Author: crubenacker

Giving up your U.S. citizenship may mean you’ll be paying an Expatriation Tax.

If you expatriated after June 16, 2008, the new IRC 877A expatriation rules apply to you if any of the following statements apply.
• Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($147,000 for 2011, $151,000 for 2012, $155,000 for 2013 and $157,000 for 2014).
• Your net worth is $2 million or more on the date of your expatriation or termination of residency.
• You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.
If any of these rules apply, you are a “covered expatriate.”
Read more: http://www.irs.gov/Individuals/International-Taxpayers/Expatriation-Tax

There is more to it than tax rate percentages, 68 nations worldwide have income tax treaties with the U.S. As an expatriate it is important to be aware of the option available to you under these treaties. Residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Under these same treaties, residents or citizens of the United States are taxed at a reduced rate, or are exempt from foreign taxes, on certain items of income they receive from sources within foreign countries. Most income tax treaties contain what is known as a “saving clause” which prevents a citizen or resident of the United States from using the provisions of a tax treaty in order to avoid taxation of U.S. source income.
Read more at the IRS website: http://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties—A-to-Z  Here you can find copies of the treaty agreements, as well.

Eligibility for the Streamlined Foreign Offshore Procedures

The following excerpt is taken from the IRS website.

“In addition to having to meet general eligibility…, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Foreign Offshore Procedures described in this section must:  (1) meet the applicable non-residency requirement described below (for joint return filers, both spouses must meet the applicable non-residency requirement described below) and (2) have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and such failures resulted from non-willful conduct.  Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

Qualifying for the Foreign Earned Income Exclusion using the bona fide or physical presence tests can be a tricky , especially for expats who just moved overseas. Some expats are better off taking the Foreign Tax Credit (Form 1116) instead of the exclusion on Form 2555. However, once you start using one method, you cannot switch to the other method without first asking the IRS’ permission to change your accounting methods. You may want to consult with a tax professional who has experience in preparing expat tax returns.