CPA Miami _{Certified Public Accountants}

Who Should File a Tax Return?

If you are a U.S. citizen or resident alien living or traveling outside the United States, you generally are required to file income, estate and gift tax returns and pay estimated tax in the same way as those residing in the United States.

What are the Filing Requirements?

The filing requirements are very similar to that applied to citizens or residents that reside in the United States (U.S.). Where you are required to file an income tax return, you are required to file even if you don’t owe any taxes.

What Items are Subject to Tax?

Your taxable income includes wages, self-employment earnings, interest, dividends and all other sources of income similar to those items that would otherwise be subject to tax as if you have resided in the U.S.

It does not matter that you earned this income outside of the U.S. If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income.

How Are Income Taxes are Reduced or Eliminated When Income Is Earned Outside of the U.S.?

Of first consideration are treaties between the U.S. and foreign countries. Under these treaties and conventions, citizens and residents of the United States who are subject to taxes imposed by the foreign countries are entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries. If a foreign country with which the United States has a treaty imposes a tax on you, you may be entitled to benefits under the treaty.

More commonly, there are two important considerations that will serve to reduce or eliminate the taxes you must pay where (1) you may have already been taxed on income by a foreign country and (2) you may be entitled to the foreign earned income exclusion.

• Foreign Tax Credit — Simply stated, where you have already been taxed by a foreign country, it would be inequitable or somewhat unfair to tax you again on that same income. Accordingly, you are entitled to report a foreign tax credit for those amounts already paid which effectively serves to reduce or eliminate income taxes you would otherwise be required to pay.

• Foreign Earned Income Exclusion — In certain cases where you have resided in a foreign country for an uninterrupted period of time, or more closely resemble that of a bona fide resident of a foreign country rather than the United States, you may be entitled to report a foreign earned income exclusion in which approximately $100,000 of earned income may be excluded from taxation.

What are the Foreign Earned Income Exclusion Requirements?

The foreign earned income exclusion is the most widely used tax benefit available in the individual income tax returns for U.S. citizens or residents residing abroad that we prepare. To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

• A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year;
• A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
• A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months

Why Should You File a Tax Return?

There are several reasons to file a tax return even if one is not required. Most importantly, the filing of a tax return starts running the clock on the length of time in which the government can challenge the accuracy of the return that you’ve filed. This is true even if you don’t pay your income taxes. By filing a return, you have effectively limited the period of time in which the amount of income tax due can be changed. If you never file a return, the period of time in which taxes can be assessed never ends.

Secondly, the penalties that may be assessed for the failure to correctly report and pay taxes on income are harsh – particularly so when foreign income or holdings are not reported.

In light of current economic conditions, the Internal Revenue Service (IRS) has stepped-up efforts to increase the enforcement and collection of income taxes by reducing the tax gap, or difference between what has been collected and what should have been collected if all taxes were paid. We have since seen coordinated efforts by the IRS that are concentrated to attack unreported income that may be subject to U.S. taxation. Accompanied with recent advancements in technology that facilitate the tracking and reporting of income, increased pressures on foreign countries and institutions to disclose this income, and the harsh penalties that exist for the omission or underreporting of foreign income, we believe the days of omitting or underreporting this income are limited.

How Can We Help?

Preparing income tax returns for U.S. citizens and residents residing abroad is a bit more complicated where it involves international tax treaties, foreign tax credits and foreign earned income exclusions.

CPAMiami™

is a qualified, experienced, licensed certified public accounting firm that can assist you in the filing of your tax return(s) and representation before the IRS should the need arise. We can help prepare your returns accurately and efficiently at competitive prices, especially in those cases where you have not filed or are late.

Your return(s) will be prepared by knowledgeable, licensed certified public accountants, experienced in reporting foreign earned income for U.S. citizens and residents residing abroad.

While we cannot help you with income tax matters outside of the U.S., we can be of great assistance if you’re contemplating working outside of the U.S. or require assistance in understanding the underlying tax benefits, deductions or credits available to you.

Through using on-screen sharing applications and Skype or instant messenger technology, we will prepare and review your tax returns with you through teleconferencing at your convenience. Where applicable, we will file your returns electronically and accept credit or charge card payments for services. Any documents you may be required to submit can be sent directly to us through fax or e-mail attachment. It couldn’t be more convenient.