Expat Tax Preparation For Us Expat}

Submitted by: Usexpat Cpatax

FATCA:

FATCA stands for The Foreign Account Tax Compliance Act. This is relatively recent act that has been introduced by IRS for the US citizens residing in foreign countries. This act requires all the expats to declare the market value of the assets owned by them in the foreign country while filing their Expatriate Tax Return. Form 8938 needs to be filled for complying with this act. Though this new act has made filing taxes even more cumbersome for the expats but it is mandatory so it needs to be done. Let us try and understand how this FATCA works.

The FATCA needs to be filled every year along with the income tax return ( Expatriate tax returns ). The due date for filing is same as your due date for return. If you have got an extension on your tax filing then that extension applied to the FATCA also. The FATCA form requires you to calculate the market value of your assets during that financial year, then convert it to US dollar using the average conversion rate for the year and then declare it.

Even if you have filed the FBAR (Report of Foreign Bank and Financial Accounts) for all your foreign accounts and assets, you still need to file the FATCA. Both FATCA and FBAR are mandatory. The penalty for not filing starts at $10,000 and keeps getting incremented by $10,000 for every month of further delay. If the value of assets declared by you is less than then actual market value then again a penalty of 40% can be levied. Criminal charges can also be pressed in such cases.

The FATCA required certain institutions of the foreign countries like banks, corporate, brokers, dealers etc. to provide them information about the assets held by US citizens working for them like bank accounts, foreign entities etc.

when embarking on your Expat Tax Preparation, the assets that need to be declared when filing FATCA include foreign bank accounts, foreign stocks not held in bank accounts, foreign mutual funds, life insurance or cash value annuity issued by foreign country, foreign hedge funds or equity funds amongst others. Personal property, jewelry or real estate as assets, are exempted from declaration.

How to Save Your US Tax 5 Useful Tips for American Expats :

Have you been excessively worrying about arduous US tax filing laws that you have to abide by? Worrying is not going to help you solve your problem. You should get into active mode and start thinking about solving the problem of your international income being subjected to Expat tax.

Although the new tax filing requirements by the Foreign Account Tax Compliance Act (FACTA) are stern, we have 5 amazing tips to help you save up on expat tax.

1. Find Out What Exclusions You Qualify For :

Being a resident alien, you are required to pay tax, but expats also get a few generous expat tax exemptions. You must definitely find out all about them, as you may qualify for one or more of such exemption, and may be able to save your hard earned income.

A few exclusions are:

# Exemption of Foreign Earned Income: This will enable you to drop off the first $92,900 from the taxable income that you earn abroad; moreover, if you apply for this exclusion along with your spouse, you can drop off a great $185,800 from your taxable income.

# Foreign housing exemption: Under this, you can subtract a portion of your housing expenses from the taxable income, and the rate differs for every country so you might want to check out on it in detail.

# Foreign tax credit: This lets you withhold the tax payment that you make to a foreign country from the taxes you owe to IRS on dollar-to-dollar terms. If you live in a high tax zones, this can surely save you a hefty sum of money.

2. Consider Investing In IRAs

Do you know you can actually defer your taxable income further and cut down on your marginal tax rate too? You can do this if you decide to follow up with conventional 401(k) schemes. Individual Retirement Accounts (IRAs) can play a major role in tax savings for expats like you. Moreover, payments from Roth IRA are also exempt from tax; you must consider and explore your options about investing in them as these can definitely serve as your legal off-shore tax saving accounts. Nevertheless, dont invest in any IRA that you are ineligible for, as this can backfire and cost you a 6% penalty charge by the US government.

3. Invest In Mutual Funds Only In Partnership With IRS

The IRS classifies all foreign mutual funds such as foreign money market funds, insurance investment schemes etc. as a Passive Foreign Investment Company (PFIC), and taxes their earnings heavily. Thus beware of investing in any mutual fund abroad without partnering with the IRS or you will be liable to pay excessive tax sums to the IRS. If you partner with the IRS to invest in a mutual fund, you can surely save your PFIC taxes.

4. Consider Your Spouses Nationality

If your spouse doesnt have US nationality, or a US Green Card, you must carefully consider your tax filing options. You can file either as Married Filing Jointly (MFJ), Head of Household (HoH), or Married Filing Separately (MFS). Having a non-resident spouse can serve as a tax shelter; but each tax filing status has its pros and cons, and long term implications too, hence be very wise when you file for tax.

5. File Your Returns Every Yea

Dont even think about missing on your tax payments, because it can cost you a great deal more. Even if your income is below the minimum amount that can be taxed, do file for tax with the IRS, otherwise you may be subjected to huge penalties in the future, and might be disallowed certain exemptions from tax payments too.

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