Foreign Earned Income and International Taxation, Huntington Beach, CA
US Nationals living and working abroad (Expatriates)
Foreign Nationals living and working in the United States
Foreign nationals having assets/investments in the United States
Understanding and interpreting tax law as it relates to foreign income is highly complex. By not meeting state and federal tax reporting obligations, taxpayers risk severe penalties that could otherwise have been avoided. At Yorktown Main, we have the expertise to assist taxpayers in navigating through international tax law and meeting income tax reporting requirements successfully.
If you have earned income or own assets abroad, there are several tax implications to consider; these include residency, source of income, and additional reporting obligations.
Here at Yorktown Main, we specialize in international tax law for a variety of clients - both U.S. and Foreign Nationals.
Your residency status, for tax purposes, can have a large impact on your U.S. tax liability. The scope of your income and activities that are subject to U.S. tax reporting increase substantially depending on your residency status.
If you do not meet either of these tests, you may choose to be treated as a U.S. resident for part of the year. This is considered a dual-status tax year. As a dual-status resident taxpayer, you may be able to take advantage of certain income tax treaties that the U.S. has with foreign countries. While these tax treaties may reduce U.S. tax liabilities, each treaty must be reviewed to determine eligibility for these provisions.
Contact us today for a free consultation
Source of Income
Resident aliens should file Form 1040EZ, 1040A or 1040. The due date for filing the return and paying any tax due is April 15th of the following year for which you are filing a return. You are allowed an automatic extension to June 15th to file if your main place of business and the home you live in are outside the U.S. on April 15th. Additional extensions may apply. Nonresident aliens who are required to file an income tax return should use Form 1040NR or, if qualified, Form 1040NR-EZ.
Foreign citizens with U.S. Visas
Persons in the United States on the following visa categories may have additional reporting requirements:
1. H1/B Visa - Specialty Occupations in fields requiring highly specialized knowledge
2. L Visa - Intracompany Transfers
3. F-1 Visa - International Students
Note: In general, International students in the United States on F-1 visas may be exempt from FICA (Social Security and Medicare) taxes and their corresponding withholding requirements. Any FICA taxes erroneously withheld from an F-1 student on Practical Training may be claimed as a refund by filing IRS Form 843 - Claim for Refund and Request for Abatement.
4. E1/E2 Visa - Investors & Traders
5. O Visa - Extraordinary Ability
Three Ways to Reduce Foreign Earned Income
U.S. citizens and resident aliens may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs. To qualify for the foreign earned income exclusion, the taxpayer must have foreign earned income as well as meet one of two tests: the bona fide residence test or the physical presence test. For 2015, the maximum exclusion is up to $100,800. For more information about the Foreign Earned Income Exclusion, see IRS Publication 54.
2. Foreign Tax Credit
Once the foreign earned income exclusion is chosen, a foreign tax credit or deduction for taxes cannot be claimed on the excludable income. If you plan to take a foreign tax credit, instead of foreign income exclusion, you may be eligible for additional withholding allowances on Form W-4. See IRS Publication 919 for more information on how to convert credits to withholding allowances. The foreign tax credit is intended to relieve you of a double tax burden when the foreign source income is taxed by both the U.S. and the foreign country. Generally, if the foreign tax rate is higher than the U.S. rate, there will be no U.S. tax on the foreign income.
Reporting Foreign Assets to the IRS and the Department of Treasury
U.S. citizens and residents may be required to report information concerning their foreign accounts on their federal income tax returns. In addition to Form 8938, there is a reporting mandate for foreign accounts of more than $10,000. You are required to file an FBAR (Form 114) if the total value of all your foreign financial accounts exceeds $10,000 at any time during the calendar year. FBAR must be filed electronically through FinCEN’s BSA E-Filing System. Failure to file a required FBAR can subject a taxpayer to severe civil and criminal penalties.
At Yorktown Main, we have the expertise in analyzing, preparing, and e-filing your FBAR directly with the Department of Treasury's Financial Crimes Enforcement Network (FinCEN), to ensure you are in compliance with all your foreign asset reporting obligations.