hit the 330 mark, you'll be eligible to get the exemption. But the exemption only applies to the salary earned overseas, and is pro-rated to the number of days you were out of the country for 2014, which should be fine, because, again, most of us don't earn so much. You'll still have to pay full whack on your US salary for the first 6 months, and any other sorts of income (investment, rental, etc) for the full year. But happily, the full whack could well be lower, since that 6 months salary will be all you have for the year, possibly putting you in a lower bracket.
Legally you have to file for the value of all the benefits you receive, including the value of flights, housing, tuition for children, etc. There is a nice exception if you can reasonably say that your housing is provided for the convenience of your employer. But if you take a cash housing allowance, there's no such loophole.
You must hit the 330 day mark, meaning that to start the clock, you must find a series of 365 consecutive days (starting on any day you wish) in which you were outside the US for at least 330 days. This can be tough - many people want to go "home" more than that. But if you don't do it, you won't get the exemption. (And partial days in the US count as full days. even if you catch a flight out of JFK at two minutes past midnight, that counts as a day in the US.)
Once you've done the 330 day thing, it gets easier. You can actually spend as much time in the US as you wish, but then your exemption will be prorated. Again, not an issue since we don't usually earn enough to make it matter.
Many of us eventually seek professional help.
And once our shrinks give us permission, some even seek a tax adviser.
Legally you have to file for the value of all the benefits you receive, including the value of flights, housing, tuition for children, etc. There is a nice exception if you can reasonably say that your housing is provided for the convenience of your employer. But if you take a cash housing allowance, there's no such loophole.
You must hit the 330 day mark, meaning that to start the clock, you must find a series of 365 consecutive days (starting on any day you wish) in which you were outside the US for at least 330 days. This can be tough - many people want to go "home" more than that. But if you don't do it, you won't get the exemption. (And partial days in the US count as full days. even if you catch a flight out of JFK at two minutes past midnight, that counts as a day in the US.)
Once you've done the 330 day thing, it gets easier. You can actually spend as much time in the US as you wish, but then your exemption will be prorated. Again, not an issue since we don't usually earn enough to make it matter.
Many of us eventually seek professional help.
And once our shrinks give us permission, some even seek a tax adviser.
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Cheery Littlebottom
- Posts: 207
- Joined: Sat May 11, 2013 8:32 am
Re: filing taxes
I would go with the professional help route. I don't have to file, but my american other half does. Once, we filed and the IRS said we owed $8,000! We hired a professional, who essentially patiently re-filed exactly what we had sent before. It took 3 goes but the IRS finally realised their mistake (they wrongly applied the overseas allowance) and we did not have to pay. I think we pay this person $400 a year plus some audit insurance. Given that he has found us a total of nearly $9,500 refunded from the IRS we consider him a bargain!
I thought the tax authorities in my country were bad, but the US lot make me shudder....
I thought the tax authorities in my country were bad, but the US lot make me shudder....
Re: filing taxes
You definitely need to file! For your first year overseas, you will not qualify for a foreign earned income exclusion (form 2555 or 2555ez) because you were in the US for more than 30 days during 2014.
I believe you will need to pay tax on all income (US and foreign) earned during 2014. If you are overseas, you automatically qualify for a 60 day extension to file your taxes. I don't think you yet qualify for bona fide residence in another country yet. You need to carefully read IRS publication 54 and the instructions for form 2555 to understand your tax responsibilities. I wouldn't trust an internet forum such as this for tax advice.Learn the rules yourself or pay a certified tax professional to do it for you.
It's also important to note that if you had more than USD$10,000 combined in any foreign accounts at any time during the year that you will need to report it to the US gov't through an FBAR. There are big penalties for not doing so; this is the rule that broke the secrecy that Swiss banks were so famous for. (http://www.irs.gov/Businesses/Small-Bus ... ounts-FBAR)
I believe you will need to pay tax on all income (US and foreign) earned during 2014. If you are overseas, you automatically qualify for a 60 day extension to file your taxes. I don't think you yet qualify for bona fide residence in another country yet. You need to carefully read IRS publication 54 and the instructions for form 2555 to understand your tax responsibilities. I wouldn't trust an internet forum such as this for tax advice.Learn the rules yourself or pay a certified tax professional to do it for you.
It's also important to note that if you had more than USD$10,000 combined in any foreign accounts at any time during the year that you will need to report it to the US gov't through an FBAR. There are big penalties for not doing so; this is the rule that broke the secrecy that Swiss banks were so famous for. (http://www.irs.gov/Businesses/Small-Bus ... ounts-FBAR)
Response
This is only January, I dont see why youd need to file for an extension unless you would need to file for an extension normally. The extension isnt going to allow you to meet the 330 day absence requirement, and the new tax rules allow you to partially exempt your out of country income anyway. You will still owe taxes on your US income as normal. I see no reason to pay estimated taxes if you dont have to, this isnt April 10th. You have plenty of time to get it done.
I see no reason to hire a professional if you dont have to and normally wouldnt, using tax software will work just as well, there really isnt anything different between being overseas and being stateside, except that that foreign tax credit means you dont pay taxes on foreign earned income unless you have a REALLY high compensation package. Its like 4 screens of info on tax prep, where, how long, and how much. Its one of the easier sections to fill out.
You could always fudge and just say you havent made any money or have been working overseas while in Africa, thus claiming zero income meaning youd just pay taxes on the US income, and avoid the whole time test. Next year just report your income in its entirety. It will still be under the limit cap.
I see no reason to hire a professional if you dont have to and normally wouldnt, using tax software will work just as well, there really isnt anything different between being overseas and being stateside, except that that foreign tax credit means you dont pay taxes on foreign earned income unless you have a REALLY high compensation package. Its like 4 screens of info on tax prep, where, how long, and how much. Its one of the easier sections to fill out.
You could always fudge and just say you havent made any money or have been working overseas while in Africa, thus claiming zero income meaning youd just pay taxes on the US income, and avoid the whole time test. Next year just report your income in its entirety. It will still be under the limit cap.
Re: filing taxes
http://www.usexpattaxhelp.com/foreign-e ... ements.php
What are the requirements to claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction?
There are three tests that must be met, but you must first understand the definition of each test.
You must have foreign earned income and
You tax home must be in a foreign country and
You must be one of the following:
A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
PHYSICAL PRESENCE TEST
What are the requirements to meet the physical presence test?
To meet the physical presence test, you must
You must be physically present in a foreign country or countries for at least 330 full calendar days during a period of 12 consecutive months
Be a US citizen and resident alien
How to count the days:
The 330 full days do not have to be consecutive
You do not have to be in a foreign country just for job purposes, you can be on vacation
The days must be within a foreign country or countries
Days in in the US for illness, family problems, vacation, employer’s order do not count
What are the rules to determine the 12-month period?
The IRS provides four rules to determine a 12-month period
Your 12-month period can begin with any day of the month. It ends the day before the same calendar day, 12 months later
Your 12-month period must be made up of consecutive months. Any 12-month period can be used if the 330 days in a foreign country fall within that period
You do not have to begin your 12-month period with your first full day in a foreign country or to end it with the day you leave. You can choose the 12-month period that gives you the greatest exclusion
In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another
*******What if I don’t meet the 12-month period for a tax year?************
In the year of a move to a foreign country, it is not always possible to meet the 12-month period in a calendar year. In this case, the IRS offers US citizen and resident alien taxpayers who expect to file the Form 2555 or Form 2555-EZ and need additional time to meet either the bona fide residence test or the physical presence test to claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. This extension can go beyond the normal filing extension due date of October 15th to meet either of the two tests!! To request an extension under these conditions, yYou must complete the Form 2350, Application for Extension of Time To File U.S. Income Tax Return. To file the Form 2350, you must:
Be a US citizen or resident alien
You expect to qualify after the due date of your return (normally April 15) for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction
Your tax home must be in foreign country or countries throughout the time period for your bona fide or physical presence
Pay any taxes due by April 15
File the form on or before due date of your return - April 15th or if you are “out of country” on April 15th the on or before June 15th , but do it early enough to finish your return on time because the extension could potentially not be approved
If the extension is approved, the extension will be valid until 30 days the date you expect to meet either the bona fide residence test or the physical presence test or if you allocate moving expenses you could be given an extension to 90 days after the end of the year following the year you move
What are the requirements to claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction?
There are three tests that must be met, but you must first understand the definition of each test.
You must have foreign earned income and
You tax home must be in a foreign country and
You must be one of the following:
A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
PHYSICAL PRESENCE TEST
What are the requirements to meet the physical presence test?
To meet the physical presence test, you must
You must be physically present in a foreign country or countries for at least 330 full calendar days during a period of 12 consecutive months
Be a US citizen and resident alien
How to count the days:
The 330 full days do not have to be consecutive
You do not have to be in a foreign country just for job purposes, you can be on vacation
The days must be within a foreign country or countries
Days in in the US for illness, family problems, vacation, employer’s order do not count
What are the rules to determine the 12-month period?
The IRS provides four rules to determine a 12-month period
Your 12-month period can begin with any day of the month. It ends the day before the same calendar day, 12 months later
Your 12-month period must be made up of consecutive months. Any 12-month period can be used if the 330 days in a foreign country fall within that period
You do not have to begin your 12-month period with your first full day in a foreign country or to end it with the day you leave. You can choose the 12-month period that gives you the greatest exclusion
In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another
*******What if I don’t meet the 12-month period for a tax year?************
In the year of a move to a foreign country, it is not always possible to meet the 12-month period in a calendar year. In this case, the IRS offers US citizen and resident alien taxpayers who expect to file the Form 2555 or Form 2555-EZ and need additional time to meet either the bona fide residence test or the physical presence test to claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. This extension can go beyond the normal filing extension due date of October 15th to meet either of the two tests!! To request an extension under these conditions, yYou must complete the Form 2350, Application for Extension of Time To File U.S. Income Tax Return. To file the Form 2350, you must:
Be a US citizen or resident alien
You expect to qualify after the due date of your return (normally April 15) for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction
Your tax home must be in foreign country or countries throughout the time period for your bona fide or physical presence
Pay any taxes due by April 15
File the form on or before due date of your return - April 15th or if you are “out of country” on April 15th the on or before June 15th , but do it early enough to finish your return on time because the extension could potentially not be approved
If the extension is approved, the extension will be valid until 30 days the date you expect to meet either the bona fide residence test or the physical presence test or if you allocate moving expenses you could be given an extension to 90 days after the end of the year following the year you move
Re: filing taxes
PsyG often advocates for routes that are, how to say, less than legit.
Don't lie about being out of the country. At every border crossing, your passport is swiped and your movement recorded. The US knows when you're in country and when you're out. Does the IRS talk to DHS or INS or whoever keeps the records? Not all the time, but they can, and if there's any question or (gasp!) an audit, you will be found out immediately.
But note what Guero was so nice as to provide for you, that it's not about whether you were in the US for more than 30 days during 2014, it's about whether you will have been out for at least 330 days out of a 12-month stretch that can have begun on any day of 2014. So it could have started June 12, 2014, and end June 11, 2015, and so long as you were out of the US for at least 330 of those 365 days, you'll be good to go. You'll be eligible for the prorated exemption based on how many days you were out in 2014. It's complicated, but makes government sense.
And as others have pointed out, YES, you MUST file. And your filing must include all your US and overseas earnings, and report your foreign bank accounts if at any point they had more than $10,000 in them, even for a minute. You won't end up paying as much tax as you used to, and in future years you will probably be lucky enough to pay no tax at all, if you stay overseas, until the day you are lucky enough to have significant investment income and you have to pay on that.
Don't lie about being out of the country. At every border crossing, your passport is swiped and your movement recorded. The US knows when you're in country and when you're out. Does the IRS talk to DHS or INS or whoever keeps the records? Not all the time, but they can, and if there's any question or (gasp!) an audit, you will be found out immediately.
But note what Guero was so nice as to provide for you, that it's not about whether you were in the US for more than 30 days during 2014, it's about whether you will have been out for at least 330 days out of a 12-month stretch that can have begun on any day of 2014. So it could have started June 12, 2014, and end June 11, 2015, and so long as you were out of the US for at least 330 of those 365 days, you'll be good to go. You'll be eligible for the prorated exemption based on how many days you were out in 2014. It's complicated, but makes government sense.
And as others have pointed out, YES, you MUST file. And your filing must include all your US and overseas earnings, and report your foreign bank accounts if at any point they had more than $10,000 in them, even for a minute. You won't end up paying as much tax as you used to, and in future years you will probably be lucky enough to pay no tax at all, if you stay overseas, until the day you are lucky enough to have significant investment income and you have to pay on that.
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emilysue1212
- Posts: 21
- Joined: Thu Jan 26, 2012 3:55 pm
- Location: Colorado
Re: filing taxes
File for an extension. Use an accountant. We did this our first year and it saved us a lot of headaches. When I tried to do it using Turbotax, it said I owed a couple thousand. By going through an accountant, filing the extension (I don't think we ended up filing until January of the FOLLLOWING school year (so, year 2 for us), we still got our refund after it went through for those 6 months of work in the US..just a year later. :).
Re: filing taxes
I'll be in the same boat next year. We are currently teaching in the US, but just sign our first two year contract with a school in SE Asia and will be heading over in July '15. I'll be doing all of the extension stuff in 2016 for this years taxes (2015). How does a US expat find an international tax accountant? A simply Google search brings back many results, but I don't know any of their reputations or who is trustworthy. Is there one main tax accountant company that many of you use? I'm sure our school will give some recommendations, but would love to hear your thoughts.
Thanks
Thanks
Re: filing taxes
In my case I found that having someone at home that is familiar with filing for expats is much better than having someone complete your returns overseas. The fact that I can go into his office and sit down with him trumps email only exchanges every time. I did it the other way for a number of years and while in the end it worked out, the lack of face to face time drove me crazy and led to miscommunication. That's just my two cents worth, which I am sure the US government is counting already!