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Expatriate Tax Returns

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The Definitive Guide to Handling Taxes on Foreign Investment Income

The United States has a complex tax system, and that system becomes even more complicated when you factor in foreign investment income. If you’re a U.S. citizen or resident alien with foreign investment income, you’ll need to know how to handle the taxes on that income.
This guide will cover the basics of taxes on foreign investment income, including the source of the income, the character of the income, the U.S. recipient’s filing status, the foreign country in which the income was earned, the tax rate on the income, the foreign earned income exclusion, the foreign tax credit, filing requirements, and paying taxes on foreign investment income.

The source of the income
The first thing you need to know when it comes to taxes on foreign investment income is the source of that income. There are two possible sources of foreign investment income: passive income and active income. Passive income is income that comes from sources that are not actively managed by the taxpayer. This includes things like interest, dividends, and capital gains. Active income, on the other hand, is income that comes from active involvement in a business or investment. This includes things like wages, salaries, and tips.

The character of the income
The character of the income is the determination you need next. There are two possible characteristics for income: ordinary income and capital gains. Ordinary income is income that is taxed at the taxpayer’s marginal tax rate. This includes things like wages, salaries, and tips. Capital gains, on the other hand, are taxed at a lower rate. This includes things like interest, dividends, and capital gains.

The U.S. recipient’s filing status
After determining the character of the income, determine your U.S. filing status. There are four possible filing statuses: single, married filing jointly, married filing separately, and head of household. Single: If you are single, you will file your taxes as an individual. Married filing jointly: If you are married and file your taxes jointly with your spouse, you will file your taxes as a married couple. Married filing separately: If you are married and file your taxes separately from your spouse, you will file your taxes as a single taxpayer. Head of household: If you are head of household, you will file your taxes as an individual.

The foreign country in which the income was earned
Next is determining the country in which the income was earned. There are two possible scenarios here: the income was earned in a country with a tax treaty with the United States, or the income was earned in a country without a tax treaty with the United States. If the income was earned in a country with a tax treaty with the United States, the tax rate on the income will be reduced. If the income was earned in a country without a tax treaty with the United States, the tax rate on the income will be the same as the marginal tax rate.

The tax rate on the income
The next thing you need to know about taxes on foreign investment income is the tax rate on that income. The tax rate on foreign investment income depends on the source of the income, the character of the income, the U.S. recipient’s filing status, the foreign country in which the income was earned, and the tax treaty between the United States and the foreign country.
The foreign-earned income exclusion
What are the exclusions on the foreign-earned income tax? The foreign-earned income exclusion allows taxpayers to exclude a certain amount of income from their taxes. The amount of the exclusion depends on the taxpayer’s filing status, the country in which the income was earned, and the taxpayer’s tax treaty status.

The foreign tax credit
Next, determine the foreign tax credit. The foreign tax credit allows taxpayers to credit a certain amount of taxes paid to a foreign government against their U.S. tax liability. The amount of the credit depends on the taxpayer’s tax liability, the foreign taxes paid, and the tax treaty status.

Filing requirements
Finally, determine the filing requirements. Taxpayers with foreign investment income are required to file a Tax Return Transcript and a Foreign Investment Questionnaire with the IRS. 10. Paying taxes on foreign investment income: The final thing you need to know about taxes on foreign investment income is how to pay taxes on that income. Taxes on foreign investment income are due on the date the income is received. Taxpayers can pay taxes on foreign investment income using a credit card, electronic funds transfer, or check.

If you want to learn more about handling taxes on foreign income, visit our blog page to read more or our contact page to connect with a tax specialist.

What Is the Foreign Earned Income Exclusion?

Expatriate Tax Returns FEIE

The Foreign Earned Income Exclusion (FEIE) allows U.S. expats to avoid double taxation by excluding foreign wages when calculating taxes, which reduces payment obligations to the United States. U.S. expats MUST FILE even if they don’t owe taxes. We can provide information on your eligibility for FEIE. Contact Expatriate Tax Returns to learn more or if you need help filing your taxes.

Foreign Earned Income Exclusion Physical Presence Test

Expatriate Tax Returns Foreign Earned Income Exclusion Physical Presence Test

Typically, to meet the physical presence test, you must reside in a foreign country or countries for a minimum of 330 full days during a 12-month period. Days can be counted spent abroad for any reason, as long as your tax home is in a foreign country. The 12-month period can start any day of the month, so that it provides you the greatest exclusion. In IRS Revenue Procedure 2020-27, the IRS waived the time requirements outlined in the Bona Fide Residence and Physical Presence tests if you returned to the United States because of the COVID-19 pandemic emergency. Need help filing? Contact Expatriate Tax Returns!

How to Save More on Your Taxes

Expatriate Tax Returns Can Help You Save Money on Your Taxes

There are several ways that you can save money when filing your taxes depending on your individual circumstances. These include the Foreign Earned Income Exclusion, Foreign Tax Credit, and Foreign Housing Exclusion. The FEIE reduces your income by paying housing expenses. If you qualify and file on time, you can save big on your taxes. Most of our clients do not owe the IRS anything. If you’d like to learn more about these forms or want us to file on your behalf, contact Expatriate Tax Returns.

Are Expats Required to File U.S. Taxes?

Expatriate Tax Returns Can Help You File Your US Taxes

All U.S. Expats must file taxes annually. The United States government has established significant exclusions, deductions, and credits to make sure expats are not taxed twice on the same income. Even though most expats do not pay tax to the U.S. federal government because of the Foreign Earned Income Exclusion or Foreign Tax Credit benefits, they still have to file. NEED ASSISTANCE? GET IN TOUCH WITH EXPATRIATE TAX RETURNS!

IRS Amnesty Program: Streamlined Filing and How It Helps Expats Pay Taxes

Expatriate Tax Returns IRS Amnesty Program 2018

Moving to a foreign country can be exciting. During a time when many expats are learning a new way of life, they may forget about old responsibilities. This can lead to overdue taxes. The IRS’s Streamlined Filing Procedures may be able to help.

How Does Streamlined Filing Work?

Today’s Streamlined Filing Procedures were introduced in 2012. The new system was intended to provide an alternative to previous programs, which missed the mark by excluding many of the expats who needed them.

Streamlined Filing Procedures encourage expats to catch up on their taxes. To do this, the program reduced the number of previous years’ returns that are required. In order to use the new procedures, you will need:

  • Federal Returns – You must submit three years’ worth of returns. These must be the most recent three years and can include amended returns.
  • FBAR Forms – Six years of FBAR forms are required. The FBAR is usually only needed if your non-U.S. bank accounts total $10,000 or more. Streamlined Filing Procedures require FBAR forms even if you have less than $10,000.
  • Signed Form 14653 – You must submit a Certification by U.S. Person Residing Outside of the U.S. statement that is signed. This will certify that you are eligible, have filed all FBAR forms, and that your failure to file taxes was not intentional.

Do I Qualify for Streamlined Tax Filing?

Restrictions were removed in 2014, which means that you may be eligible now even if you weren’t over five years ago. If you can produce the items listed above, you may qualify. You must show that you did not file because you were not aware that it was required.

If you have questions about using Streamlined Filing Procedures, let us know. Expatriate Tax Returns can help you navigate the U.S. tax system and get caught up on your financial responsibility.