Get Started

ExPat Tax Prep, Foreign Earned Income Exclusion

By Watson CPA Group ()

Posted March 3, 2016

 

If you are a US citizen or a resident alien of the United States and you live abroad, you are still taxed by the IRS on your worldwide income.  But, if you earn wages as an employee or have self-employment income while working in a foreign country as an ex-patriate or expat, you might be able to exclude up to $101,300 ($100,800 in 2015) as tax-free income (or 2 x $101,300 or $202,600 if married to another foreign income earner).  This alone would save you $26,000 in taxes (or over $52,000 for couples who both qualify).

 

So, it’s a big deal, and it’s an even bigger deal that you take the necessary steps to qualify for the foreign earned income exclusion and its cousins the foreign housing exclusion and foreign housing deduction.  Please visit our FAQs for more information on expat taxes and the foreign earned income exclusion.

 

ExPat Tax Preparation

The Watson CPA Group is a progressive tax consultation and preparation firm embracing internet technology to provide worldwide tax service from offices in Colorado USA. A secure online Client Portal allows remote taxpayers to exchange financial information, tax documents and tax returns saving valuable time and resources. Scan or fax your tax stuff at your leisure! In person appointments are certainly challenging, so if requested we can set up a Skype meeting. Also, we can work with stateside representatives who have been given Power of Attorney to oversee your financial matters while you are away. We’ll make this very easy.

 

Foreign Earned Income Exclusion

There are several small hoops and gotchas that you need to be careful with, but the big requirements are-

 

  1. Your tax home must be in a foreign country.  (tax home definition)
  2. You must have foreign earned income.  (earned income definition)
  3. You must satisfy one of the following (a b or c)-

a. United States citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Or,

 

b. United States citizen or 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. Or,

 

c. United States 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.

 

You must satisfy all three parts above (1, 2 and 3).  If you are married to another foreign income earner, you both do not have to meet the same test of a b or c above.  You could be a resident while your spouse qualifies as physically present.

 

Some people are simply not eligible for the foreign income exclusion.  For example, US government employees paid by the US government cannot claim the exclusion.  There are handful of other ineligible taxpayers based on their association with the US government, armed services and the like.

 

ExPat Taxes Experience

There are several other pitfalls that can come up when dealing with expat taxes, and the Watson CPA Group has been handling taxes for expats since 1997.  Our trusted experience will correctly guide you in qualifying for the foreign earned income exclusion and the foreign housing exclusion / deduction.  But there are several other considerations- filing a joint tax return with another foreign income earner, taking a credit or deduction for foreign taxes, handling currency conversions and when to use year-end averages and when not to, properly reporting a foreign rental property, absentee ballot voting and how it can hurt you, reimbursements for moving expenses, IRA contributions while earning foreign income, social security agreements and many other things to make you go crazy.  As if living in a foreign country wasn’t hard enough.

 

We’re here to help!  Please visit our FAQs for more information on taxes for expats and the foreign earned income exclusion.

 

Fee Range

Many tax preparation companies charge you a basic rate, and then add on additional charges for eFiling, joint returns, rental properties, capital gains, small businesses, etc. And once you’re committed and find out the total fee, it’s too late. Most expat tax returns are prepared for a fee range of $400 to $500. Our fee always includes your state tax return foreign earned income exclusion calculations. Please review our Fee Structure for more information.

 

Non-resident aliens or anyone who has a United States tax fling requirement or obligation who are not citizens, our tax preparation fee range is $600 to $800. This usually involves extension tax treaty research to ensure your tax consequence is correctly handled.

 

For our foreign owners of C corporations, additional time is necessary for possible back-up withholdings, Form 5472, Form 8233, W-8 BEN and tax treaties, among other issues that need special handling. In these situations our tax preparation fee will be $1,000 to $1,200 for any C corporation owned by foreign investors or owners. While this isn’t an issue for most expat taxpayers, at times overseas business partners get together and this becomes an issue if one person is a foreigner.

 

Tax Consultation

Watson CPA Group is not just tax preparers- we are tax consultants, and our firm will take you through the cycles of your personal and business lives.  We are a resource that is always available throughout the year.  Have a question?  Need advice?  Received a notice from the IRS just before Happy Hour on a Friday?  You can contact us anytime, day or night.

 

Our fee is not just for tax preparation- it offers the continuous peace and mind of knowing that you are not alone in your tax world.  We are global minded people who can speak your language, not just in a theoretical sense but in a practical down to earth manner.

 

Moreover, our goal is to always prepare a comprehensive and accurate tax return but equally important is your understanding of how a tax return ‘works’- to the extent necessary, we want you to be comfortable with your tax consequences so together we can successfully plan for your future

 

The Watson CPA Group (team profile)