Frequently Asked U.S. Expat Tax Questions

About Us

Q: Why should I use Expat Tax Professionals?
Q: Who will prepare my tax return?
Q: Will I be able to speak with a U.S. certified public accountant (CPA) or other tax professional during the process?
Q: How can I reach you?
Q: How do I pay for your services?
Q: Will Expat Tax Professionals help respond to IRS notices and letters regarding my return?
Q: Do you offer consulting and tax planning services?
Q: Why shouldn’t I use my CPA from back home in the U.S. who I’ve been using for many years?

Your U.S. Expat Filing Obligations

Q: Do I need to file a U.S. tax return?
Q: Am I required to file any other forms besides my Federal income tax return (Form 1040)?
Q: What special tax benefits are available for U.S. Expats?
Q: If I relocate overseas and qualify for the foreign earned income exclusion, can I ask my U.S. employer to stop withholding tax on my salary?
Q: What are the US Tax Rates If I have income in excess of the foreign earned income exclusion?
Q: What is FATCA and how does it impact my tax return? What is Form 8938?
Q: What are the ramifications of being self-employed outside the U.S.?
Q: If I relocated overseas in mid-year, do I still need to file an income tax return in my home state at the end of the year?
Q: Can I deduct mortgage interest on a foreign home?
Q: I sold my house abroad, do I need to pay tax in the U.S. on the gain?
Q: What filing deadlines are applicable to U.S. Expats?

About US

Q: Why should I use Expat Tax Professionals?
A: Choosing a tax return preparer is no simple matter.  Here are 4 reasons why choosing Expat Tax Professionals is the right decision for you:

1. Easy – we try hard not only to ensure that your tax returns are done correctly, but to also make sure the process is painless and straightforward for you. We understand that taxes are not really an issue you want to spend your time on and, therefore, we do our best to make sure the process is as simple as possible.
2. Expert – our staff of U.S. trained and licensed CPAs has the experience and knowledge needed to ensure your tax return is filed accurately while maximizing the benefits and deductions you’re entitled to. In addition, we are the only online service provider who has full-time tax attorneys on staff who can tackle complex technical matters as needed.  Most importantly, we do not outsource your tax return to independent contractors. All tax returns are prepared in house by a highly trained CPA.
3. Secure – we take data security very seriously. All clients are granted access to our secure site where you can upload your sensitive personal information without any worries or hassles. You can be rest assured that your information is always protected using 256-bit SSL for file transfers and 256-bit AES encryption for files at rest.  This is the same security used by banks and many e-commerce sites such as Amazon.com.
4. Competitive Pricing – our prices are competitive and transparent. We make sure to communicate our fees in advance so that you know exactly what your fee is going to be.

 

Q: Who will prepare my tax return?
A: One of our licensed U.S. CPAs will prepare your U.S. tax return. All CPAs are employees of our firm and work in one of our offices.  We do NOT outsource your tax return (or personal financial information) to third party contractors.

Q: Will I be able to speak with a U.S. CPA or other tax professional during the process?
A: Yes.  Your file will be assigned to by one our experienced Tax Managers who is a qualified and licensed CPA.  You will have the opportunity to communicate with them by email, phone or Skype.

Q: How can I reach you?
A: Given time zone differences, the best way to reach us is by email.  You can either email your Tax Manager directly or send an email to info@expattaxprofessionals.com

Otherwise, there are several other ways for contacting us:

1. Phone:

U.S. (718) 887-9933

UK 20-3642-0423

Please note that our office maintains London hours.  Our office hours are Mon-Thurs 8am-4pm GMT (London time).

2. Contact us form – click here and complete our online form.

 

Q: How do I pay for your services?
A: We accept all major credit cards, PayPal and wire transfers. There is an additional $25 processing fee for wire transfers.

Q: Will Expat Tax Professionals help respond to IRS notices and letters regarding my return?
A: Of course. From time to time, the IRS sends correspondence while processing the return. In such cases, we will respond to any IRS correspondence related to the return we prepared for you free of charge.  In some instances, if the IRS inquiries require extensive correspondence and/or additional work, we will request and additional budget to cover such out-of-scope time. However, any additional fees will be communicated to you in advance.

Q: Do you offer consulting and tax planning services?
A: Yes. One of the unique qualities of our firm is that our staff consists not only of U.S. CPAs but also of U.S. tax attorneys who have valuable experience assisting clients with structuring, planning and other tax consulting projects.  You can schedule a 30-minute consultation with one of our experts.

Q: Is it a bad idea to continue to use my CPA back at home?
A: Many individuals have a relationship with a CPA they’ve been working with prior to moving aboard.  However, when moving overseas, the issues your CPA must deal with are very different and may result in far reaching consequences for you.  Therefore, as good as your CPA may be, they are most likely unfamiliar with the international tax issues that now play a major part in your tax return.

Your U.S. Expat Filing Obligations

Q: Do I need to file a U.S. tax return?
A: If you’re a U.S. citizen or hold a green card, you’re required to file a U.S. tax return (Form 1040) if your income (during 2016) exceeds the following thresholds:

Singles

• Under 65 – $10,350 (2015 – $10,300)
• Over 65 – $11,900 (2015 – $11,850)

Married Filing Jointly

• Under 65 (both spouses) – $20,700 (2015 – $20,600)
• 65 or older (one spouse) – $21,950 (2015 – $21,850)
• 65 or older (both spouses ) – $23,200 (2015 – $23,100)

Married Filing Separately (any age)

• $4,050 (2015 – $4,000)

The requirement to file in these cases applies regardless of whether you spent time in the U.S. during the year or had income from U.S. sources. Meaning, even if you spent the entire year abroad and earned all of your income abroad and paid tax on the income to your country of residence, you’re still required to file a U.S. tax return. Under U.S. tax law, a U.S. citizen is required to report their worldwide income regardless of where they reside. This may sound scary and even costly, but keep in mind that although you must report the income you earn, very often your U.S. federal tax liability should be minimal (if not zero) due to various exclusions and credits you can take – and this is where we can help!

Q: Am I required to file any other forms besides my Federal income tax return (Form 1040)?
A: Depends on your situation. There are two typical scenarios that would require additional filings:

• Foreign Bank Account Reporting (FBAR)– Under U.S. law, U.S. citizens and green card holders are required to report the maximum balances in their foreign bank accounts to the U.S. Treasury if, at any point in time during the year, the balance in all foreign accounts was $10,000 or more. Accordingly, this threshold will be met even if there isn’t $10,000 in a single account but in the aggregate the total balance in all of your foreign accounts is $10,000 or more. For purposes of filing your FBAR, the term financial accounts includes not only standard bank accounts but also foreign pensions, investment accounts and cash value insurance policies.  The form you’re required to file is Form 114 (formerly known as Form TDF 90-22.1). The form is not attached to your tax return but is filed separately. It can only be filed online.  For tax year 2015 (and previous years), the FBAR deadline was June 30th and no extensions were available.  For tax years 2016 and onwards, the FBAR due date will be moved to April 15th, but with a maximum extension for a 6-month period ending on October 15^th. FBAR penalties for failing to report foreign bank accounts can be as high as $10,000.

• State income tax returns– States have their own sets of rules that determine who is a resident. In most states, residents are required to file an income tax return annually. If you resided in a particular state for part of the year, you’re still required to file a return for that year. Furthermore, in some cases (like CA), even if you were last a resident of the state in a previous year (but in the current year did not reside at all in the state), you may still be considered a resident and be required to file a state income tax return. We can help you make this determination.

 

Q: What special tax benefits are available for U.S. Expats?
A: In order to avoid double taxation, U.S. expats are generally entitled to several benefits related to the income they earn while overseas and the taxes they pay to foreign countries:

• Foreign Earned Income Exclusion– Each year, U.S. expats are allowed to exclude from their income a fixed amount of their foreign earnings. For 2016, this amount is $101,300. In order to claim this benefit you must meet certain criteria and attach Form 2555 to your return (included in our standard package!). In order to qualify for this exclusion, you must meet the following criteria:
  • Bona fide residence test– you must be a bona fide resident of a foreign country for the entire year; or
  • Physical presence test– you are present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

• Foreign Housing Exclusion/Deduction– While living overseas, you may be able to exclude or deduct certain amounts equal to the amounts you paid for your housing expenses. Housing expenses generally include rent, utilities, repairs and parking, among others. Whether you can take an exclusion or deduction depends on whether you’re a salaried employee or self-employed. To claim an exclusion/deduction, you must attach Form 2555 to your return. Our experts can help you determine whether you’re eligible.

• Foreign Tax Credits– The foreign tax credit rules allow U.S. expats to reduce their U.S. federal income tax liability on a dollar-for-dollar basis based on the taxes paid on such income to a foreign jurisdiction. Note that U.S. expats will be entitled to a credit only with respect to foreign income taxes paid and not for other types of taxes. In addition, the credit can be used only to offset foreign source income (and not amounts earned in the U.S.). To claim the credit, you must attach Form 1116 to your tax return (included in our standard package!).

 

Q: If I relocate overseas and qualify for the foreign earned income exclusion, can I ask my U.S. employer to stop withholding tax on my salary?
A: Yes. In order to take advantage of this benefit, you need to provide a statement to your employer indicating that you expect to qualify for the foreign earned income exclusion under either the bona fide residence test or the physical presence test. Although not mandatory, Form 673 is an acceptable statement for this purpose. The statement essentially provides the employer with a declaration on your part under penalties of perjury.

Q: What are the U.S. Income Tax Rates If I have income in excess of the foreign earned income exclusion?
A: Under the “Stacking” rule, when determining your tax bracket, you are required to include the amount exempt under the foreign earned income exclusion. For example, if your foreign earned income is $105,300 and you excluded the full $101,300, you will pay tax on the $4,000 balance.  Your tax bracket will be determined based on your total income of $105,300 before the excluded amount.

Q: What is FATCA and how does it impact my tax return? What is Form 8938?
A: FATCA stands for “Foreign Account Tax Compliance Act.” FATCA is a relatively new law that was initially enacted in 2010 as part of the HIRE Act. The objective behind FATCA was to force U.S. citizens to report their holdings in financial accounts and assets overseas as part of the U.S. government’s focus on combatting offshore tax evasion. As part of enforcing FATCA, starting with the 2011 tax season, the IRS requires certain U.S. citizens to report the total value of their “foreign financial assets.” Generally, FATCA reporting applies to any account in a foreign financial institution and to stock or securities issued by a non-U.S. entity. If you reside outside the U.S. and have a bank account or investment account in a foreign financial institution, you are generally required to include Form 8938 with your U.S. federal income tax return if you meet the following thresholds:

1. You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
2. You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

 

Q: Why is my foreign bank asking me to sign a Form W9 and threatening to close my account if I don’t comply?
A: As part of the implementation of the FATCA statute, foreign banks are required to provide the IRS with information regarding their U.S. account holders or else face sanctions in the U.S.  As a result, foreign banks are asking individuals who they suspect as being U.S. citizens to sign Form W9 (the form used to identify a US person for tax purposes) or else they will close or even freeze the account.

Q: What are the ramifications of being self-employed outside the U.S.?
A: U.S. expats who are self-employed are generally required to pay self-employment taxes including social security taxes if they have earnings of $400 or more from self-employment. Unfortunately, the foreign earned income exclusion cannot be used to exclude income from self-employment taxes. However, if the U.S. has a “Totalization Agreement” with your country of residence, then you may be able to exclude your foreign earnings from self-employment taxes.

Q: If I relocated overseas in mid-year, do I still need to file an income tax return in my home state at the end of the year?
A: Most likely yes – depends on the state. Generally, as long as an individual maintains his “ties” as a resident of a particular state, he is required to continue and file a tax return in such state (assuming the state requires an income tax return to begin with). Ultimately, each state has their own set of rules that determine if and when an individual has broken his ties with the state. In some states, the threshold is very low and a person can very easily break his ties with the state. In other states, such as California, the threshold can be very high and an individual may physically move overseas but nevertheless still be considered a resident of California. Keep in mind that even if your move is sufficient to sever your ties with the state and terminate your resident status, if you move in the middle of the year, you will still be required to file a return for the part-year period in which you still lived in the state.

Q: Can I deduct mortgage interest on a foreign home?
A: Yes. The tax code does not distinguish between a home in the U.S. and a home abroad, provided the basic requirements are met. These requirements are: (i) the mortgage must be a loan secured by a qualified home in which you have an ownership interest; and (ii) a qualified home is either your primary residence or a second home. You can choose which home you want to treat as your second home for purposes of the deduction. In addition, in order to claim the deduction on your return, you will need to itemize your deductions.

Other important issues which may be relevant to your question are:

Real estate tax – Taxes paid for your first and second home are also deductible with the only caveat being that you cannot deduct taxes paid for local benefits and improvements that increase the value of the property.

Rental properties – Interest paid on a mortgage taken on a property that you rent out can also be deductible if you either live in the home for 14 days during the year or more than 10% of the days it is rented out – whichever is longer.

Home office in a second home – Expenses related to a home office in a second home can also be deducted provided you meet the requirements of a qualified home (i.e., in the previous bullet).

Q: I sold my house abroad, do I need to pay tax in the U.S. on the gain?
A: Under U.S. tax law, you can exclude a gain of up to $250,000 realized from the sale of your home ($500,000 if married and filing jointly), provided you meet the “ownership test” and “use test.” This exclusion is not limited to homes in the U.S. and can therefore apply to the sale of a home overseas.  However, if your profit from the sale exceeds the $250K threshold, you will be required to pay capital gains tax (20% maximum rate) in the U.S. even if your country of residence does not impose a tax.

Q: What filing deadlines are applicable to U.S. Expats?
A: U.S. expats need to file their returns by April 15th. However, if your permanent residence is outside the U.S. on April 15th, you are entitled to an automatic extension until June 15th. If you need additional time to file, you may file an extension (Form 4868) and your due date will be October 15th. Note that if you intend on filing an extension and you owe taxes, you must still make a payment by April 15th. The extension only extends your deadline for submitting your return but not for paying your taxes. If you do not have the funds to pay the taxes you owe, it is still recommended to file an extension since failing to file a return will result in higher penalties and interest.