Expatriate Tax ReturnsWhen it comes to tax preparation services, Accel Tax & Business Service’s tax professionals located at 235 Magrath Darby, Mount Pleasant, SC (a 5-10 minute drive from downtown Charleston) are here to meet all your tax needs. Schedule an appointment today – we look forward to meeting you!

Living overseas generates many unique tax opportunities as well as expatriate tax risks. If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or the foreign equivalents.  Additionally, if you are a U.S. citizen or resident alien, the rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same whether you are living in the U.S. or abroad.  In addition to reporting your worldwide income, you must also report on your U.S. tax return whether you have any foreign bank or investment accounts. The Bank Secrecy Act requires you to file a Report of Foreign Bank and Financial Accounts (FBAR).

Preparing your own expatriate tax return can be a daunting task that often leaves you with more questions than answers. With the enactment of the Tax Cuts and Jobs Act (TCJA) in 2018, the tax laws are new, complicated and filing a relatively simple return can sometimes be confusing.  It’s just too easy to overlook deductions and credits to which you may be entitled.  According to a study released by the US Government’s General Accounting Office last year, most taxpayers (77% of 71 million taxpayers) believe they benefited from using a professional tax preparer.  For that reason, there is no substitute for the assistance of an experienced tax professional. 

  • Our tax advisors prepare all federal, state, and local income tax returns and offer electronic filing at no additional charge.
  • Our tax advisors will review your tax return to minimize potential problems and avoid “red flags” that may prompt IRS scrutiny.
  • We are professionals in dealing with unique or complex tax issues such as those facing real estate professionals, physicians, attorneys, investors, and expatriates.
  • Our tax advisors can show you how to adjust your withholdings or help you set up a schedule of estimated tax payments if you are self employed to avoid unnecessary tax penalties.
  • Our tax advisors are also available throughout the year to assist you in examining the tax consequences of anticipated transactions.

When you engage our Charleston tax and accounting firm to prepare your tax return you can be assured it will be prepared by an IRS licensed professional.  Each tax return that our professionals prepare will be analyzed by our state-of-the-art tax preparation software specifically designed to identify problem areas that the IRS may scrutinize or look at more closely.  Once your tax return is completed, one of our tax advisors can answer any and all questions that you may have.  All tax returns may be filed electronically at no additional charge so that you will receive your IRS refund as quickly as possible.

Tax Return Preparation for Expatriates

Because expatriates (or expats) do not live in the United States, their tax obligations are more complicated as compared to the average individual tax payer.

If you are a US citizen or resident alien, the rules for filing an expatriate tax return and paying estimated taxes are generally the same whether you are in the United States or abroad. In other words, if you are an expatriate, your worldwide income is subject to U.S. income tax, regardless of where you reside.  As such, the IRS imposes an expatriate tax return filing requirement. Most expatriate taxpayers that live overseas have no idea that they need to file US tax returns (even when there is no tax liability), and if this applies to you, you are not alone.  Take note, however, by not filing an annual tax return, the IRS imposes a range of remedies, including monetary fines, imprisonment, and with the new tax legislation, loss of your passport.

Our tax and accounting firm prepares expatriate tax returns for American taxpayers living abroad, all tax returns returns are prepared by one of our tax professional who are trained and experienced in Foreign Earned Income laws and regulations. We have the experience and training to help you navigate through this process.

Reporting Foreign Income to the IRS

Income from earned abroad from foreign sources is taxable by the IRS.  Many US citizens and resident aliens receive foreign earned income. There have been recent reports about the interest of the Internal Revenue Service (IRS) in taxpayers with accounts overseas. The interest of the IRS covers accounts anywhere in the world. Consequently, it is of great importance to report your worldwide income on your US tax return and ensure that you have an accurate and complete disclosure on your return.

If you are a US citizen or resident alien, you must report income from all sources within and outside of the U.S. This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return), the foreign equivalents or no statement at all.

Not reporting income from foreign sources may be a crime.  The IRS and its international partners are actively pursuing those who hide income or assets offshore to evade expatriate tax liabilities. The goal is to ensure U.S. citizens and residents are accurately reporting their income and complying with their U.S. Expatriate Tax Obligations.

You will face serious consequences if the IRS finds you have unreported income or undisclosed foreign financial accounts.  These consequences can include not just the additional taxes, but also substantial penalties, interest, fines and even imprisonment.

An important reason to file your expatriate tax return now is that the statute of limitations for IRS audits generally expires three years after you file your return. However, if you do not file an expatriate tax return, the statute of limitations does not expire.

Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion is the single largest expatriate tax advantage available to you.

If you meet certain requirements, you may qualify for the foreign earned income exclusion and foreign housing exclusions. However, it is only applicable by filing an expatriate tax return and claiming the exclusion with the requisite forms. If elected, you may qualify to exclude from income taxation up to an amount of your foreign earnings that is adjusted annually for inflation ($112,000 for 2022). Earned income is income that you earn from work and does not include passive income, such as interest and dividend income, rental income and other income that does not come from labor. In addition, you may also be able to claim an additional foreign housing exclusion or housing deduction for your housing expenses that exceed a standard amount established by the U.S.

Our Charleston / Mt. Pleasant tax firm can help you claim the foreign earned income exclusion that can be used to partially or completely reduce your foreign earned income.

Foreign Tax Credit

If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a foreign tax credit or an itemized deduction for those taxes. Taken as a deduction, foreign income taxes reduce your U.S. taxable income. Taken as a credit, foreign income taxes reduce your U.S. tax liability. In most cases, it is to your advantage to take foreign income taxes as a credit.

We can help you claim the foreign tax credit and ensure that you are paying the least amount of taxes legally possible.

FBAR – Reporting Foreign Assets

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing a Report of Foreign Bank and Financial Accounts (FBAR).

Form 8621 – Passive Foreign Investment Company (PFIC)

PFICs are foreign corporations that generate 75% or more of their gross income from passive sources or that own assets that are primarily held for the production of passive income (i.e., more than 50% of the entity’s asset value is represented by assets that generate passive income). Common examples of PFICs are foreign-based mutual funds and start-up companies that unexpectedly fall within the scope of the PFIC trap, as well as foreign corporations that hold real estate investments. Foreign mutual funds typically are considered PFICs because they are foreign corporations that generate more than 75% of their income from passive sources such as capital gains and dividends. Certain start-up companies are also at risk of being subject to the PFIC rules because they typically have loss-making operations in their beginning years and may have small sources of passive income such as interest income from bank accounts.

So, what is the consequence of a foreign corporation being a PFIC? By default, any future distributions from that PFIC (or sale of the PFIC interest by the shareholder) are taxed at a punitive tax rate that also includes an interest charge going back to the date that the taxpayer acquired the PFIC. While there is a way to avoid this result, it requires a tax election be made in the first year of the PFIC status, which is not always possible.

Furthermore, the IRS requires that taxpayers disclose PFIC investments on their individual income tax returns. Failure to do so carries the consequence that the normal three-year statute of limitations for the IRS to assess tax may never begin running because the tax return is deemed incomplete.

If you believe that you own a PFIC, please contact us to discuss how to become compliant with the PFIC reporting and best minimize the adverse tax consequences.

Totalization Agreements

International Social Security agreements, often called “Totalization Agreements,” serve to eliminate dual Social Security taxation, the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. We will review to determine whether you can benefit from a totalization agreement and assist you with the presentation of the required documentation for your return.

Is Your Accounting A Disaster?  Our Firm Provides Bookkeeping Services Too!

Many taxpayers forgo worthwhile tax deductions because they have neglected to keep receipts or records. Keeping adequate records is required by the IRS.  But don’t do it just because the IRS says so. Neglecting to track these deductions can lead to overlooking them. You also need to maintain records regarding your income. For example, if your receive a large tax-free amount, such as a gift or inheritance, make certain to document the item so that the IRS does not later claim that you had unreported income.  If you have not set up an easy system that allows you to keep your books current, we can help.  Our firm offers several bookkeeping plans for both individuals and businesses.

Do It Yourself Tax Preparation Software

For individuals with simple, straightforward financial situations, preparing your own tax return through a low-cost or free tax preparation software program may be a reasonable option.  However, it should be noted that our firm often consults with taxpayers that have used these do-it-yourself tax preparation software programs and their tax returns are riddled with problems and errors, which unfortunately costs more to fix than what they would have paid a tax professional. We would not recommend choosing this path if your financial situation is even remotely complicated, your marital status has changed, you experienced a major life change, you started a business, you bought rental real estate, you sold investments or traded cyrptocurrency, you have student loans, or you are dealing with a tax issue.

Franchise Tax Companies

The above reasoning applies to franchise tax companies too.  Most of these chain, franchise tax preparation companies do not hire licensed IRS professionals.  Additionally, because tax preparation is seasonal, often times the employees preparing your return have only had a few weeks of training as they will be looking for new employment after the tax season ends.  While these seasonal tax prepares might know more than the average taxpayer and can handle simple, straightforward returns, they certainly are not considered tax professionals or experts.

Our Expatriate Tax Return Preparation Process

The tax return preparation process begins when you provide us with your tax documentation and complete our tax organizer.  Our tax organizer is a comprehensive questionnaire and will cover most, if not all, the important financial information our tax professionals will need to prepare your tax return.  Once you complete the tax organizer, you may either mail or email it to our office, with all relevant supporting financial documentation, or drop it off in person – whichever is most convenient for you.

After your tax organizer is received by our office, all of your financial and tax information will be entered into our systems and one of our tax advisors will begin working on your tax return in a timely fashion.  Our average turnaround time from the date we receive your tax organizer and supporting financial documentation, to the date your tax return is prepared and ready for your review is less than two weeks during early and mid-tax season.  As the tax deadline approaches, understandably our tax advisors become very busy.  For that reason, we strongly recommend that all existing clients submit their individual tax organizers and supporting financial documentation to our office prior to March 23 to allow us the appropriate amount of time to complete your tax return by the tax filing due date.  If you have a more complex financial situation (such as operating a business taxable as a sole proprietorship, the sale of a rental property, income in multiple states, a large number of charitable gifts, or a large number of investment transactions), please allow additional time for us to properly prepare your tax returns.  For all new clients, or if we did not prepare your prior year tax return, our office must receive your tax organizer and supporting financial documents by March 15.

If our tax advisors have any questions during the preparation of your tax return, we will promptly contact you. Once your tax return has been prepared, our tax advisors will review the return at least twice to ensure all the appropriate tax information has been entered.  Our office will then notify you that your tax return has been prepared. Of course, we are then available to answer any and all questions that you may have.

If you’d like to receive more information about our individual tax return preparation services, please email or call our office.

Contact Our Charleston / Mt. Pleasant Tax & Accounting Firm Today

As an expat living abroad, there are many opportunities for tax savings but there are also many risks too. Accel Tax & Business Services has  the experience and knowledge of the new tax code to guide you through the complex expatriate tax preparation process.