What does a US Expat need to do at year end? Advice from international tax accountants
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If you are a US citizen you will be aware that as we are reaching the end of the financial year (December 31) it’s time to start thinking about your tax return for 2020, even if you live abroad.
Although it’s not normally due until April 15, or June 15 for those taxpayers living outside the US, last year’s filing deadline was extended to July 15 due to the pandemic. To date, no such extension has been announced for the 2020 Federal tax return season. State and local filing deadlines vary from State to State.
However, whether April or June, it’s never too soon to start preparing the information that you will require to ensure that the process runs smoothly. As usual, if you can’t meet the April or June deadlines, there is the option to file for an extension of time.
What do I need to do?
There are various pieces of information and documents that you will need to gather and prepare, if you are a US citizen residing abroad, as well as completing a tax return form. This information will include:
A schedule of the countries (including USA) you have visited with dates of arrival and departure
Wages, salaries and compensation
All official documentation (e.g. W-2, P60, P45, payslips, etc.) as well as any self-employed records of income and expenses.
Interest and dividend income
This is either from a foreign bank, domestic bank or other financial institution.
Any other income
This could include income from partnerships, trusts, or other business interests that you have.
Interest, taxes, and other deductible expenses paid
As a US citizen, mortgage interest, property taxes, and State income/sales taxes can count as a deductible expense. Other deductible expenses can include charitable contributions, alimony, and medical expenses.
Foreign housing expenses
You may be eligible to deduct the cost of your accommodation outside the US.
You must provide information including, if available, Social Security Numbers (SSN) or Individual Tax Identification Numbers (ITIN) of your dependents.
Foreign financial accounts
You will need to provide information regarding your foreign bank and other financial accounts.
Foreign trusts, companies, and partnerships
If you have an interest in a foreign entity such as a trust, company, or partnership, you may need to provide detailed information about that entity.
The sooner you start to gather the correct information the better, and if you are unsure what applies to you or what can be counted as a deduction contact your tax specialist who will be able to guide you.
In addition to preparing for next year’s tax filings, you might wish to consider a few simple year-end planning exercises to make your tax affairs run more smoothly:
Paying any foreign taxes due before the end of the year - the default US tax rules on claiming credits for foreign taxes paid are to consider taxes actually paid during the calendar year. So, paying before the end of the year will mean the the credit will be available on the current year’s tax return.
Realising capital losses - if you have realised capital gains for the year, you may also wish to consider realising any potential capital losses to minimise your tax exposure, as losses can be carried forward but not backwards. If this is something that you are keen to explore, you may wish to consult your financial adviser (if you have one) before taking any action.
Consider whether to make other deductible payments, such as charitable donations and State tax payments during the current year.
With a new Administration set to take over at The White House in January, there is abundant speculation around tax law changes that might be implemented, including reductions in gift and estate tax exemptions, and increases in income tax and long term capital gains tax rates. Whilst none of this can be predicted with any degree of certainty, you may wish to address how any changes might impact you.
Do the new laws affect you?
New US tax laws were passed in December 2019 extending a number of expiring provisions. Additionally, some new tax changes take effect from 2020 including:
Changing the age for required minimum distributions from retirement plans from 70.5 years to 72 years.
Repeal of the maximum age for traditional IRA contributions.
More generous provisions for deducting charitable donations, including a repeal of the AGI limitation and an ‘above the line’ deduction of up to $300.
If you are uncertain which of these breaks could benefit you or your family when you file your US tax return, here at Everfair we are always available to advise you based on your personal circumstances.
Do I need a tax specialist?
Although as a US citizen living abroad it is not necessary to engage a US tax specialist to help file US tax returns, it will definitely save you time and give you peace of mind, and it could minimise the amount of tax you could ultimately pay by ensuring all the tax breaks, exemptions and deductible expenses are taken into account, as well as reducing your risk of double taxation.
Obviously the more time, stress and tax saved will vary on your personal circumstances and how complex your financial situation is.
For peace of mind, and a stress-free US tax return, why not contact us today and ensure your tax return is as accurate and as beneficial for you as possible.