W e have found that many people believe that filing taxes as a expatriate is just as straightforward as filing as a U.S. resident. This is not the case and as a result many people file improperly and / or miss out of maximizing their tax returns.
Below you will find some of the reasons using a professional tax preparer is the best option for expatriates.
As a result, even if you have typically prepared and filed your own returns or used “off the shelf” preparation software, hiring a professional experienced in international filings will help ensure that your full, individualized tax situation is addressed while abroad.
Special attention must be paid to the use of the foreign earned income exclusion (bona fide vs. physical presence test), the foreign tax credit, foreign tax treaties, foreign housing exclusions and deductions, and reporting of overseas bank accounts and assets. Consultation with an expert expatriate preparer can help avoid costly filing errors.
The Treasury Inspector General for Tax Administration (TIGTA) noted the following in a 2010 report covering the 2008 tax-filing year. In a review of 231,277 returns containing foreign earned income tax exclusions:
- 17,787 (8 percent) individuals overstated their foreign earned income exclusion by $410 million.
- 11,953 of these individuals excluded an amount which exceeded the total of their foreign-earned income, housing costs, and/or allowances (meals and lodging) by $254 million.
- 5,834 of these individuals who did not accurately transfer the amounts of the foreign earned income exclusion from the Foreign Earned Income (Form 2555) to the appropriate line on the U.S. Individual Income Tax Returns (Form 1040). The amounts reflected on the Forms 1040 exceeded the foreign earned income exclusion by $156 million
- 5,547 (2 percent) tax returns with $265 million in exclusions had incomplete information or inaccuracies on the Forms 2555.
With the IRS tasked with more and more enforcement roles for various legislative actions, staying current and compliant requires extensive time investments. A professional tax preparer is required to remain current with the ongoing changes in the tax code as they may apply for their clientele. Many U.S. based preparers do will complete only a few international tax returns during a filing year. Their expertise is centered on U.S. related issues and filing concerns.
TieTax is focused on expatriates and its professionals have filed thousands of foreign resident returns. As expatriates themselves, they have a unique and complete understanding of the unique tax situations one may encounter abroad and remain current on the U.S. tax changes as they relate to overseas residents.
Every state establishes its own rules and regulations with regard to residency status and subsequent tax liabilities. While some states accept the federal residency guidelines, others have specific limitations on time spent in the state, property ownership, and other indices of residency that may require a state return and result in state tax liability on income earned abroad.
TieTax professional preparers are able to assist with asking the right questions to ensure that state filing requirements are carefully addressed so as to minimize state tax liabilities.
While there may be initial cost savings for the software or services, these may have limited benefit if the results are incomplete and result in either the need pay more in taxes or ultimately require amended filings to correct any errors or oversights.
TieTax professional preparers are able to ensure that the correct information is included with each filing and that the details and nuances related to expatriate returns are fully addressed.
The average taxpayer is more than capable to work through the IRS publications, instructions and forms for submission. However the hours and hours of time involved learning about each form and how to complete them is likely not the best use of your time. (Click here for a breakdown in actual time spent preparing for and filing taxes.)
TieTax professional preparers are able to take the stress and headaches out of tax filing and free up your time to pursue less taxing endeavors!