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The frequently asked questions about US tax filer

As property tax accountants, we are regularly asked US tax filer. We will look to answer the below questions in this Article.

“Are you paying too much tax?”

“What are the basics of US tax filing?”

“Should Americans abroad file a US tax return?”

“Do I have to pay US taxes if I live abroad?”

“Are there tax extensions for ex-pats?”

“What information is needed to file my US ex-pat tax return?”

“What is IRS Free File?”

“Do I need a US tax specialist to file my US tax return?”

“How does this affect our UK readers?”

Are you paying too much tax?

As US/UK ex-pat tax experts, we know that US tax filing can be a daunting prospect for many clients.

The main concern of many of our clients is how to minimise tax and maximise wealth.

As US tax specialists we can help our clients to reduce their tax liabilities.

There are many reasons why British people living in the United States pay far more tax than they need to.

This is because:

-They do not know what they do not know.

-They have not spoken to a tax specialist that knows all the UK and US tax laws.

-Their accountants in the UK are not knowledgeable when it comes to the US tax laws under the IRS.

-Their CPAs are not knowledgeable when it comes to the UK tax laws under HMRC.

What are the basics of US tax filing?

To discuss the basics of US tax filing, it is important to quickly review the taxation system in place.

The US has different federal, state and local governments with taxes imposed at each level.

Taxes are levied on income, property, sales, capital gains, dividends, imports and gifts.

In 2010, taxes collected by federal, state and municipal governments amounted to 24% of the US’s total GDP.

Taxes are imposed on the income of individuals and corporations by the federal, most state, and some local governments in the US.

Citizens and US residents are taxed on worldwide income and allowed a credit for foreign taxes.

Income subject to taxation is determined under tax accounting rules and includes almost all income from any source.

Most business expenses reduce taxable income in the US, although state rules for determining taxable income often vary from federal rules.

Federal marginal tax rates vary from 10-37% of taxable income, while state and local tax rates vary widely by jurisdiction and many are graduated.

The US taxes its non-resident citizens on worldwide income in the same manner and at the same rates as residents.

Basics of US tax filing – property tax and sales tax 

Property taxes are:

  • increased as a share of federal revenue since the 1950s, while corporate income taxes have fallen as a share of the revenue.
  • imposed by federal and all state governments, including Social Security and Medicare taxes on both employers and employees.
  • imposed by most local governments in the US and certain special purpose authorities, based on the fair market value of a property.
  • generally only imposed on real estate, though some jurisdictions tax business property.
  • tax rates and rules vary widely across the US, with annual median rates ranging from 0.2% to 1.9% of a property’s value depending on the state.

Sales taxes

  • are levied by most states on the price at retail sale of many goods and certain services.
  • rates vary among jurisdictions from 0% to 16%. Sales tax is generally collected by the seller at the time of sale.

The US imposes tariffs or customers duties on the import of many different goods from certain jurisdictions.

These tariffs or duties must be paid before the goods can be legally imported.

Estate and gift taxes are imposed by federal and some state governments on the transfer of property inheritance by Will, or by lifetime donation.

Similar to federal income taxes, federal estate and gift taxes are imposed on worldwide property of citizens and residents in the US, and allow a credit for foreign taxes.

Once you have established which taxes you are liable to pay and when then it is critical to understand the rules on US tax filing to avoid penalties.

Should Americans abroad file a US tax return?

If you are a US citizen or resident you must report income from all sources within and outside of the US.

Whether or not you pay tax on that income is not important. The income itself must be reported and filed.

If you are a US citizen or resident living or travelling outside the US, you’re required to file income tax returns, estate tax returns, and gift tax returns and pay estimates tax in the same way as those living in the US.

Your income, age, and filing status usually determine whether you need to file a US tax return.

Gross income includes all income received in the form of money, goods, services and property that is not exempt from tax.

In determining whether you must file a return, you should consider as gross income any income that you exclude as foreign earned income or as a foreign housing amount.

There are other circumstances when an American abroad needs to consider filing a US tax return.

We will discuss some of the most important legislation and forms to be completed later in this Article.

If you are an American living, working or investing abroad and are unsure whether you need to file a US tax return, contact a US tax specialist today.

Additional forms that Americans abroad need to file?

If you have any interest in specified foreign assets with a value above the reporting threshold that applies to you, you will need to file a Form 8938.

You will file Form 3520 and Form 3520-A if you receive income from a foreign trust or receive a gift from a foreign person

FBAR must also be filed if you had a financial interest in any bank, securities or any other financial account in a foreign account exceeding $10,000 at any time during the calendar year.

Do I have to pay US taxes if I live abroad?

Expats are required to file US tax returns each year, but tax benefits such as the Foreign Earned Income Exclusion and Foreign Tax Credit can result in no US tax being owed.

You may still owe US taxes and therefore have to file if any of the following situations apply to you if you

  • live and work in a country with lower tax rates than the US
  • are not taxed on your foreign investments
  • still receive income from US sources

If you live outside the US and owe US taxes, you might need to make quarterly estimated tax payments to the IRS.

These quarterly income and ex-pat self-employment tax deadlines are:

  • 1st instalment quarterly income and self-employment taxes April 15, 2021
  • 2nd instalment quarterly income and self-employment taxes June 15, 2021
  • 3rd instalment quarterly income and self-employment taxes September 15, 2021
  • 4th instalment quarterly income and self-employment taxes January 15, 2022

An ex-pat tax expert can help you to establish what any quarterly payments might be, so you can avoid end-of-year penalties.

Are there 1040 tax filing extensions for ex-pats?

US tax information is reported on a calendar year basis even if you are an American living in a country that taxes on a fiscal year, such as the UK and Australia.

If you are an American citizen or a US person abroad, you can get an extension to file your 1040 US tax return.

An automatic two-month extension is available by default to us citizens or resident aliens who live outside the US.

The tax return must be filed during this additional period, but the federal income tax must be paid on the regular date of your return.

Another six-month automatic extension allows you to have more time to file your 1040 US tax return from abroad if you cannot complete it by the regular due date.

This does not apply to the time to pay your taxes.

To get this extension, file Form 4868 and illustrate your estimated tax liability based on the information available.

To gain this six-month extension, you must meet the following requirements:

  • You are a US citizen or resident alien
  • You expect to meet either the bona fide residence test or the physical presence test, but not until after your tax return is due
  • Your tax home is a foreign country/countries throughout your period of bona fide residence or physical presence

You must also file Form 2350.

If you are unsure about whether you can apply for a tax extension as a US ex-pat, speak to one of our tax specialists today.

What information is needed to file my US ex-pat 1040 tax return?

Gathering information is as important as filing a US ex-pat 1040 tax return.

Some of the documents you will need for your tax return include:

  • Even if you are filing US taxes from abroad, you must provide all wage reporting forms. If you are a self-employed US person abroad, give your tax specialist precise records of your earnings before deductions and expenses.
  • Interest and dividend income: if you deposited money into a foreign bank or financial institution and they pay you interest, this is classified as interest income. Dividend income is from any distribution of a company’s earnings to shareholders from stocks or mutual funds you own.
  • Securities and stocks: if you own investments in any country including the US, you need to report this on your tax return in the form of capital gains and losses during the year. You will need accurate information on each transaction including purchase and sale prices, transaction fees and purchase and sale dates.
  • Real estate: any real estate bought and sold is relevant to your US tax return. If you own a rental property, you will need to provide income and expenses during the year.
  • Distributions including pensions, annuities, and profit-sharing plans: If you have payments coming from foreign social security and/or pension and do not have an end-of-year statement, you will need to keep track of payments and report them as income if filing US taxes from abroad.
  • Other types of income: this can include reporting any partnership, trust or business interest that you hold, as well as any other types of income not mentioned.

If you are unsure of the information required as a US tax filer, get in touch with one of our tax specialists.

What is IRS Free File for US 1040 tax returns?

The IRS Free File initiative is a public-private partnership between the IRS and many tax preparation and filing software industry firms that provide their products for free.

It provides two ways for taxpayers to prepare and file their federal income tax online for free:

  • Traditional IRS Free File provides free online tax preparation and filing options to IRS partner sites. These online tax preparation companies develop and deliver the service at no cost. This is supplied to qualifying taxpayers, as long as their adjusted gross income is $72,000 or less.
  • Free File Fillable forms are electronic federal tax forms you can fill out and file online for free. to utilise this option, you must know how to prepare your own US tax return.

The IRS Free File programme is not a traditional contractual arrangement.

This partnership represents a balance of joint responsibility and collaboration that works in the best interests of US tax filers and the federal government.

This non-profit partnership is dedicated to helping US taxpayers to prepare and file their federal taxes online. The IRS does not endorse any individual partner company. Find out more here.

Do I need a US tax specialist to file my US tax return?

The US is one of only two countries in the world where taxes are based on citizenship.

If you are an American abroad there is a different system of requirements, tax laws, deductions, credits and exemptions available.

Hiring a US tax specialist will save time and money when filing US taxes from abroad.

Our team of US tax experts are focused on minimising your tax liability and being aware of legislation such as FATCA which has had a huge impact on many Americans abroad since 2010.

How does this affect our UK readers?

To learn more, make sure you head over to our sister company Optimise Accountants that helps Americans save tax in the UK.

It is one thing to be tax-efficient in the UK or the US; it is another thing to be tax-efficient across the Atlantic.

This is why you need to get a tax advisor that truly understands international tax.