filing taxes question

jboeh2
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Re: filing taxes question

Post by jboeh2 »

@PsyGuy, I didn't declare the bank account, but as you said, it has under $10k, so does not need to be declared. I didn't have any income in the US during my stay there, so only foreign income. Thanks for your advice. I didn't realise it was so cheap to get some advice from a tax professional.

@Sid, thanks for your info. My tax info is very basic. No extras. Only my one foreign income. In your opinion, is it quite normal to get tax refunds while working oversees as an educator?
PsyGuy
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Post by PsyGuy »

@jboeh2

Well online and phone professionals arent much of a professional, they are equivalent to a well read tax prepare, they arent going to be a CPA, or a tax attorney. You can also look online for tax clinics in various states and cities that you can call for free (the price of a phone call) and talk to a similar professional.

I dont know many ITs that get refunds, the vast majority of them dont have domestic income (at least that they claim). Many ETs dont file at all, as far as them and the IRS are are concerned they are just on an extended GAP year. Im good friends with a DOS who I drink with regularity who hasnt filed a return for over 20 years. In a lot of major locations thats what you run into most is ETs (places like Tokyo, Shanghai, Bangkok, etc..) you could go weeks without meeting another IT you dont work with.
sid
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Re: filing taxes question

Post by sid »

If you don't have income, you don't have tax withheld, so there's nothing to refund.
PG, can you share the link to this newer guidance about not using extensions to get the 330? It's a pretty major change and I have a new US teacher I need to advise.
Remember that the very cheap advisors are probably not experts in expats.
There are indeed many expats who aren't filing. Not a good idea. Twenty years ago none of us ever believed that the US would find a way to get info about offshore accounts, and it was typical for teachers to use them for retirement planning. But the US did indeed find a way, and they're getting better at it every year. I know 3 educators who have been caught and had to pay the penalties plus back taxes. Major sums of money. My point? I expect the US will get better at finding overseas educators who don't file, too. Perhaps by finding their overseas accounts first. Or noticing their US accounts keep growing despite the lack of declared income. Everyone's money goes somewhere, and the US government has demonstrated its serious commitment to finding it.
PsyGuy
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Post by PsyGuy »

@sid

This isnt true, there are some tax credits such as the earned income credit and child credits that are refundable even without paying any taxes. This is currently getting some media coverage as the Republican plan for repel and replace of the ACA is to make the supplement a refundable credit. There have been the refundable credits such as some for solar home improvements and one for hydrogen cars. Another common one not relevant to federal but to state taxes is that sometimes when their is a case settlement or a utility refund or something its returned in the form of a refundable state tax credit.

Normally I would say do your own research, but in this case the guidance is in the form of a memo I received through DoDDS, and I cant reference it. Its very, very new guidance.

I would agree the cheap advisors probably arent experts in expats, I agree with the LW its not worth $400 to ask a question on an iffy $1K tax credit. My suggestion is get some piece of mind and that response will protect the LW from penalties, interest and possible CI if its denied in the future or audited.

Expats yes, ITs no, the IRS isnt really interested that much in working ITs who are earning foreign income through salary and wages.
sid
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Re: filing taxes question

Post by sid »

Credits aren't refunds. Technical point. I don't know enough about the credits to say who can or can't. Refunds, well, in order to get your money back, you must first give your money away.
The US government isn't looking specifically for teachers, that's true. They're more interested in bigger financial fish. But their search methods don't differentiate. They are looking for accounts and missing returns and such. It's not until after they find something that they know who they've found. And if they find you, don't expect them to say "oh, just a teacher, no harm no foul ".
aburr
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Re: filing taxes question

Post by aburr »

Another question for this thread: Are you allowed to contribute to a Roth IRA while teaching overseas? I can't seem to get a clear answer from this when I try to research it online. My salary is within the amount that I would be allowed to contribute in America, and of course I file my taxes every year and follow all the rules. Just wondering if any other IE's have a Roth and are currently overseas. Thanks!
marieh
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Re: filing taxes question

Post by marieh »

>>Are you allowed to contribute to a Roth IRA while teaching overseas?

My understanding is that you can only contribute to an IRA if you are not filing under the FEIE. In other words, the amount you can put into your IRA is based on your taxed income. If you take the exclusion (which most international teachers do), you can't contribute.
wrldtrvlr123
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Re: Reply

Post by wrldtrvlr123 »

PsyGuy wrote:
> Normally I would say do your own research, but in this case the guidance is
> in the form of a memo I received through DoDDS, and I cant reference it.
> Its very, very new guidance.
====================
Why would DoDDS be handing out memos about the Foreign Income Exclusion since we (at least the vast majority of us) are not likely to be eligible for it? Not saying it didn't happen just surprised if they did.
PsyGuy
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Post by PsyGuy »

@Sid

True credits arent refunds, but no, you need not pay to get something back in all cases. Some credits (such as the additional child credit and the EIC) are refundable, meaning even if you dont pay taxes you can get a payable refund. You can read this primer from the IRS on the difference here:
http://www.irs.com/articles/refundable- ... ax-credits

We can disagree but my position is that they would say "Oh IT, moving on", what are they going to do, come after an IT who isnt going to end up paying anything? Unless the IT is also a slip hole ( a slip hole is some one who has access to foreign financial institutions and is used to shelter accounts, effectively operating a pseudo bank. The slip opens an account overseas where they reside, and then accepts individual deposits that they track independently using accounting software or a spread sheet. Most slips have little if any contact or knowledge of the business they are just a name on banking documents. if the authorities take an interest, everything points back to the slip), for a tax shelter with vast assets or holding account holder information. Otherwise, its not worth the resources just to get a return in the database, that isnt going to net a sizable chunk of coin.

@aburr

No, you can only contribute based on US tax based income, foreign income cant be used. There are some corporate structures that you can get around this with, but they essentially require forming a corporate entity with some structure, and then paying yourself, but youd have to pay taxes on the income to invest it, and at about 15% would be a hefty net lose. Although with standard deductions and exemptions you could pay yourself enough not to have a tax liability and then invest the majority portion of it into the R-IRA. Setting up the corporate structure would cost between $50-$150 (one time fee), registering an agent for service about a $100/year (you could find cheaper or free with a friend or relative) an EIN is free, a bank account should be free (use a credit union) thats about it. You would then direct your salary income into the corporation, and then disperse it from the corporation to yourself as a consultant as an ordinary business expense. If payment is low enough you wouldnt incur tax liability on it, and then can invest it in a R-IRA.

Aside from that there are the uncommon ISs that are organized as US charities or NPOs that would be US domestic income (these ISs also pay into social security).

I dont have a Roth I have a pension from the US I earned a long time ago and have my current DoDDs scheme, but personally I have an indexed fund managed retirement account thats mostly international stocks and then EU bonds and a small amount of instruments.

@WT123

Because the vast majority isnt everyone and doesnt include dependents and spouses. Its a very, very small population but writing guidance once is easier than answering the same question a dozen times. Thats the best answer I got, since I dont really know either.
sid
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Re: filing taxes question

Post by sid »

Considering I know three international educators who got caught and had to pay, who will have to work extra years before retirement to make up the lost funds, no I don't expect the government to just move on when they find a teacher.
PsyGuy
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Post by PsyGuy »

@Sid

How does that compare to how many who didnt/dont get caught?

I know a few that have gotten caught too, but in those cases there was more to it then just not filing with foreign income. That has to be the case in yours as well, otherwise how do you account for them having to work a few more years to make up for whatever their losses were? IT taxes are real simple, unless your making 6 figures you dont owe taxes. There is no interest and penalty on zero. Those ITs that got caught had something else going on.
sid
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Re: filing taxes question

Post by sid »

I was writing of people who got caught with undeclared overseas accounts, not unfiled taxes. My mistake if I wasn't clear.
My point is that the government is getting better at finding undeclared accounts and my hypothesis is that they will also get better at finding unfiled taxes.
Getting caught is no fun, even if there is no penalty. I don't want to try to recreate my financial records ten years from now, just to prove I didn't owe anything before. Far easier to file yearly and be done with it.
And while I don't know for sure, I rather suspect there are penalties won't filing, even if there wouldn't have been tax owed. It is illegal not to file, and teachers may not earn much, but we earn enough to cross the threshold where filing is required.
As for the chances of getting caught, well, you know some who did, and I know some who did, and the government is getting more effective every year, so I say the chances of getting caught are going up.
PsyGuy
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Post by PsyGuy »

@Sid

Thank you for the clarification, but my response to the LW was about not filing taxes, your reply was strongly worded as that being a bad idea, and while I dont disagree with you in regard to undisclosed financial accounts, that and taxes are not the same thing.

Thats just your hypothesis though, and its not even that its a prediction. One with which you presented without data or citation to support it. I generally refer to those types of claims as fear mongering.

Taxes in general arent any fun, but recreating the records for the vast majority of ITs even so far back as 10 plus years is:
1) Here is contract describing my salary earnings.
2) I made this much coin.
3) That amount is less than the foreign tax credit, exclusion, deduction.
Its not even that hard under the foreign tax exclusion foreign income just doesnt count, thats why its called an exclusion. Submit an affidavit that all income was foreign earned salary and wages. Unless its 6 figures, done.

Sure there are penalties, its 5% and then on an increasingly progressive scale higher of the TAX owed, owe nothing and well any percentage multiplied by zero is zero.

Well sure its illegal, Its in § 7203. Willful failure to file return, supply information, or pay tax of the Internal Revenue Code. It means nothing when one doesnt owe any tax. An element of the offense if failure to pay, file, etc. when one owes tax or estimated tax. Prosecutors dont file charges against those who dont owe, and against ITs how do you prove the case. You have to have evidence of a crime before you determine if a crime has taken place. Again this is fear mongering. The IRS wants to recover taxes and punish those who evade and owe, but you have to owe, and you have to recover.

Those ITs we know were all engaged in actions outside solely not filing a return. Even then I dont know if they (the IRS) are getting better or worse or maintaining the SQ, there really isnt sufficient sample size to make an ana1yisis.
I know HMRC isnt getting better, and probably if i was inclined to crunch the data is getting slightly worse in regards to ITs.
wrldtrvlr123
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Re: filing taxes question

Post by wrldtrvlr123 »

PsyGuy wrote:
> @Sid
>
> Thank you for the clarification, but my response to the LW was about not filing taxes,
> your reply was strongly worded as that being a bad idea, and while I dont disagree
> with you in regard to undisclosed financial accounts, that and taxes are not the
> same thing.
>
> Thats just your hypothesis though, and its not even that its a prediction. One with
> which you presented without data or citation to support it. I generally refer to
> those types of claims as fear mongering.
>
> Taxes in general arent any fun, but recreating the records for the vast majority
> of ITs even so far back as 10 plus years is:
> 1) Here is contract describing my salary earnings.
> 2) I made this much coin.
> 3) That amount is less than the foreign tax credit, exclusion, deduction.
> Its not even that hard under the foreign tax exclusion foreign income just doesnt
> count, thats why its called an exclusion. Submit an affidavit that all income was
> foreign earned salary and wages. Unless its 6 figures, done.
>
> Sure there are penalties, its 5% and then on an increasingly progressive scale higher
> of the TAX owed, owe nothing and well any percentage multiplied by zero is zero.
>
>
> Well sure its illegal, Its in § 7203. Willful failure to file return, supply information,
> or pay tax of the Internal Revenue Code. It means nothing when one doesnt owe any
> tax. An element of the offense if failure to pay, file, etc. when one owes tax or
> estimated tax. Prosecutors dont file charges against those who dont owe, and against
> ITs how do you prove the case. You have to have evidence of a crime before you determine
> if a crime has taken place. Again this is fear mongering. The IRS wants to recover
> taxes and punish those who evade and owe, but you have to owe, and you have to recover.
>
>
> Those ITs we know were all engaged in actions outside solely not filing a return.
> Even then I dont know if they (the IRS) are getting better or worse or maintaining
> the SQ, there really isnt sufficient sample size to make an ana1yisis.
> I know HMRC isnt getting better, and probably if i was inclined to crunch the data
> is getting slightly worse in regards to ITs.
=========================
Not claiming to be an expert (and not up for a bloody duel with split hairs) but my understanding was that you had to file under most circumstances where you earned a certain amount of income. Technically the income you earn overseas counts and is taxable right up and UNTIL you actually file for and receive the foreign income exclusion etc (again in my understanding). I also know people who didn't file back in the states and were eventually caught. The government likes to assign you the income and tax burden they think you should have earned and then the burden of proof is on you to prove that their version is not true. They also have been known to just take what they think is owed right out of a bank account if they get annoyed and you have very little recourse.

What are the odds of any of the bad stuff happening? No idea. But it seems t be a good idea to just file and reduce whatever those odds as much as possible.

In our case, we had some problems with IRS many years ago and actually found them to be very workable with getting everything cleared up which was a nice surprise.
sid
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Joined: Sat Dec 02, 2006 11:44 am

Re: filing taxes question

Post by sid »

It's rather a silly and simple argument.
PG posits that it's smart to do the illegal thing and hope it all works out and the government is nice if they catch you.
I posit it's smart to stay on the right side of the law and never have to worry about it.
People are smart enough to make up their own minds.
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