It’s back-to-school season! Use the cooler temperatures and time away from the kids to get organized. We always like to keep taxes top of mind and have perfected a few organizational tips that help us stay on track. Here are a few tips that we find work for our customers and ourselves:
- Designate a Space: Keep all of your tax documents in one place. A simple file folder with all of the necessary forms will keep you from running around attempting to locate everything come April.
- Label Your Things: Divide your receipts into separate sections, with everything nicely labeled with a system that works for you. Keep childcare expenses separate from medical, or create categories that you find helpful.
- Find Some Time: Don’t let tax season sneak up on you! Carve out some time on your calendar of choice. If it’s an hour per month or 5 minutes a day to stay organized, make sure you keep yourself ahead of the game.
A letter from the IRS is always scary, especially around tax season – but don’t fret! We are here to help you through the process. We have seen audits of every type, and we are here to answer all of your questions.
Here are a fix tax tips to pay attention to that can help you make sure your audit is error-free:
- Charitable Donations: Make sure you have documentation to prove all donations. If you do not have documentation, avoid claiming this on your return.
- Home Office Deductions: After a year of working from home, home office expenses have increased. Home-office expenses are utilized strictly for that purpose. If a room, tv, or computer is used for things other than your job, you may not claim this as a deduction.
- Note All Income: As far as the IRS is concerned, all income is created equal. The money noted on your W-2 is just as significant as funds earned through a side-gig. Claim all money earned.
Have you heard of the Bona Fide Residence Test? Meeting the bona fide residence test will allow an expatriate to qualify for the foreign earned income exclusion. If you are a resident of a foreign country for an entire tax year, from January 1st to December 31st, you may meet qualifications for the Bona Fide Residency Test. Note, however, that simply living in a foreign country does not automatically qualify you for such status.
You must first, of course, establish residency. If you are in a foreign location for an extended time and have secured permanent living space, you have likely established residency. You may leave the country temporarily for business or vacations, so long as you intend to return to your permanent foreign residence without an extended delay.
Additional factors determine whether you are a bona fide resident of a foreign country. Both the length and nature of the stay are taken into consideration. The IRS uses information from Form 2555, Foreign Earned Income. This form will help allow ex-pats to claim the foreign earned income exclusion, and therefore must be filed.
Should your stay in the foreign country not include an entire tax year, you may qualify for the foreign earned income exclusion under the physical presence test. This test requires you to be physically present 330 full days during 12 consecutive months. Should you leave the country regardless of the reason, you will not meet the physical presence test.