The author of this article, David McKeegan, is a director of www.greenbacktaxservices.com, a US Income Tax provider that specializes in tax preparation for US expatriates. All information was correct at the time this article was written (February 2011).
1. If you are a US citizen or Green card holder living and working abroad, you are required by law to file a US tax return each year.
Most US Expats would do well to remember Al Capone, the notorious Chicago gangster, who was suspected of murder, racketeering and many other serious crimes. The government could not make any of those charges stick, but he was eventually arrested and imprisoned for tax evasion. You do not have to be a mafia kingpin to go to jail for tax evasion, and if the IRS discovers that you have not filed your US Expat tax returns then it could lead to a serious problem including penalties and even jail time.
2. Even if you prepared your own taxes when you lived in the US, you should really consider hiring an expat expert while you are abroad since this type of return is much more complicated.
As an individual, (i.e. not a business or charity) you will need to file a Form 1040 and the associated schedules, much the same way you did in the US. In addition, you may qualify for the Foreign Earned Income Exclusion, the Foreign Tax Credit, the Foreign Housing Deduction, or the Foreign Housing Exclusion. These forms can be difficult to interpret, but they have a number of advantages and can save you a significant amount of money.
3. You don’t want to reconcile you host country tax year to your US tax year.
The US tax year begins on January 1st and ends on December 31st. Not all countries operate on this system. For example Australia, Hong Kong, New Zealand, and the UK all have different tax year periods. The US requires that you (or your tax preparer) complete your return according to the US tax year, which means taking your tax statements from your host country for two years and extracting the appropriate information to then plug into your US tax return. While it is not the most difficult task there are much better ways to spend an afternoon.
4. You don’t want to deal with the Foreign Exchange rates and calculations.
Finding the official Foreign Exchange rates and then converting your foreign income into US dollars can be a time consuming activity (especially if your tax year is not the same as the US tax year). Most US Expats are much better off having a professional deal with these conversions to avoid any unintentional mistakes. In addition, you will want to calculate the exchange rates in different ways i.e. monthly, yearly and on specific days to make sure you are converting at the most advantageous rate for you (not the IRS).
5. The IRS has taken an aggressive stance to make sure US Expats are filing tax returns correctly:
The US Government estimates that offshore tax abuse costs the US Treasury as much as $100 billion each year and they are serious about finding and prosecuting offenders. Once they locate a US Expat that is not filing their taxes as required, very aggressive steps are taken to rectify the situation. This could include having bank accounts and property seized, arrest warrants issued, and a number of US rights stripped away without warning. If you are behind on filing taxes in the USA, contact us immediately to avoid all of these problems.
6. You probably do not keep up with all the rule changes from one tax year to the next.
You probably know that the US tax code changes every year, especially when there are major changes in political office (like a new President or a shift in Congress). It is very easy for a US Expat to overlook one or more of these updated changes, and if the return is audited then it can lead to various civil fines and penalties. The problem is that the government does not usually stop there, and if they find someone that filed incorrectly then they usually audit the past six years to look for assets and other items that were not disclosed. Trust us; this is not an enjoyable experience for anyone.
7. You may be required to file a State return, even if you have not lived in the US for a few years.
Every state has its own rules regarding US Expats, and some States make it more difficult to avoid filing a return. If you lived in California, New Mexico, South Carolina, or Virginia you may still have a tax domicile in that state. A tax domicile can be claimed if you maintain a valid driver's license, voter registration, bank accounts, property, or other assets that tie you to state.
8. Commercial tax software is not designed with US expats in mind so you may miss deductions or exclusions!
These programs are designed for US citizens living in the United States, not a US Expat living abroad. They are much more likely to miss exclusions and deductions that are only available to Expats. A tax professional that is familiar with international law will know each of the miniscule rebates and tax credits designed for your specific situation and make sure you get the appropriate deductions and credits.
9. Hiring a professional to prepare your taxes does not have to be expensive.
At Greenback Expat Tax Services, we charge a flat rate of $329 to prepare your US Expat Federal tax return and there are no hidden fees. This price includes a thorough search of every possible deduction that is available for the US and the region that you are temporarily calling home; a service that many accountants charge hundreds of dollars extra for. Since our team of tax professionals knows international law and how it applies to US expats better than anyone, we can prepare your return quickly and in a professional manner that will ultimately save you time and money.
10. And finally, the best reason to hire an expert to prepare your US expat taxes this year…
Can you think of anything you’d want to do less than sitting inside this weekend trying to sort out your taxes? There are hundreds of possible scenarios that could change what forms and schedules need to be filed, and missing any one of them could lead to serious consequences with the US Government. Believe it or not, our staff enjoys researching international law and they take pride in the quality of every return that they complete for US Expats. So get outside, enjoy the sun or the snow, and let the professionals at Greenback Expat Tax Services handle your income tax returns.
