Is This Wise? – Is China Copying US Tax Codes
Moving? Recently moved to another country? What you need to know about US expat tax preparation before you go The more you know about expat tax preparation requirements before you move abroad, the better prepared you will be to file a complete, accurate tax return and maximize your savings. It is imperative that you gather as much information as you can before you move to another country, because you want to be prepared to file your US expat taxes during the next tax season. In this article we will go over five key points regarding expat tax preparation to ensure that you have all the information you need to file your US expat taxes. The top five things you should know are: 1. That you get special tax credits and exclusions when filing abroad, 2. Each state has individual regulations, 3. How to make sure you get your important mail and leave the junk behind, 4. The US filing dates, 5. How your US income will be treated compared to foreign income, We will go into more details on each of these throughout the article.
Take advantage of the Foreign Tax Credit & Foreign Earned Income Exclusion While you're living abroad and filing your US taxes, it is important to make sure that you take full advantage of Form 1116 and Forms 2555, otherwise known as the Foreign Tax Credit Form and the Foreign Earned Income Exclusion, respectively. The Foreign Tax Credit gives you a credit on your US expat taxes for the amount of money you have paid in tax to a foreign government. The Foreign Earned Income Exclusion helps you by excluding a big chunk of your foreign earned income from your US taxes. This is important because even as a US expat, all of the income that you make outside the United States is subject to identical tax rates as someone who is working and living inside of the US. That is where Form 2555 comes in. By completing this form, you can exclude up to $91,500 USD of income earned abroad from your US expat tax return. While including potential deductions of housing and living expenses, it is possible to counterbalance most if not all of your tax liability in a given calendar year.
People who make less money should be charged a higher percentage of their income because they are generally the people who soak up the most services and incur the most cost for our government. Somewhere along the line socialism crept into our nation's tax codes and theory, which is problematic because in this great nation we believe in self-reliance and capitalism. The further the United States slips into this problematic theory of taxation, the less abundance, and productivity we will have.
Of course, not to be outdone China is copying our taxation system, and they are copying a mistake which is going to hurt their productivity immensely in the future. In fact there was an interesting article in the Wall Street Journal recently titled "China Plans Tax Change to Address Inequality" by Aaron Back which stated; "China plans to cut taxes for people with lower incomes and raise them somewhat for the rich under new legislation expected to pass shortly, one effort to address a widening income gap thought to threaten the country's social stability."
It is also imperative that you notify the IRS if you are planning on changing your address to ensure that you receive all of the correspondence from them. There are a couple of ways to do this. The easiest way to change your address is to have it officially changed before you file your return, that way you can simply change your address on the mailing label that you send back to the IRS, and they will update your account accordingly. If you change your address after you file your taxes, you need to notify the post office and send a completed form 8822 to the IRS. This will ensure you receive any refund checks.
Deadlines and Dates: Make Sure You Meet Them! A very important part of expat tax preparation is remembering the filing dates, which are different for Americans living abroad. It's also important to know whether or not you qualify for an extension and if you do, how to file for one. Normally, the deadline to file your taxes as a US resident is April 15th. However, if you are an expat living abroad, the deadline to file your taxes is extended until the 15th of June. This extension gives you some wiggle-room in case your host country has different filing deadlines to receive your foreign tax documents and to allow you to get any important items you will need from the US (setting yourself up properly in step 3 can save some of the hassle of waiting for US documents). If you need to, you can also apply for an additional extension until October 15th of the same calendar year by completing Form 4868. Please note, if you need to submit the Form TDF 90-22-1 (foreign bank account form) to the Treasury, you must submit it by the end of June each year (June 30th), and there are no exceptions.
In other words, our taxation strategies and theories are causing the very opposite of their intent. Indeed I hope you will please consider all this and think on it. As you probably guessed I am not a socialist thinker,
As you can see, there are numerous ways to save money on your US expatriate tax return. By understanding the credits and exclusions that are available to you as an expat, you can ensure that you are well informed and knowledgeable about the ways can save you money. For more information about how the various components of an expatriate tax return work please have a look at our new series Your Expat Taxes Explained.
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