The tax filing season is counting down to the deadline of June 15 for US expats around the world.
Although that seems a way off, unless the Internal Revenue Service (IRS) extends the date due to the coronavirus outbreak, that’s only three months to gather, complete and file all the necessary documents.
US nationals or green card holders need to file a tax return each year even if they have left the country if worldwide income exceeds certain levels for the last tax year (January 1, 2019 until December 31, 2019). The thresholds are:
- Single – $12,200
- Married filing jointly – $24,400
- Married filing separately – $5
- Head of household – $18,350
Don’t rely on the foreign earned income exclusion as a reason not to file.
Although the exclusion can reduce an expat tax bill, a return needs filing to trigger the exclusion.
And don’t forget when working out worldwide income that tax-free earnings in the country where an expat lives may be taxable in the US.
Double jeopardy of paying tax twice on the same earnings should not be an issue due to foreign tax credits offsetting tax paid in one country against tax due in the US. A tax trap could be the requirements of a state return as the rules can vary between states.
Housing relief can also be a problem – it’s the foreign housing exclusion if you are employed but the foreign housing deduction if you are self-employed.
90-day tax waiver
Although the expat filing deadline is June 15, 2020, Treasury Secretary Steve Mnuchin has offered a 90-day interest and penalty waiver for taxpayers owing up to $1 million in tax.
Expats also have to report their foreign banking arrangements on a FBAR form, which includes personal, joint and business accounts to which a taxpayer is signatory. An FBAR is only needed when the high balance for each account added together comes to more than $10,000. If the total comes to $10,000 or more, every foreign bank account needs notifying.
Don’t forget FATCA – the Foreign Account Tax Compliance Act. File a Form 8938 to disclose foreign assets and make sure it’s accurate as each foreign financial institution files a similar report with the IRS tipping them off about your holdings for comparison against your tax filing.