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.
The tax filing deadline for expats is June 15th, 2021. Expats receive an automatic extension on U.S. filings. The IRS has not issued any changes to this deadline this year. Any payments owed for 2020 are overdue to the IRS. If you inadvertently forgot or didn’t know you owed, contact us as soon as possible to speak with one of our tax experts. We can help. The vast majority of our expats do not owe money. Extensions for tax filing (not payment) can be pushed from June 15th to October 15th, contact us to learn more. Please know that even if you don’t owe money, you must file!
Concern and confusion around stimulus check eligibility have been a major topic for U.S. expats. If you are a U.S. citizen or resident with a Social Security number and are within the income brackets, and are not claimed as a dependent by someone else, you qualify for the stimulus checks.
All first and second Economic Impact Payments have been issued by The IRS and Treasury. If you did not receive any Economic Impact Payments or received less than the full amounts, you may qualify for the Recovery Rebate Credit to claim as a credit in lieu of missing stimulus payments for Americans living abroad. If you qualify, you must file a 2020 tax return to claim the credit. Get started!