Tax Items of Interest

 2016

 

Life for American citizens and American green card holders living overseas is complicated.  That is certainly a true statement if ever there was one. Not only are there the rules and regulations of the foreign country to attend to, but the US government imposes a variety of requirements that seem to grow ever longer and more complex.  Nowhere is this more evident than with the tax rules.  This brief article is designed to alert you to some of the issues that have crossed my desk recently and seem worthy of mention.  This is not an exhaustive review of any of these matters, but will simply put a spotlight on them so you can take further action if necessary.

(1)  Foreign earned income exclusion—this is not really a matter for much discussion other than to tell you the maximum amount for 2015 is $100,800 up from $99,200 in 2014.

(2)  Affordable Care Act--The individual shared responsibility provision requires you, your spouse, and your dependents to have qualifying health insurance for the entire year, report a health coverage exemption, or make a payment when you file. This is really important to know for Americans living overseas.  Obamacare linked health coverage to tax returns by imposing a tax penalty if you do not have qualifying health care insurance. If you have a US employer or are otherwise covered by US-based health insurance, you will indicate this on your tax return and that is end of the matter.  If you are not covered by US health insurance, you can claim an exemption for living overseas on Form 8965. If you do not claim the coverage or the exemption, you may be subject to a tax penalty so be sure to attend to this matter in your tax return.

(3)  FATCA—The Foreign Account Tax Compliance Act requires individual taxpayers to report information about certain foreign financial accounts and offshore assets on Form 8938 and attach it to their income tax return, if the total asset value exceeds the appropriate reporting threshold. This very controversial law has, surprisingly, been adopted by many foreign countries and their banks who are being very conscientious about identifying American account holders and either closing their accounts or dutifully sending account information to the US.  It is therefore a good idea to prepare and attach this form to your tax return if the total amount of assets warrants the form—even though it is largely duplicative of the FBAR form (which also must be filed if account amounts indicate it is necessary).

(4)  Green card holders and filing a US return—Many green card holders are only in the US for a short period of time to work and then go back home, assuming that once they leave the US, their tax filing responsibilities are over—especially if the green card has expired. It turns out this is not the case and as long as they have the green card, they are required to not only file a US tax return, but also report foreign accounts in accordance with FATCA and FBAR rules.  If you are such a person, you will want to look into “abandoning” your green card which is a process that takes place through US immigration officials or a US Consular office. If you have held your green card for a certain amount of time, abandoning the card can lead to tax repercussions as the green card holder may now be considered to have “expatriated”.  Needless to say, if you will want to seek competent counsel to deal with any of the issue described in this paragraph.

(5)  Children of US citizens who live abroad—I kept this title very general as there are all sorts of possibilities regarding parentage and living situations and the rules are pretty complicated. Wikipedia has a pretty good summary in a piece entitled “Birthright Citizenship in the United States”.  If you are a US parent or a child of a US parent, you will want to figure out the citizenship status for a number of reasons, not the least of which is there are significant tax implications. As a parent, you can take claim your US citizen child as a dependent on your tax return, but you will need to get a Social Security number for the child first.  As a child, if you have US citizenship, you will be required to file a US tax return when you start earning income, even if you never lived in the US.  This can cause a host of problems if you never realized you had to file and suddenly find you are years behind.  There are other (complicated) rules that allow you to renounce your US citizenship, but that can be tricky too.  Without making too fine a point of it, it is exceedingly important to research this issue and understand you (or your child’s) citizenship status for tax purposes.

 

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