Report on the AARO Tax Seminar 101 (21/01/15)
Published: 30 January 2015
Led by Tim Ramier, AARO board member and lawyer and chair of the Tax Committee, with participation by Clint Bateman and Stacy Collier of ABBM group; Karen Carmichael, of Smith Carmichael Associates; and Norman Reuter, lawyer and former chair of the AARO Tax Committee. The edited film of the meeting will be on the AARO website at the beginning of February. (The main elements of this report apply to Americans anywhere outside the United States but since the seminar was held in France, there is certain France-specific information as well.)
This was the meeting for first-time filers, those who had never filed their US taxes from abroad, although there were some experienced filers in the audience. After the presentation, the group broke up into smaller groups asking for personal advice and information from the professionals .
We have to distinguish betwaeen “tax” and “information reporting”.
Who has to file?
Americans who live overseas have to declare their worldwide income, earned and unearned, if the gross income is over the threshold for their filing status:
- Single: $10,150
- Single, 65 or older: $11,700
- Head of household: $13,050
- Head of household, 65 or older: $14,600
- Qualifying widow(er): $16,950
- Qualifying widow(er), 65 or older: $17,550
- Married, filing jointly: $20,300
- Married, filing jointly, not living with spouse: $3,950
- Married, filing jointly, one is 65 or older: $21,500
- Married, filing jointly, both are 65 or older: $22,700
- Married, filing separately: $3,950
- Self-employed: $400
These are thresholds for filing. They do not mean that you will necessarily have a tax to pay. Your gross income includes all your salaries, pensions, interest, and dividends, as well as money made from sales, rental property, capital gains. Be sure to calculate the gross amount. (For example, in France, when you look at your pay slip, use the "brut" not the "net imposable" figure.)
How do you calculate the dollar amount?
For your income, use the average exchange rate for the year. The figure has not yet been published on the IRS website.(http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates) You can use commercial sites, such as oanda.com, for exchange information, but they may not have exactly the same figure as the treasury department or IRS sites.
For the information forms, FBAR and FATCA, use the year-end rate, which has been published and, for the $/euro rate is 0.8220
What are our filing deadlines?
You have to have your first calculations done by April 15 because if you owe anything, you must pay by then. However, overseas filers can claim an 2-month automatic extension of the actual filing, since many of us do not have access to all the exact information until May (in France, for example). That takes us to a June 15 deadline. If we need more time, we can request an additional 4-month extension to October 15, using form 4868, which can be requested by e-file. It is possible to request a final extension to December 15, but if your declaration is so complicated as to require that, you are probably using a tax professional to help you.
How do we file?
You can still file your paper declaration. If you owe no tax, it should be sent to the Department of the Treasury, Internal Revenue Service Center, Austin TX 73301-0215, USA. If you do owe a tax payment, then you send your file and payment to the Internal Revenue Service, P.O. Box 1300, Charlotte NC 28201-1300, USA
You can also e-file your declaration at http://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free
What forms do we have to file?
The 1040 and attached schedules, if there is investment income.
Form 2555, if you are employed and claim the Foreign Earned Income Exclusion, which is $99,200 for 2014. If your income is below that figure and you owe no tax, you still must file in order to benefit from the exclusion. Unemployment benefits are unearned income.
Form 8938, the FATCA form, if you meet the threshold amount, explained in the "Information" section below.
Form 1116, if you have foreign tax credits. (For those filing from France, the IRS tells us we cannot claim any tax credit for the CSG/CRDS payments.) There was some discussion as to whether we could claim the credit for investment income, though. If your earned income is over the $99,200 excluded amount, you can claim a tax credit for that.
There are also deductions and credits, which will depend on your filing status and other considerations (expenses related to rental property or self-employment, mortgage interest, charitable contributions, real-estate taxes (taxes foncieres, in France). The standard deduction for 2014 is $6200 for single and married, filing separately status, $12400 for married, filing jointly.
If you owe over $1000 of tax for 2014, then you will also have to send in estimated 2015 tax payments (due dates: April 15, June 15, September 15, and January 2016)
Tax Treaty Benefits
It's not all bad news. We get tax credits abroad for our US source investment income, which is taxed only in the US. Our US pensions and annuities are taxed only in the US. (France will not charge CSG/CRDS on our US source income, in accordance with the treaty. The most recent letter from the Finance Ministry will be posted shortly on the AARO website and will be downloadable. If your local tax office has incorrectly imposed the CSG/CRDS contributions on your US source income, you will be able to give them this letter to correct the mistake.)
The information supplied on these forms is not used for taxing you; it's just informative.
This is the old TD 90-22.1 paper form which has become the FINCEN 114 form that can only be e-filed. If you have a combined total of more than $10,000 in your bank accounts, you must file the FBAR. The form requires your bank account information and the highest amount in the account during the year. Use the exchange rate for the last day of the year. For 2014, the $/Euro exchange rate is 0.8220. The deadline for filing is still June 30 and there are no extensions. You can file now and get it out of the way.
The penalties for not filing are still horrendous: non-willful negligence, $10,000 per violation for up to 6 years; willfull withholding, the penalty can go up to $100,000 or 50% of the account's holdings for each violation, whichever figure is greater!
If you haven't been filing your FBAR and/or tax declaration, there is the streamlined process that has been in place since June 2014. You need to file 6 years of FBARS and 3 years of taxes, plus payment and interest, if due, but no penalties. Of course, you must continue to file every year.(http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures)
Form 8938 of your tax declaration. This is similar to your FBAR. The declaration threshold for residents outside the US is $200,000 of aggregated foreign financial assets for single or married, filing separately status, and $400,000 for joint filing. (For residents in France, an S.C.I. is a financial asset and you declare your proportionate share of the total value of the S.C.I.)
Passive Foreign Investment Company. If you have these, the general consensus is that you will need professional help to declare them properly. If you have investments in things that are similar to mutual funds (SICAV and Multi-support Assurance Vie, in France), funds that are not registered in the US with the S.E.C., then you probably have PFICs. Individual stock holdings are not PFICs. The form to fill out is 8621, but again, the consensus is that you will need professional help. This is beyond the scope of tax 101.
This was not covered in the meeting. How do we declare our coverage from our country of residence program? This will be published on the AARO website in a separate article.