Watson CPA Group - Knowledgebase

Knowledgebase

ExPat FAQs - Watson CPA Group
What is foreign earned income exclusion?
By Jason Watson (Google+) If you are a US citizen or a resident alien of the United States and you live abroad, you are still taxed by the IRS on your worldwide income. But, if you earn wages as an employee or have self-employment income while working in a foreign country as an ex-patriate or...
12 Nov, 2014 Views: 0 Comments: 0
What amount can I deduct for foreign earned income exclusion?
By Jason Watson (Google+) Depends. The full amounts for single taxpayers are- 2015 Tax Year $100,800 2014 Tax Year $99,200 2013 Tax Year $97,600 2012 Tax Year $95,100 2011 Tax Year $92,900 ...
12 Nov, 2014 Views: 0 Comments: 0
How do partial years work with the foreign earned income exclusion?
By Jason Watson (Google+) For 2014, you can exclude a maximum of $99,200 for single taxpayers. However, you must pro-rate this amount for partial years. So, let’s say you earned $40,000 in 2014 and you started your foreign job on July 1. You would be eligible for 183 days-worth of the $99,200...
12 Nov, 2014 Views: 0 Comments: 0
How do I qualify for the foreign earned income exclusion?
By Jason Watson (Google+) There are several small hoops, pitfalls and gotchas that you need to be careful with, but the big requirements are- 1. Your tax home must be in a foreign country, and your abode can be anywhere except the United States. These terms are different, the definitions are...
16 Oct, 2012 Views: 0 Comments: 0
What is a tax home or abode, and how do they relate to each other?
By Jason Watson (Google+) Your tax home is one of the following- 1. Your regular or principal place of business, employment or duty post or, 2. Your abode in a real and substantial sense if you do not have a regular or principal place of business (traveling sales, for example). In this...
07 Oct, 2013 Views: 0 Comments: 0
What is the bona fide residence test?
By Jason Watson (Google+) There are four requirements to satisfy the bona fide residence test as an ExPat- 1. You must be a US citizen, or a resident alien living in a country that has a tax treaty with the United States. 2. Your actions must be considered resident-worthy. In other words,...
16 Oct, 2012 Views: 0 Comments: 0
What is the physical presence test?
By Jason Watson (Google+) ExPats qualify for foreign earned income exclusion and deductions under the physical presence test if they are physically present in a foreign country or countries for 330 full days during any rolling period of 12 consecutive months (330 days out of a rolling 365 days)....
12 Nov, 2014 Views: 0 Comments: 0
Are there exceptions to the bona fide residence or physical presence tests?
By Jason Watson (Google+) The only exception or waiver to the time requirements is if you have to leave due to civil unrest, war or similar adverse conditions. You must demonstrate that you reasonably could have expected to meet the minimum time requirements if the adverse conditions had not...
12 Nov, 2014 Views: 0 Comments: 0
Do I have to pass the same test each year?
By Jason Watson (Google+) No. You can switch back and forth depending on your circumstances. For each tax year you must satisfy an entire test’s requirements, either the bona fide residence test or the physical presence test. It is common to pass the physical presence test one year, and then...
16 Oct, 2012 Views: 0 Comments: 0
What is considered foreign earned income?
By Jason Watson (Google+) To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income. Foreign earned income is generally income you receive for services you perform during a period in which your tax home is...
12 Nov, 2014 Views: 0 Comments: 0
How does the foreign housing exclusion or deduction work?
By Jason Watson (Google+) In addition to the foreign earned income exclusion, you also can claim an exclusion (for salaried) or a deduction (for self-employed) from your gross income for your housing expenses. You must qualify for the foreign earned income exclusion, and only amounts paid for...
13 Nov, 2014 Views: 0 Comments: 0
If I don't qualify for the housing deduction, can I still deduct expenses?
By Jason Watson (Google+) Yes. If you do not qualify for the foreign earned income exclusion and subsequently the foreign housing exclusion / deduction, you can view your time abroad as a business trip and deduct expenses accordingly. International per diem rates can be applied and deducted as...
07 Oct, 2013 Views: 0 Comments: 0
Can I deduct mortgage interest paid on my foreign home?
By Jason Watson (Google+) Yes, if it meets all the usual tests of a domestic home. The loan must be an acquisition loan (one to purchase the home), and it must be secured by the home. The two home (main home and second home) limit applies in addition to the $1 million total debt limit. Interest...
16 Oct, 2012 Views: 0 Comments: 0
How do moving expenses affect my exclusion?
By Jason Watson (Google+) Relocation packages, incentives, signing bonuses, reimbursements, etc. might be considered taxable earned income and therefore eligible for the foreign earned income exclusion. You must include as earned income the following- 1. Any reimbursements of or payments for...
12 Nov, 2014 Views: 0 Comments: 0
May I deduct contributions to foreign charities?
By Jason Watson (Google+) Generally No. There are exceptions for Canada, Mexico and Israeli charities but you must have income in those countries to deduct the associated charitable donation. For example, to donate to a Canadian charity you must have Canadian income. From a theoretical...
07 Oct, 2013 Views: 0 Comments: 0
May I still make contributions to my IRA as an ExPat?
By Jason Watson (Google+) Yes. However, excluded income amounts must be used to compute income thresholds and phase-out limits. For example, your ability to contribute to a Roth IRA completely phases out at $129,000 for single filers and $191,000 for couples filing jointly. So, if you earn...
12 Nov, 2014 Views: 0 Comments: 0
What happens if my host country has a form of social security?
By Jason Watson (Google+) The United States has created tax treaties with several countries to coordinate the coverage and taxation of society security benefits. Every country has a different name for it, and each agreement is different. The specific agreement is called ‘totalization’ and...
16 Oct, 2012 Views: 0 Comments: 0
If I am a self-employed ExPat, what taxes am I responsible for?
By Jason Watson (Google+) Self-employment income is taxed at two different levels- first, the net profit is taxed for social security and medicare benefits which is currently 15.3%. This is also referred to as self-employment (SE) tax. Next, your profit is taxed for personal income. You can...
12 Nov, 2014 Views: 0 Comments: 0
Are there any downsides to claiming the foreign earned income exclusion?
By Jason Watson (Google+) Yes, but the exclusion is a very nice tax break. First, you cannot claim a foreign tax credit or a foreign tax deduction on the income you exclude. Generally speaking any credit or deduction that you normally would be allowed to take cannot be taken on the excluded...
12 Nov, 2014 Views: 0 Comments: 0
Does voting through an absentee ballot mess up my bona fide foreign residency?
By Jason Watson (Google+) Perhaps. You can vote by absentee ballot in any election held in the United States without risking your losing your status as a bona fide resident. However, if you give information to the local election officials about the nature and length of your stay abroad that...
07 Oct, 2013 Views: 0 Comments: 0

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