How U.S. Expatriates Can Avoid the 13 Most Common Expat Tax Traps

While the expat experience can be an exciting an exhilarating adventure, there is no greater frustration and disappointment than having the IRS ruin your experience by auditing your tax return while away, calculating additional taxes due, penalizing and charging you interest during the process, and even perhaps suggesting jail time for your mistakes.

That's why it is so important to avoid these 13 common expat tax traps.

1. Foreign earned income exclusion. Many expats believe that because their foreign earned income is below the exclusion limit they do not need to file a return. The exclusion can only be taken by filing a return and completing Form 2555. If this is not done timely, the expat will NOT be able to use the exclusion.

2. Foreign bank accounts. An Expat opens a foreign bank account and does not file treasury form TD.90-22.1. Any US citizen with a financial interest in or who can sign on a foreign bank account with a value of more than ,000 must file this form.

3. Foreign tax credit. Expats may also be entitled to a foreign tax credit by filing Form 1116. However, a foreign tax credit may not be taken on foreign earned income excluded from tax. If not all earnings are excluded from foreign tax, a calculation can be made to take a credit on your US tax return for taxes paid on non excluded foreign income.

4. Inexperienced local tax professional. The expat lets his local tax professional continue to prepare his tax return. Many expats work statewide with their local tax professional for many, many years before going abroad. These relationships usually have a long history of trust and competency. Once you've found someone you trust to understand your unique financial situation, it is difficult to switch. However, properly completing an expat return is simply uncharted territory for most local tax professionals. You do both yourself and them a disservice by forcing them to make this stretch into such a complicated arena. As you operate at a new tax and financial level, you are simply going to need a greater scope of service than is typically provided by a local firm.

5. Dependency on the IRS The expat relies exclusively on the IRS for help. While the IRS provides Publication 54 to explain Form 2555 and Form 2555EZ, it does not provide all the tax situations an expat is likely to experience and neither does it instruct on the proper application of the tax code for unusual situations that the expat typically finds themselves.

6. Do it yourself. The expat prepares his own return. Most expats are extremely intelligent. Because they are so smart, some believe that they can figure out their own tax return. It is important to realize that the tax laws are always changing. Without being constantly connected to the professional aspect of the tax world, it is just too easy to put your trust in outdated information.

7. State tax obligations. There are a few states that do not comply with the U.S. foreign income tax exclusion. The expat should make sure he/she does not owe state income tax on his foreign earned income. Failure to understand your state's perspective of the foreign income tax exclusion can substantially affect your tax picture.

8. Inability to locate tax documents. Expats do not keep important tax documents in a central location organized in a way to be used to fight the IRS if they are audited. What do you do with your critical documents while you are away? Expats need to have a secure, online document storage capacity that can be accessed from anywhere in the world. Your information should be organized by year and contain key source documentation, your completed return and any correspondence with the IRS. In addition, you should have a series of permanent files that document your service abroad and other elements of their financial world.

9. Dependency exemptions. Expats do not always take all the exemptions to which they are entitled. Expats may have dependents that do not have social security numbers and incorrectly believe that without a social security number, they cannot take a dependency exemption.

10. Hidden overseas accounts. Hiding money overseas to escape paying tax on the earnings is not a valid tax option -- it is fraud! Remember, fraud has no statute of limitations. Penalties and interest can build to twice as much as the original tax. If the IRS wants to make a point, there can be jail time.

11. Foreign housing exclusion. Remember, you cannot take both the foreign housing exclusion and the foreign tax credit. So which one should you take? The eligible housing cost amount is the individual's total housing expenses for the year (limited to 30 percent of the maximum foreign earned income exclusion amount), less the base housing amount (16% of the maximum foreign earned income exclusion amount).

The excluded amount cannot exceed either the individual's foreign earned income for the tax year or their actual housing expenses. The deducted amount also cannot exceed the individual's actual housing expenses, nor can it exceed the individual's foreign earned income for the tax year reduced by both the individual's excluded foreign earned income and the excluded housing amount. Whereas, the foreign tax credit generally can be taken dollar for dollar of foreign taxes paid.

12. Form 1040NR. US Citizens do not file Form 1040NR. This form is for nonresident aliens. Nonresident aliens are aliens who do not meet either the IRS's green card test (i.e. a lawful permanent resident) or the substantial presence test. These tests are discussed further in IRS Publication 519.

13. No big financial picture. The expat believes that he needs help only with his tax return. Perhaps the biggest mistake that expats make is going it alone. It's important to have a guide when you are in uncharted territory. There is so more to managing your financial world than just preparing an accurate and correct tax return. You also need to manage your expat experience. Make sure you avoid these common tax mistakes all expats are tempted to make when they try to navigate their expat experience without a professional to properly guide them.

Copyright (c) 2009 Nick Hodges

U.s. Soldier Bowe Bergdahl, A Taliban Captive, Observed On Brand New Video

Bow Bergdahl of Hailey, Idaho, was captured in Afghanistan by the Taliban in June 2009 while serving within the U.S. Military. Since then his exact whereabouts are unknown. But he was observed briefly in a Taliban video that surfaced recently. Bergdahl's captors had threatened to eliminate him right after his capture, however a previous Taliban captive believes the Military private is safe. The Taliban won't allow someone to take out an payday loan to buy Bergdahl's freedom either..
sixteen months back Bowe Bergdahl caught
Bowe Bergdahl appears in the most recent Taliban video clean shaven and evidently suffering from a beating. The appearance of Bergdahl within the Taliban video makes it seem as if the video was taken soon after he was taken. Experts believe it was close to sixteen months ago. The video released Wednesday is the fourth Taliban video clip Bowe Bergdahl has appeared in since he was captured in eastern Afghanistan. Other videos show him with facial hair. A longer beard is in some. In the 45 minute video that has clips of militant attacks and a senior Taliban commander called Jalaluddin Haqqani giving a speech, the U.S. solider appears and is expected to be the only United States soldier the Taliban is holding hostage.
Possibility of Bergdahl assisting Taliban
A Taliban video showed Bowe Bergdahl in it in April. He was begging for release and denouncing the Afghanistan war. It was said within the Sunday Times in August that Bowe Bergdahl was converted to Islam and learned how to convert a cell phone into a remote detonator for a roadside bomb. This is what one of the designed Bowe Bergdahl captors said. Supposedly the Afghan intelligence officials cooperated with the Taliban then. Bowe Bergdahl did too. The Taliban supposedly already knew the data given from Bowe Bergdahl. The captor said the American was just attempting to stay still living by pretending to be a Muslim.
Values used by Bowe Bergdahl to keep alive
A journalist explained that Bowe Bergdahl is safe. This was after the journalist was, in 2008, captured by the Taliban. In an interview with Idaho Public Television, Jere Van Dyk said he didn't believe the Taliban would harm him. Van Dyk was released by the Taliban after being kidnapped and held 45 days. He said the Taliban would try to brainwash Bergdahl and pressure him to become a Muslim. He is a propaganda tool though. He is nevertheless alive for this reason. By letting him live, Van Dyk said, the Taliban are demonstrating that they have changed their ways and no longer behead their captors to terrorize their enemies.
Citations
CBS News
cbsnews.com/stories/2010/12/08/world/main7129125.shtml
Idaho Mountain Express
mtexpress.com/index2.php?ID=2005134245
Daily Mail
dailymail.co.uk/news/worldnews/article-1305184/Bowe-Bergdahl-Taliban-claim-captured-U-S-solider-teaching-fighters-bomb-making-skills.html