Physical Presence Test — can be tricky

PPTQualifying 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.

 

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.