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Daily LifeExpat Tax Info

By Barron Harper

Also by Barron Harper:
Congress Legislates Accuracy Penalty
Qualifying for Foreign Earned Income Exclusion and Economic Stimulus
Report of Foreign Bank and Financial Accounts

As the season of Christmas and the New Year recedes, the Taxman is prepared to greet American citizens and residents with another season: tax filing. As residents of a foreign country, American expatriates will have to report and pay taxes on their world-wide income to the Infernal Revenue Service (IRS). But as U.S. citizens or deemed U.S. residents, expatriates should observe due diligence in how to go about reporting that income lest they end up paying taxes stateside in spite of double taxation treaties.

The first essential is to understand whether there is a filing requirement since anyone receiving earnings below a filing threshold is not obliged to file. The threshold is basically the combination of two categories: Exemptions and Standard Deduction. Based on filing status, the thresholds are as follows:

Single: $8,950
Over 65: $10,300
Head of Household: $11,500
Over 65: $12,850
Qualifying widow(er): $14,400
Over 65: $15,450
Married filing jointly: $17,900
1 spouse over 65: $18,950
both spouses over 65: $20,000
Married filing separately: $3,500

Exceptions to not filing where a threshold applies are in cases where a filer can obtain a refund of any federal income taxes withheld, the additional child tax credit or a refundable credit for prior year minimum tax.

Although foreign earned income up to $87,600 may be excluded from taxation, such income still counts as earnings for threshold purposes. Foreign earnings above this exclusion amount may be taxed. But a Foreign Tax Credit, though not always 100% effective, is available to offset any U.S. taxes where taxes have been paid abroad on the same foreign income. The FTC can also be applied against foreign taxes on other income flows.

Penalties can apply for failing to comply with US tax laws. IRS assesses penalties at 5% a month against any unpaid taxes up to 25% or 5% for late filing up to 25%. In cases where fraud is deemed to have been committed – for instance, in failing to report foreign earned income – IRS can assess 75% while denying the taxpayer the foreign earned income exclusion. It may also seek criminal penalties for not reporting foreign earnings, in which case the taxpayer could face jail time. Americans are also obliged to file information returns on investments in foreign corporations, in foreign partnerships and in foreign accounts, or risk severe penalties.

The tax paying deadline for calendar year 2008 is 15 April 2009 whereas the tax filing deadline is 15 June 2009. A 4-month automatic extension of time to file is available by filing Form 4868. Estimated tax payments for the 2009 calendar year are due quarterly: 15 April, 15 June, and 15 September in 2009, and 15 January in 2010.

Any expatriated US citizen or deemed resident who has not filed a tax return for some years should promptly do so. IRS is actively increasing its powers of audit in order to catch non-compliers, and the Service frowns on non-compliers. As long as no taxes are owed, revenue service will only require the last three years tax returns be filed.

Barron Harper is a member of Albo Euro-Consult (, a consortium of chartered accountants and legal experts on the European continent, and the National Association of Public Accountants (
He specializes in US International Taxation for American expatriates. For more information please see -

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