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1 Yonge Street, Suite 1801
Toronto, ON M5E 1W7
Tel: +1 (647) 694 1010
5900 Balcones Drive, Ste 5037
Austin, TX 78731
United States of America
Tel: +1 (737) 204 3982
Level 1, 241 Adelaide St
Brisbane, QLD 4000
Tel: +61 (07) 3053 5254
York, YO30 7BZ
Tel: +44 (0) 1904 211 005
FAQs – US expats while living abroad
In the event that an IRS refund is not issued or partly issued due to a calculation or tax return preparation error on our part, you may be eligible to have Paid Fees refunded to you, in part, or in full.
In the event of any part of a refund being paid to a third-party or other US government office, this is deemed as issued and a Refund of Fees Paid will not be considered.
Please note, the IRS can issue your refund to cover outstanding debts such as US Student Loan which has not been repaid and is in default.
The Foreign Bank Account Reporting is part of FATCA (Foreign Account Tax Compliance Act)
The law states that US citizens and Green Card holders must report bank accounts held offshore if the highest balance of those accounts, when added together exceeds $10,000 or more at any time during the tax year.
Reporting includes the name and address of the bank, the account number, the highest balance during the year, and the names on the account.
Which offshore bank accounts do I need to include?
- All your personal accounts
- Any account that you have signing authority over
- Business accounts Business bank accounts that you own or have signing authority over
- Foreign Pension accounts
- Stock trading accounts
What’s the easiest way to check if I need to file?
Gather monthly statements for each bank account that you need to include Look through the statements for the highest balance in the tax year and write it down Once you have been through every statement add up the highest balances If the total number is over USD $10,000 then you need to file an FBAR.
How do I file?
- We will complete your FBAR filing along with your IRS Federal tax return
- The FBAR is due at the same time as your tax return extensions aren’t the same
- Our expat tax specialists will take care of it all for you.
- You’ll be notified once the FBAR has been submitted.
Typically, the following four tests must be met for any foreign tax to qualify for the credit:
- The tax must be imposed on you
- You must have paid or accrued the tax
- The tax must be the legal and actual foreign tax liability
- The tax must be an income tax (or a tax in lieu of an income tax)
The tax must be imposed on you
You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U.S. possession. For example, a tax that is deducted from your wages is considered to be imposed on you.
A foreign country includes any foreign state and its political subdivisions. Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit.
Tax must be the Legal
Your qualified foreign tax is only the legal and actual foreign tax liability that you paid or accrued during the year. The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. The amount of the foreign tax that qualifies for the credit must be reduced by any refunds of foreign tax made by the government of the foreign country or the U.S. possession.
Example 1: You received a $1,000 payment of interest from a Country A investment. Country A’s withholding tax rate on interest income is 30% ($300), but you are eligible for a reduced treaty withholding rate of 15% ($150) if you provide a reduced withholding statement/certificate to the withholding agent. Your qualified foreign tax is limited to $150 based on your eligibility for the reduced treaty rate, even if $300 is actually withheld because you failed to provide the required withholding statement/certificate.
Tax Must Be an Income Tax or Tax In Lieu of Income Tax
Generally, only income, war profits, and excess profits taxes (collectively referred to as income taxes) qualify for the foreign tax credit. Foreign taxes on wages, dividends, interest, and royalties generally qualify for the credit. The tax must be a levy that is not payment for a specific economic benefit and the predominant character of the tax must be that of an income tax in the U.S. sense.
Foreign tax is not an income tax and does not qualify for the foreign tax credit to the extent it is a soak-up tax. A soak-up tax is a foreign tax that is assessed only if a tax credit is available to the taxpayer. This rule only applies if and to the extent the foreign tax would not be imposed if the credit were not available. Foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. The tax must be a foreign levy that is not payment for a specific economic benefit and the tax must be imposed in place of, and not in addition to, an income tax otherwise generally imposed
Foreign taxes where you can’t take credit;
- Taxes on excluded income (such as the foreign earned income exclusion)
- Taxes for which you can only take an itemized deduction
- Taxes on foreign mineral income
- Taxes from international boycott operations
- A portion of taxes on combined foreign oil and gas income
- Taxes of U.S. persons controlling foreign corporations and partnerships who fail to file required information returns
- Taxes related to a foreign tax splitting event, and
- Social security taxes paid or accrued to a foreign country with which the United States has a social security agreement.
For more information about these agreements, refer to Totalization Agreements.
The IRS considers many aspects of your income as taxable, here is a rough list of compensation items you need to include;
- Basic salary
- Call back, standby and overtime income
- Airfare allowances and home leave
- Administration allowances
- Transportation and internet allowances
- Education assistance
- Settling-in allowance
- All other cash or benefits received in-kind
Examples of some income that generally isn’t taxed;
- Reimbursement of business expenses
- Moving expenses as long as they are dollar for dollar
- Living away from home expenses
- A lump some that you don’t have to account for can be considered taxable income.
Our tax experts have compiled a list of changes in taxation that expats will encounter under the new law. Some of the deductions and exclusions remain the same, while others have undergone significant changes.
The decision to renounce your US citizenship is a big one, and if you have decided that it is the right choice for you, we can certainly help!
The renunciation process requires you to be caught up on your US tax obligation, which may mean filing up to 8 tax returns at one time as well as the Foreign Bank Account Reports. We can prepare all of these documents for you and help you file them with the IRS. The actual steps to renounce your citizenship and the number of returns required can vary based on the rules in your local US embassy, so we recommend speaking with someone there first, and then contacting us to do the tax return preparation for you.
We have a fixed fee renunciation package available to people that do not have the required 5 years of US tax returns in order to being the process.
Check out our American citizenship renunciation package here:
Overall, US citizens and Green Card holders are required to file a US Federal Tax Return each year if their income is over the minimum threshold. No matter where you have earned this income, what currency it is earned in, or whether you have also paid taxes in the country in which you reside, you are required to file in the US if your income is above these levels.
The thresholds are currently:
- Single with income over $13,850
- Married filing jointly with income over $27,700
- Married filing separately with income over $5
- Self-employed individuals need to file if their income is over $400
- Head of Household is over $20,800
Note: You may need to file state taxes as well as taxes for your small business operating overseas. Depending on your situation, you may also be required to file additional reports including Form 8938 and the Foreign Bank Account Report (FBAR or FinCEN Form 114) to report assets held overseas.
Your situation is quite common, and we help people with it every day.
Let me tell you about the Streamlined Offshore Filing Procedure. It’s an amnesty program the IRS is offering at the moment.
In a nutshell, we have to file the last three US tax returns that you’ve missed, plus your bank account reports for the last 6 years.
It is complicated, but all the hard work is done on our side, it really isn’t difficult for you at all.
By using the Amnesty program, you can forget about previous years, the IRS promises not to look back any further than three tax returns we file, as long as you promise to keep filing each year going forward.
On top of that, they promise no fines and no penalties.
The Streamlined Amnesty Program is only available for a limited time so it’s certainly worth taking advantage of.
Less than 1% of our clients pay US tax, so the chances are you won’t have to pay the IRS a single cent.
To get started in the process, complete our US Tax Amnesty questionnaire using this link: