From DigitalNomadAcademy.com - the most important tax info for US expats in 2013, learn how you can save up to $95,100 on your US tax return visit http://thrl.in/greenback
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Most important tax info for US expats 2013
1. Webinar
Overview
Helping you piece together
the Expat tax puzzle
2. Helping you piece together the Expat tax puzzle
The Most Important Things Every Expat or Soon to
Be Expat needs to Know About US Taxes
This presentation includes:
โขThe two tests that decide if you can exclude up to $95,100 of
your 2012 Income from US Taxation ($97,600 for 2013)
โขAn explanation of the Foreign Earned Income Exclusion,
Foreign Tax Credit and the Foreign Housing Credit
โขWhy you probably donโt need to be afraid of the FBAR
โขAn additional tax savings technique that could save you
thousands of Dollars in tax each year
โขSome tips and advice on how to stay organized for tax time
3. Helping you piece together the Expat tax puzzle
Physical Presence Test
โข Designed to give US Citizens or Resident Aliens who are
outside the US a tax break if:
โข You are in a foreign country for 330 days in a 365 day
period
โข Are legally in a foreign country โ Cuba, North Korea etc
donโt count
โข This can be for any 365 day period May to May, June to June
etc and can start on any day of the month
โข Days within the USA โ for any reason - donโt count, travel
days donโt count towards the 330 day total
โข You can meet the test and still have a tax liability if you
worked in the US for any of those days
4. Helping you piece together the Expat tax puzzle
Bona Fide Residence Test
โข Designed to give US Citizens or Resident Aliens who live
permanently outside the US a tax break if:
โข They have established residency in a foreign Country
โข Reside within that country for an entire calendar year
โข Plan to stay within that country indefinitely
โข For Example:
โข If you live in Costa Rica and you run a dive shop, you pay
local taxes, have a residency permit and you are not planning
on returning to the USA to live then you will probably qualify
โข If you are on a job contract for 22 months working in Mexico,
then you probably wonโt qualify as you would presumably
return to the US at the end of the contract
โข A large part of this is based on future speculation so needs to be
examined on a case by case basis so its best to speak to an
expert about this
5. Helping you piece together the Expat tax puzzle
Foreign Earned Income Exclusion = Save
$95,100 per year!
โข FEIE AKA Form 2555 is a series of tax breaks for workers living abroad.
โข To qualify you need to meet either the
โข Physical Presence Test
โข Bona Fide Residence Test
โข Allows you to exclude up to $95,100 per year from your US taxes (for
2012). This is US Tax Free! If you are married and your spouse works then
he/she can also exclude up to $95,100. This is also adjusted for inflation โ
the 2013 amount is $97,600!
โข Catches and snags
โข Need to pay Self-employment tax before the FEIE (may also owe
Social Security)
โข If you work inside the US, you will still owe US tax on this money even
if you are below the FEIE
โข Government employees including Armed Forces Exchange,
Commissioned and non-commissioned officers messes, Armed forces
motion pictures services, employees of kindergartens on armed forces
installations do not qualify for the FEIE
6. Helping you piece together the Expat tax puzzle
Foreign Tax Credit โ Form 1116
โข Dollar for Dollar tax credit to offset taxes paid to a foreign government on your US
Taxes
โข 4 Criteria must be met to take the credit:
โข The tax must be assessed on Income
โข You must have a tax liability that has been paid or incurred
โข The tax must be imposed on you as an individual
โข The tax must have originated legally in a foreign Country
โข Limits
โข This is mainly for earned income โ dividends, foreign gas extraction income, etc
does not qualify
โข Must be reported in USD
โข Can not exceed the amount of US expat taxes that you pay on foreign sourced
income โ Total Foreign Sourced Taxable Income / Total Taxable Income before
Exemptions) x Total US Tax = Foreign Sourced US Tax
โข Carrybacks and Carry forwards
โข If you are eligible for a foreign tax credit larger than you US income tax liability
you can carry the credit back to the year immediately before the current year or
you can carry it forward for up to 10 years to use on future domestic or Expat
taxes
7. Helping you piece together the Expat tax puzzle
Foreign Housing Credit
โข Total amount you are allowed to deduct is based on 30% the FEIE so this would be
$95,100*.3= $28,530 for 2012, but
โข If you live in one of the 400 foreign locations which qualify for a higher deduction limit
such as London - $83,400, Paris - $84,400, Singapore - $67,000 or Hong Kong -
$114,300 you can deduct quite a bit more
โข You are allowed to deduct โqualifiedโ housing expenses, such as:
โข Rent, Repairs, Utilities (excluding the telephone), Personal property Insurance, Leasing
Fees, furniture rental, etc
โข Expenses that donโt qualify include:
โข Lavish or Extravagant expenses, mortgage payments, the cost of domestic labor, TV
subscriptions, purchased furniture
โข Note that this is based on the total number of days you are in a foreign country so lets say
you live in London and you spent 350 days in London last year and you can fully utilize the
FEIE of $95,100 for 2012
โข First you need to calculate your base amount, which is 16% of your FEIE so in this case
.16x95100=$15,216 โ think of that as the amount you would need to pay in the US.
Now divide $15,216/350=$43.47, that is your cost per day
โข Next, lets say you live in London and your qualified housing expense is $83,400 or
$238.28 per day
โข Now subtract $43.47 from $238.28 = $194.81 x 350 = $68,183.50
โข That is the total amount of foreign housing expense you can take as the credit
8. Helping you piece together the Expat tax puzzle
The Report of Foreign Bank and Financial Accounts,
FBAR/TDF90-22-1
โข The FBAR worries a lot of people, but once you know the facts you donโt
need to worry
โข The FBAR is a Treasury Form not an IRS Form, but the IRS is the watch
dog
โข FBAR is due on June 30th each year and there are no extensions
โข You need to complete the FBAR if you have over $10,000 in all your
foreign bank accounts including: Checking, Savings, Stocks and Bonds, if
you control a foreign company or have signing authority over a foreign
bank account you will likely need to file an FBAR
โข FBAR is designed to catch people who are laundering money or hiding
assets overseas / Expats are just caught in the crossfire
โข So, If you are an expat with over $10k fill in the form and mail it to the
Treasury. Make sure you have reported the income/capital gains on your
US taxes
โข In our experience the IRS has been lenient on Expats and not hit people
with fines. There is no telling how long that will continue so we recommend
getting caught up as soon as possible.
9. Helping you piece together the Expat tax puzzle
Tax Savings Currency Techniques
โข You need to report all foreign taxes paid in US dollars
โข The IRS prefers that each transaction be converted at the foreign
exchange rate at the date of each transaction. But itโs preferred
not required, so;
โข You should keep a record of when and how much you get paid,
including bonuses โ most employers have your salary and tax
paid on your pay stub. You can look up the FX rates daily,
monthly or yearly on the internet.
โข Tax savings tip โ convert your income on a daily, monthly and
yearly FX rate and see which is lower. You can then use this lower
amount to convert your income to USD. I know guys who have
saved over $5k per year doing this and it only takes maybe 30
minutes!
10. Helping you piece together the Expat tax puzzle
Get and Stay Organized
โข Keep records of income โ salary, bonus, interest, rents
received, dividends, capital gains, etc.
โข Keep records of Expenses โ house hold expenditures such as
rent paid, utilities, etc.; foreign taxes paid or due to be paid;
rental property expenses, etc.
โข Keep a detailed travel diary
โข Save your prior years tax return
โข Set up MailboxForwarding.com โ They open and scan your
mail for you so you can keep a digital record. This is much
more efficient than having friends and family collect and send
you your mail. We use this and its highly recommended!