# Suggestions required for 2014 tax year for US citizen living abroad



## manny.j

Hello All:

Firstly, happy new year 2014 to everyone 

I have been living outside the US for past couple of years and have lawfully filled tax returns in the US, by post. 

Here are a couple of questions that I would appreciate some feedback, if possible:

1. Just wondering if there are options for a US citizen living abroad to file for taxes online? I remember that FATCA and all that bank declaring etc is relatively new for the tax filing companies to adapt so is this option now available for filing online for 2014 tax year?

2. What about FBAR, is this possible (now) to file online or has to be done by mailing the completed forms by post.

3. Finally, last year we bought a two bedroom flat. Are we required to declare (and which form) that we now have a property in my name in the tax returns?

All the best!

Manny :usa2:


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## Bevdeforges

Last I heard, the start of the 2013 tax season may be delayed a bit, thanks to the big shutdown in October. But it's not a bad idea to start getting ready for things now.



manny.j said:


> Here are a couple of questions that I would appreciate some feedback, if possible:
> 
> 1. Just wondering if there are options for a US citizen living abroad to file for taxes online? I remember that FATCA and all that bank declaring etc is relatively new for the tax filing companies to adapt so is this option now available for filing online for 2014 tax year?


You can e-file US taxes if your tax preparer can handle the e-filing or if you use certain tax preparation software (online or downloadable software). Toward the end of January, check the website for the IRS office in Paris (have not seen this information on the London office site in the past). The Paris office generally publishes a listing of what e-filing services are available to those of us who live overseas plus they have other helpful information and booklets specifically for filing from overseas. Internal Revenue Service | Embassy of the United States Paris, France

Last year, IIRC, we were limited to 8 online e-filing companies - this because the others can't deal with a foreign address. Further to that, there are the "free-file" e-file companies, if you can meet their free-file requirements (generally AGI under $57K, plus certain age restrictions - some minimum, some maximum). The IRS has an e-filing option called Freefile Fillable Forms - but in prior years they weren't able to take a foreign address. (Maybe they'll fix this for 2013, but I'm not holding my breath.)

TaxAct allows e-filing for free, regardless of your age or income, and can handle all the relevant forms and foreign addresses. I'm currently trying to get their software via download, but it appears you must enter a state to do so. Have a question in to their support group and will pass along whatever reply I get.



> 2. What about FBAR, is this possible (now) to file online or has to be done by mailing the completed forms by post.


Starting this year, you MUST file the FBAR form online. There is a $500 penalty for filing by paper form unless you request an exception (and have a convincing reason for claiming an exemption). BSA E-Filing System - Enroll Now 



> 3. Finally, last year we bought a two bedroom flat. Are we required to declare (and which form) that we now have a property in my name in the tax returns?


You don't normally need to declare the purchase of a property overseas. When you sell it, then yes, you'll have to declare the sale and all, just as you would were you living in the US. OTOH, if you choose to itemize your deductions, you can take the interest on the mortgage just like if you were filing back in the US.
Cheers,
Bev


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## manny.j

Bev! 

Thank you very much for you reply  Apologies for slight delay in responding back.




Bevdeforges said:


> Last I heard, the start of the 2013 tax season may be delayed a bit, thanks to the big shutdown in October. But it's not a bad idea to start getting ready for things now.
> 
> 
> You can e-file US taxes if your tax preparer can handle the e-filing or if you use certain tax preparation software (online or downloadable software). Toward the end of January, check the website for the IRS office in Paris (have not seen this information on the London office site in the past). The Paris office generally publishes a listing of what e-filing services are available to those of us who live overseas plus they have other helpful information and booklets specifically for filing from overseas. Internal Revenue Service | Embassy of the United States Paris, France
> 
> 
> Last year, IIRC, we were limited to 8 online e-filing companies - this because the others can't deal with a foreign address. Further to that, there are the "free-file" e-file companies, if you can meet their free-file requirements (generally AGI under $57K, plus certain age restrictions - some minimum, some maximum). The IRS has an e-filing option called Freefile Fillable Forms - but in prior years they weren't able to take a foreign address. (Maybe they'll fix this for 2013, but I'm not holding my breath.)
> 
> TaxAct allows e-filing for free, regardless of your age or income, and can handle all the relevant forms and foreign addresses. I'm currently trying to get their software via download, but it appears you must enter a state to do so. Have a question in to their support group and will pass along whatever reply I get.


We will be filing our taxes jointly (my spouse and myself). Our income is above the threshold you stated above so would appreciate when you can share your findings from TaxAct software for e-filing.






Bevdeforges said:


> Starting this year, you MUST file the FBAR form online. There is a $500 penalty for filing by paper form unless you request an exception (and have a convincing reason for claiming an exemption). BSA E-Filing System - Enroll Now


This is new change by IRS...can we then complete and FBAR forms without having to wait to file our taxes or should file taxes before submitting the FBAR form?



Bevdeforges said:


> You don't normally need to declare the purchase of a property overseas. When you sell it, then yes, you'll have to declare the sale and all, just as you would were you living in the US. OTOH, if you choose to itemize your deductions, you can take the interest on the mortgage just like if you were filing back in the US.
> Cheers,
> Bev


Correct me if I am wrong but this may have to be declared in Form 8938, which includes a section for this. However, 8938 form is required to be completed in certain circumstances depending on one's total assets outside the US.


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## Sheowahya

Regarding FBAR filing...

My understanding is that for the 2013 year (FBAR reports due by 30 June 2014) are allowed to be filed electronically via the treasury website, but if you do not file on time, you will be required to file on paper, the 2013 system will shut down on 30 June. This is how they will know in an instant if you are on time or late.

I filed via website last year, and the 2012 year shut down promptly on 30 June leaving some I know who were in the process of completing their reports to file via paper. I did not hear about any late penalties issued, but I can see that will be next.


Cheers
Marilyn


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## Bevdeforges

Sheowahya said:


> Regarding FBAR filing...
> 
> My understanding is that for the 2013 year (FBAR reports due by 30 June 2014) are allowed to be filed electronically via the treasury website, but if you do not file on time, you will be required to file on paper, the 2013 system will shut down on 30 June. This is how they will know in an instant if you are on time or late.
> 
> I filed via website last year, and the 2012 year shut down promptly on 30 June leaving some I know who were in the process of completing their reports to file via paper. I did not hear about any late penalties issued, but I can see that will be next.
> 
> 
> Cheers
> Marilyn


Hadn't seen that specific twist. The Fincen site for filing the FBARs has been open (as far as I can tell - didn't try to file anything) these last few months.

Everything I've seen on the site insists that you must request an exception in order to file by paper, but again, haven't tried it.

But to answer the other question here, the FBAR and federal tax filings are completely separate. You can file in either order. (In fact, it's entirely possible that you may have to file an FBAR without having to file a tax return.)
Cheers,
Bev


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## Bevdeforges

manny.j said:


> Correct me if I am wrong but this may have to be declared in Form 8938, which includes a section for this. However, 8938 form is required to be completed in certain circumstances depending on one's total assets outside the US.


The actual requirement for form 8938 is for "specified financial assets" and I found the IRS list of what they mean by this: Types of Foreign Assets and Whether They are Reportable on Form 8938

Appears that foreign real estate directly held does NOT have to be declared on the 8938.
Cheers,
Bev


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## manny.j

Bevdeforges said:


> The actual requirement for form 8938 is for "specified financial assets" and I found the IRS list of what they mean by this: Types of Foreign Assets and Whether They are Reportable on Form 8938
> 
> Appears that foreign real estate directly held does NOT have to be declared on the 8938.
> Cheers,
> Bev


Wow, that is a surprise. Thanks for the information and the link.

I forgot to add...in regards to 8938 form, according to Do I need to file Form 8938, it is only to be filled by a tax-payer living abroad in circumstances where:

You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or


You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

However, this rules for 8938 is only valid for tax-payers living abroad. The required threshold reduces significantly if a tax-payer resides in the US.


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## Bevdeforges

manny.j said:


> Wow, that is a surprise. Thanks for the information and the link.
> 
> I forgot to add...in regards to 8938 form, according to Do I need to file Form 8938, it is only to be filled by a tax-payer living abroad in circumstances where:
> 
> You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
> 
> 
> You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
> 
> However, this rules for 8938 is only valid for tax-payers living abroad. The required threshold reduces significantly if a tax-payer resides in the US.


Yup - I think the threshold for US residents is something like $50,000. 
Cheers,
Bev


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## FFMralph

This is the first I have heard about the change in FBAR filing requirements (e-file instead of paper). In facet I first heard of FBAR after the grace period had ended. Living overseas, how are we supposed to keep up with requirement changes and avoid the stiff penalties?


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## maz57

In addition, you do NOT have to file 8938 even your assets exceed the applicable threshold if you are not required to file a tax return. For instance, in my case, much of my income is from government pension plans and is not US taxable which lowers my US taxable income to below the filing threshold. 

This , of course, doesn't get you off the hook for FBAR. The FBAR threshold and aggregation rules, being a relic of the 70's, is so low that effectively if you have ANY foreign assets you must file one.


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## Bevdeforges

Actually, the FBAR requirement is in line with the international requirements for reporting currency transactions across borders. (I think here in Europe it may be 10,000 €, but the principle is pretty much the same.)

Here in France, we are required to list our foreign bank accounts as part of our tax declarations each year. (No minimum balances.) We aren't however required to give any balance information - just the name and address of the bank plus account numbers.

We're also required to list foreign life insurance policies. Just to play it safe, I have always given them the information for my US based IRA account. That way, when I start making withdrawals, they can't complain that I didn't declare it - and under the tax treaty, it's not considered income here in France.
Cheers,
Bev


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## maz57

On a Canadian return there is a question: "Did you own or hold foreign property at any time in 2012 with a total cost of more than CAN$100.000?" If one checks the NO box that's the end of it as far as I can tell. Note they ask about cost, not present value.


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## BBCWatcher

maz57 said:


> For instance, in my case, much of my income is from government pension plans and is not US taxable which lowers my US taxable income to below the filing threshold.


Be very careful to read the IRS's definition of "gross income," which is what is used in determining the filing thresholds. You are absolutely correct about the principle involved -- you are not required to file if you don't meet the gross income threshold for filing, even if you would otherwise have FATCA reporting requirements -- but the definition of gross income is at least slightly non-obvious.

You also still have a FBAR filing requirement (if applicable), and it may be prudent anyway to file in order to do better than zero, e.g. refundable tax credits, excess Foreign Tax Credits.


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## maz57

Sorry BBC. I realize I was careless with my wording., so I will clarify. I checked my last 1040 and saw Line 15-total income, Line 21-adjusted total income, and Line 27-taxable income. No "gross income" mentioned on 1040, so off to the IRS website. Found it (pretty easily actually). 

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

I take that to mean that government pensions don't count even for the gross income calculation because according to the IRS they are only taxable in the country of residence. I assume, of course, when the IRS says "exempt from tax" they mean exempt from US tax, because they are certainly not exempt from Canadian tax. I'm not sure if this exemption for government pension benefits is specific to the US/Canada treaty or applies generally around the world. The peculiarity of this is that with respect to Social Security benefits (which are normally taxed at 85%) the US practices residence based taxation!

And, as you mentioned, there may be other reasons to file regardless. But if one does file when one is not required to, I do believe no 8938 is required even if one exceeds the 8938 filing thresholds. This conclusion is spelled out in the 8938 instructions which I won't bother with here.

I looked at my last 1040 (which I was not required to file) and government pension income didn't even make it to Line 15-total income even though it was itemized because the taxable amount was zero.


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## BBCWatcher

I think it's Publication 501 that goes into greater detail on the filing thresholds. And I recall they don't mean "untaxed." For example, FEIE-excluded income still counts toward meeting the threshold.


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## maz57

@ BBC. Yes, it was Pub. 501 that had both the filing thresholds and definition of Gross income immediately below. And yes, in IRS speak there is undoubtedly a distinction between exempt and untaxed. Need a lawyer to figure it all out!


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## Bevdeforges

Add to everything else the matter of "interpretation" and demands on IRS time. Definitions are not hard and fast, and the likelihood that the IRS will question anything on your return depends on the likelihood that they are aware of it in the first place. 

Foreign government benefits are a particularly ambiguous category. In the tax treaties I am familiar with, the right to tax these belongs to the government paying them out - as long as the right to the benefit was earned while a resident of the country. Under the circumstances, it seems reasonable to omit these payments from "gross income" for US tax purposes.

Unemployment benefits are a particular case. Years ago (when I was on German unemployment for a few months), it stated very specifically in the instructions that ALL unemployment benefits should be included as income and that they were NOT considered earned income. 

This year's instructions indicate rather specifically the unemployment includes all *Federal or state* paid compensation for being out of work. Doesn't seem to include foreign unemployment benefits at all - and indeed there are several tax attorneys who contend this is the case and foreign unemployment need not be reported at all. Honestly, if your unemployment benefits are the main source of your income it's very doubtful the IRS is going to bother you.

I wouldn't just leave things off your returns willy nilly - you should always have some rational reason for anything you leave off (like something in the tax treaty or a definition in the instructions somewhere). But the IRS is after serious tax evaders, not technical querks and debatable errors on returns that won't return much, if anything, to the coffers of the US Treasury.
Cheers,
Bev


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## FFMralph

An army published tax guide for soldiers marrying NRA's who have ellected to pay US tax states otherwise.

*The NRA taxpayer should be aware that certain items of income that are not taxable in the home country are subject to taxation in the U.S., for instance unemployment compensation, sick pay, and child benefits (Kindergeld), will be fully taxable in the U.S.*
http://www.wiesbaden.army.mil/sites/services/img/ForeignIssues.pdf

Here a lawyer says 
*This does not appear to be taxable in the US according to IRS rules.It may well be taxable in the other country that paid them to you.*
http://www.justanswer.com/law/3m2em-foreign-unemployment-compensation-paid-us-citizen.html

Score 1:1

That is the Problem all expatriates have. There are no clear and 100% correct guidelines to follow.


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## BBCWatcher

FFMralph said:


> That is the Problem all expatriates have.


Tax-related uncertainties are by no means unique to expatriates.

Fortunately you can ask the IRS. Keep a record. You will not be charged more than the underlying tax owed (if any) if you rely on the IRS's advice and the IRS later changes its mind.


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## Bevdeforges

BBCWatcher said:


> Tax-related uncertainties are by no means unique to expatriates.
> 
> Fortunately you can ask the IRS. Keep a record. You will not be charged more than the underlying tax owed (if any) if you rely on the IRS's advice and the IRS later changes its mind.


The IRS does not claim to stand behind any advice given out to individuals, either over the phone or in person. The only "binding" advice from the IRS is a written "revenue ruling" - which has to be requested in advance.

Yes, you can, and should sometimes pose questions to the International IRS offices, but you have no comeback if you follow their advice and then are audited or hit up for additional taxes or penalties. There is, too, the Taxpayer Advocate program - though this is limited to after-the-fact contentions.
Cheers,
Bev


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## BBCWatcher

I think that's a little overstated, Bev. I'll quote from the IRM: "The IRS is required by IRC 6404(f) and Treas. Reg. 301.6404–3 to abate any portion of any penalty attributable to erroneous written advice furnished by an officer or employee of the IRS acting in their official capacity....Administratively, the IRS has extended this relief to include erroneous oral advice when appropriate."

So get the IRS's advice in writing -- that's at least preferable, yes. The above contact page lets you do that.


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## FFMralph

True, penalties and intrest should not be charged. Collection of owed taxes is at the descretion of the IRS. The addresses you mentioned above, at least here in Frankfurt, are for walk in questions and advice. Not rulings! I don't think they would consider putting any advice in writing, so you better record names, time and the topic discussed.


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## Bevdeforges

Have to say I concur with FFMRalph. We were told (when I worked for one of the big accounting firms) that the IRS would not stand behind anything they advised, short of a form ruling. 

I also note that the IRS office in Paris now only lists walk-in and phone assistance. They used to answer e-mail queries, but apparently no longer do. (They refer you to a website Help with Tax Questions - International Taxpayers but even that cautions that any question requiring you to give your name and social security number has to handled by phone.)

Last year, I know of a couple of people who called the overseas IRS offices looking for help with the FATCA forms and were told that the staff weren't able to help.

Let me say that I've met some of the folks working in the Paris office and I'm always very impressed with how helpful they are. But I definitely get the feeling that you would be hard pressed to get them to give you written answers on much of anything. (For one thing, they are pretty thinly staffed and responsible for something like 45 countries, so as much as they may want to help, they are admittedly giving their answers pretty much on the fly.)
Cheers,
Bev


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## maz57

In the auto racing world there was once a famous and successful engine builder who used to say with big grin, "rules are meant to be......interpreted". He was known for his wonderfully innovative cheating which, if discovered, was usually determined to be technically legal while totally violating the spirit of the rules.

He had the rule makers tearing their hair and always seemed to be one jump ahead of them. The world will never know how many times his brilliance went undiscovered; it's generally believed he took many secrets to his grave!


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## BBCWatcher

Folks, I've cited the IRM, and there it is. What else are you going to do anyway? Do the best you can to follow the rules as best you can, ask the IRS high quality questions if you're genuinely confused, and keep careful records of your IRS interactions. That's all you can do.


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## maz57

Or exit the system permanently!


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## Bevdeforges

I think it pays to appreciate the fact that, in the US legal system, there is no one "right" answer to any question. The race car driver was right when he referred to "interpretation." (It's what keeps lawyers in business!)
Cheers,
Bev


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