Category: Blog

Freelance tax deductions

deduction-imagesI just finished reading a great blog post — ‘The ultimate list of freelance tax deductions’.* When all is said and done, there isn’t much difference between freelancers and self-employed persons. For American expatriates, however, there are several rules to be aware of.

First and foremost, if you’ve earned $400 or more in 2014, you’ll need to report and file a 1040 tax return to the U.S. government. (This is an annual obligation that does not go away, regardless of the fact that you live abroad, and regardless of the number of years.)

Second, there is an exception to the housing deduction — it applies only to amounts paid for with self-employment earnings. If you do not have self-employment income, you cannot take the foreign housing deduction.

http://www.freelancersunion.org/blog/2015/01/28/ultimate-list-freelancer-tax-deductions/

Thinking of renouncing your U.S. citizenship?

Thinking of renouncing your U.S. citizenship?

Expatriated U.S. citizens and Green Card holders may want to think twice before renouncing their U.S. citizenship in order to end U.S. tax reporting obligations. (And yes, expatriates and Green Card holders are required to report their annual income and foreign investments to the U.S. government – annually.)

It may sound like a sound strategy, particularly if you are a long-term expat, but, take heed. As the Foreign Account Tax Compliance Act (FATCA) globally takes root into the foreign banking institutions, expatriated U.S. citizens and Green Card holders will begin receiving mandatory self-certification forms to establish their U.S. tax status. In the Netherlands, for example, where I currently reside, ING bank has started collecting just such data. ING is obligated to report your status to the Dutch Tax Authority — then the Dutch Tax Authority in turn reports this information to the IRS.

As a result, any scheme to obtain a ‘Loss of Citizenship and Nationality’ is perhaps a bit over-simplified and misunderstood in terms of tax and foreign investment reporting. If a tax is recognized under the U.S. tax law, the only way to discharge the liability with the U.S. federal government is to pay the tax owed. The IRS generally can collect – indefinitely – an income tax owing against a taxpayer who lives outside the U.S., as the 10-year statute of limitations for collection does not apply when the individual resides outside the United States for a continuous period of at least six months.

Expatriation is a complex matter and involves both the Department of State and the Internal Revenue Service. As further explained on the Travel.State.Gov website, one can plainly see that this isn’t a matter of walking into the Consulate in your host country and surrendering your U.S. passport. Legal advice may be wise. At Tax-Expatriation you will find an additional in-depth article further explaining U.S. Citizen Renunciation.

Yes, the new regulations under FATCA are complicating matters for expatriates and Green Card holders worldwide, but it’s advisable to know your position before you set renunciation into motion. It’s also advisable to update your reporting obligations while you can still volunteer to do so.

Expats and the Affordable Care Act

U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period. In addition, U.S. citizens who are bona fide residents of a foreign country (or countries) for an entire taxable year are treated as having minimum essential coverage for that year. In general, these are expats who qualify for a foreign earned income exclusion under section 911 of the Internal Revenue Code. Individuals may qualify for this rule even if they cannot use the exclusion for all of their foreign earned income because, for example, they are employees of the United States. Individuals that qualify for this rule need take no further action to comply with the individual shared responsibility provision during the months when they qualify. See Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for further information on the foreign earned income exclusion.

U.S. citizens who meet neither the physical presence nor residency requirements will need to maintain minimum essential coverage, qualify for an exemption or make a shared responsibility payment for each month of the year. For this purpose, minimum essential coverage includes a group health plan provided by an overseas employer. One exemption that may be particularly relevant to U.S. citizens living abroad for a small part of a year is the exemption for a short coverage gap. This exemption provides that no shared responsibility payment will be due for a once-per-year gap in coverage that lasts less than three months.

No extension for your FBAR filing

The FBAR must be reported to the IRS by June 30 of each year by electronically filing it using the US Department of the Treasury’s Financial Crimes Enforcement Network E-Filing System. Important! The FBAR is not filed with your income tax return it is filed separately.

There is no extension for filing the FBAR. If you did not have all the information you need to file the FBAR by June 30, you should file as complete a return as you can. When you have gathered all the additional information or new information becomes available, you can amend the return.

There is a maximum $10,000 penalty if your failure to file was inadvertent. if you are found guilty of willfully not filing an FBAR, the minimum fine is $100,000 or half the value of the account, whichever is greater.

The FBAR is a separate filing from your income tax return and is not attached to your tax return.