Frequently Asked Questions
Our experienced CPAs answered our customers' most commonly asked questions, so you know what to expect from E1040 Corporation.
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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 the below thresholds.
The thresholds are currently:
- Single with income over $10,300
- Married filing jointly with income over $20,600
- Married filing separately with income over $4,000
- Self-employed individuals need to file if their income is over $400
US state tax returns vary from state to state. Since some states has no income taxes, they are more favorable for expats. These states include Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee are also favorable states because they only collect taxes on dividend and interest income. Unfavorable states include California, South Carolina, and New Mexico; these states see their taxpayers as assets and will leave the burden of proof on you to prove that you are no longer a resident.
You may be required to file a state return if you use the items listed below in your current state:
- Mortgage or lease payments on property
- State driver’s license
- State bank accounts or investments
- Telephone and utility bills
- Voter registration
- Library cards
- Mail correspondence
- Association memberships
- Dependents living within the state
Yes, the Physical Presence Test requires that you be inside a foreign country for 330 days in any 365-day period. This can run from January to December or from June to May. If the time is split across two tax years, you will get a pro-rated exclusion for each year. If you have not yet been abroad for 330 days but you will be, you can file for an extension using Form 2350, which will allow you to wait until you meet the 330-day requirement.
You should start by talking with an expat tax expert to identify how many years of back taxes you are going to need to file and the documentation you will need in order to complete the necessary reports and returns to become compliant with the US tax authorities. You will need to prove expat status for each year. Be aware that you may owe penalties for filing late or failing to pay taxes on time (this is usually if you owe US taxes). If you have not declared your foreign bank accounts, you may also need to file FBAR forms for the years you have missed. Our experience is that people who come forward have been given more leniency than people the IRS has found through their resources.
E1040 Corporation 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.
Basically, anyone with $10,000 or more (USD equivalents included) in a foreign bank or financial account at any point during the calendar year will be required to file the FBAR. So, if your bank account in France typically has a balance of $9,950, but for one day has an extra $50, you will need to file an FBAR. Cumulative balances are also counted, so if you have $3,000 in four separate accounts, you will be required to file the FBAR.
As a US expat, you are still entitled to the same US Social Security benefits as any other citizen of the United States. Agreements are in place with 24 countries that also have social insurance programs similar to US Social Security; these agreements are intended to eliminate dual taxation when it comes to social security. They also determine to which country social security is paid based on residency, the duration of stay in that country, and for whom you work while living in your host country. For countries where there is no agreement in place, you may fall subject to dual taxation.
Capital gains are included in your worldwide income for US tax purposes. Gift, real estate, and inheritance taxes all apply to US citizens and Green Card holders regardless of where they were located. You will also be taxed on any income from dividends or investments overseas and may face increased reporting requirements on foreign mutual funds or investment vehicles. There may also be different tax rules and exceptions for each type of investment, so we suggest you seek expat tax advice regarding any capital gains you expect to receive in a given tax year.