While some people might try to argue that technology has gone too far, it is crucial to admit that this is the era of technology. The truth is that the internet and communication technology have created a lot of opportunities across the globe, especially for entrepreneurs.
The business world is doing great, and if you are a US citizen in a foreign world, you will notice a lot of chances to start successful businesses. In this guide, we have shared some tax tips that US ex-pats need to be aware of.
1. Report Worldwide Income
The law states that all Americans living or earning income from foreign countries must fill and submit US tax returns. Some tax benefits, such as the foreign earned amounts of money, are only available to those that file US returns.
Ant money or income received, or any form of deductible expenses paid in different currencies must be declared on a US tax return and stated in US dollars. Also, the law demands that US citizens pay taxes in dollars.
Note that both IRS Form 8938 and FinCen Form 114 need the use of the December 31st exchange rate for each transaction irrespective of the actual exchange rate at the time the transaction was completed.
2. Report all Assets and Foreign Accounts
According to federal law, all resident aliens and US citizens report all income they earn from different parts of the world when filing US taxes from abroad. This includes all income earned from foreign securities, trusts, and bank accounts. You must do this to avoid crossing the legal line.
3. File Required Tax Forms
Most of the time, all affected taxpayers must file schedule B, Ordinary, and Interest Dividends alongside their tax returns. In part III of Schedule B, you will be asked to indicate whether you have some foreign accounts, such as securities and bank accounts.
If you have any of that, you must disclose the countries in which they are located. Some taxpayers are expected to fill some forms with the Treasury Department. These include FinCen Form 114, Form 8938.
Taxpayers are not to file the FBAR with business, individual, estate, or trust tax returns. Instead, provided they have more than $10,000 in their foreign accounts at the time of writing this guide, they are expected to file a Treasury Department FinCEN Form 114.
It is vital to clearly understand that the deadline for having the FBAR filed is similar to that of the federal income tax return. The filing must always be done electronically with the FinCEN before April 15. If you fail to submit your tax return on the date stated therein, you will be automatically granted an extension until October 15.
4. Self-Employed Persons Must also Report
When you start a business in a foreign country and you work for yourself, you will have a unique set of tax return requirements, and you should be aware of them. For instance, you will have to file a Schedule C, which is all about the Profit or Loss from your business. You will file this alongside your US ex-pat tax return.
Those without any deductions can file the Schedule C-EZ; however, most of the time, there will be deductions to help lessen the US ex-pat tax liability. Note that as a self-employed taxpayer, your threshold is extremely low that it is almost impossible to exceed it. As long as you earn $400 annually, you will have to file.
Besides the standard filing rules already mentioned, there are some other tax rules to keep in mind. You need to consider the self-employment taxes. At the time of writing this, the tax rate for the self-employed was standing at 15.3%; it keeps changing, so you should be sure to confirm ahead of filing your tax returns.
Closing Thoughts
There are fines and interests that you will be charged if you fail to file your tax returns in time. This guide helps you with some tips so that you know what needs to be done. If you have a business that earns income abroad, you must state clearly the amount of income generated within a tax year.
Luckily, US citizens earning income in foreign countries can always have extensions, which means you won’t have to worry about being pressurized to file but be sure to stick to the deadline.
