(US citizens and US green card holders residing outside the US)
US citizens and US green card holders have mandatory income tax filing obligations, unlike citizens of other countries. The US imposes taxation based upon citizenship, not based on tax residency.
US citizen and US green card holder living outside the US are required to file a US tax return and report their worldwide income in their US tax filings if they continue to meet the annually indexed US minimum filing threshold amounts. However residing outside the US may permit the application of special tax laws and regulations, when certain qualifications are met, permitting the offset of a US tax obligations in whole or in part. These rights of offsets are the result of the integration between the Foreign Earned Income Exclusion, Housing Exclusion and/or Housing Deduction and Foreign Tax Credit mechanisms. Our primary goal and objective is to use these interplay of mechanisms, in combination, to wipe out any US tax. However this is not possible to the extent of US income, on which no foreign tax credit nor is exclusion available to you in the US. Additionally, internationally agreed to income tax treaties may also serve to reduce and/or eliminate your US or foreign tax liabilities.
To qualify for the Foreign Earned Income Exclusion you must meet two tests:
1. the Tax Home Test and
2. either,
a. the Bona Fide Residence Test (Qualitative - requiring a full calendar year of foreign residence) or
b. the Physical Presence Test (Quantitative - requiring 330 full days of foreign presence out of any 12 month or 365 day consecutive period.)
You are not allowed to file Form 2555 or Form 1040 until meeting both of the above two tests. Typically the Physical Presence Test is used in years of transition that is in both years of expatriation - abroad out of the US and in years of repatriation - back to the US.
We are dedicated to educating our professional and intelligent clients, who desire to be kept aware as to US tax laws affecting the amount of US income tax they will pay as well as developing and constantly changing new US tax law.
We invest the time and resources to meet with our clients as often as required to ensure optimum tax savings mechanisms are in place.
We can advise clients as to the applicable tax laws and regulations and we will consult with them on the preparation of their US tax return Form 1040, FBAR compliance, Form 2555 - Foreign Earned Income and Form 1116 - Foreign Tax Credit and any required State tax filings all via electronic communication and the telephone and / or facsimile, where the situation precludes a one-on-one meeting.
Failure to file your income tax return will not allow for the statute of limitations to expire and may cause the foreign income exclusion election to not be granted. Having the statute of limitations not expire due to lack of filing can meet that even if you are outside the country for more than ten years and you return the IRS can demand that you file ten years worth of income tax returns. The burden of proof when it comes to filing requirement will fall on you the taxpayer. We always recommend that taxpayers file their income tax returns even if they don?t owe income taxes.
The normal statute of limitations gives the IRS a three year window from the filing date to audit (inspect) your tax returns. After that the window closes (with some expectations) the IRS cannot audit your income tax return for that year.
We invest the time and resources to meet with our clients as often as required to ensure optimum tax savings mechanisms are in place. Please Contact Us so that we can help you optimize your tax savings.