Ah, it’s tax season again! Like most US expats, you’re gathering your documents (or at least thinking about doing that!) and preparing to file your 2013 expatriate taxes. But wait! There are some important tax changes that went into effect in 2013 that you don’t want to miss. You could lose out on hundreds of dollars or worse yet, be penalized if you were required to file a form and failed to do so. Let’s take a closer look to give you a full understanding of the changes and how they may impact you.
Do you know about FBAR, the Foreign Bank Account Report? If not, it’s time to get acquainted.
If you have $10,000 or more in a foreign bank account at any point during the year, you are required to file FBAR.
FBAR filing has officially gone high-tech—you can no longer file by mail via Form TD 90.22-1. You are required to file electronically via FinCEN Form 114, which is sent to the US Treasury Department, not the IRS. You can have a third-party preparer file the FBAR for you—you just need to sign FinCEN Form 114A to give them permission.
The deadline for filing is June 30 (no extensions) and the penalties for failing to file if you are required are steep!
Foreign Earned Income Exclusion (FEIE)
This is often an expat’s favorite deduction. The FEIE allows you to deduct up to $97,600 of your foreign earned income (up from $96,100 last year). That significantly reduces or eliminates your US tax obligation!
If you are overseas for 330 of any 365-day period and earn foreign income, you pass the PPT (this applies to the majority of expats). If you live abroad for at least one year and have no plans to return to the US, then you qualify with the BFR.
The Foreign Housing Exclusion
This is the IRS’ way of equalizing the cost of living differences when residing abroad.
Overseas housing is often more expensive and the IRS allows you to offset some of those increased costs. This year, you can deduct a maximum of $29,280 (which is 30% of the FEIE, so this amount adjusts each year).
If you happen to live in one of the following Australian cities, the IRS bumps up your allowance because your city is deemed to have a higher cost of living.
Those cities and 2013 allowable amounts are:
- Adelaide $35,200
- Brisbane $34,800
- Canberra $30,600
- Darwin, Northern Country $30,600
- Gold Coast $34,800
- Melbourne $44,600
- Oakey $34,800
- Perth $47,700
- Sydney $32,782
- Toowoomba $34,800
By now you’ve probably caught wind of the worldwide FATCA uproar but if not, here’s a quick overview.
FATCA, the Foreign Account Tax Compliance Act was created to uncover tax cheats who are stashing money in overseas accounts to avoid Uncle Sam.
US expats weren’t necessarily targeted (as you have excellent reasons for having your assets offshore!), but you were unfortunately caught in the crossfire. So if you have overseas assets that exceed certain thresholds (which vary depending on your filing status) you need to file Form 8938.
In 2014, FATCA extends its reach to Foreign Financial Institutions (FFI’s), as FFI’s will be forced to report on the account balances of their American clients or be penalized by payment withholdings. This is sort of a system of checks and balances for the US to ensure they receive all the information they are seeking.
We encourage you to evaluate your assets and determine if they exceed the thresholds and file Form 8938 if necessary.
The Streamlined Program and Offshore Voluntary Disclosure Program (OVDP)
These are the two IRS amnesty programs designed to help delinquent filers get caught up on their US tax obligations.
The good news is this: they haven’t ended these programs so if you are delinquent on filing your expatriate taxes, there is still time to get caught up!
The bad news?
There is no set ending date so they could be terminated at any time. If you are behind on your US expatriate taxes, we highly encourage you to take action.
The Streamlined Program is perfect for expats who have simply fallen behind, as most of you wouldn’t owe much tax (if any) for the years you didn’t file.
This program minimizes any penalties and is a great option. If you owe a significant amount of taxes (including FBAR penalties which can add up quickly) you may need to apply to OVDP. This program comes with larger penalties and fines, but for some it is the better (or only) option.
Before you apply to either program, consult an expat tax professional. If you apply to the Streamlined Program and are rejected for some reason, you are now ineligible for OVDP and at the mercy of the IRS—and no one wants that!
About the Author: David McKeegan is the co-founder and President of Greenback Expat Tax Services.