It may come as a surprise to you, but all US citizens including Expats have an obligation to file US tax returns to report their income. This is because the US taxes the worldwide income of all its citizens, as described in the following example.
‘Ben holds US citizenship but he has been living in Copenhagen since age 15. He works in Copenhagen, files and pays taxes in Denmark and has no financial assets in the US. Ben is still required to file US annual tax returns to report his income to the US.’
Fortunately, there are tax benefits in place to help expats reduce their taxes, it is important to be aware of these benefits in order to maximise your returns.
All income earned worldwide is subject to a tax filing obligation. This includes various income types that are reported on various forms included in the tax return. For example, employee wages, interest and dividends reportable on a schedule B, self-employment income on a schedule C, and capital gains and losses which are reported by filing a Schedule D and Form 8948. Another category of income would be rental real estate, royalties, partnership, S corporations, estates, trusts, REMICs and other supplemental income, disclosed using Schedule E.
You only have a filing requirement if your annual income is above the minimum threshold. The minimum thresholds vary depending on various criteria. Below is the list of these criteria and their matching filing threshold, as applicable in 2020 and 2021.
These are all accurate when they apply to most types of income. Self-employment income is in a category of its own and has a much lower obligation threshold of $400 per tax year.
Now that we have determined who needs to file, there are a number of additional points and criteria that need to be understood. We will address these various points below.
It is not enough to simply file a tax return, your tax return and any forms included need to be filed by the return due date. For US citizens whose permanent place of residence and business is abroad, the filing deadline is June 15th of the tax year following the year being filed. Therefore the deadline for filing a 2021 tax return would be June 15, 2022. It should be noted that this is an extended deadline, meaning that the IRS grant a two-month extension from the original April 15th deadline to citizens who fall into this category as residents abroad. Therefore, a statement should be included in the return to affirm that the filer meets the requirement of the two-month extension. An additional four-month extension of time to file can be requested using Form 4868.
Although the actual return can be filed until June 15th, the taxes are due on the original due date of the return which is April 15th. Due to a federal holiday this year the deadline is April 18th, 2022. If tax payments are not paid timely, interest begins to accrue. So if you will be owing taxes it is important to address this prior to the April 18th deadline.
Our base fee of $390 includes the preparation of the following forms and schedules:
10% of your friend’s first year’s payment off your next year’s tax return’s invoice. Just make sure your friend lets us know who referred them!
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