2007 Tax Preparation
One of the expat advantages of a later tax filing due date - 16 June 2008 - for the 2007 US federal income tax return is the extra time to put together those papers related to foreign taxes. This 16 June due date can even be extended to 15 October by filing Form 4868. Because IRS wants to tax US citizens wherever they reside on world-wide income, expats should gather certain tax-related documents. The IRS website - www.irs.gov - in its booklet of instructions for Form 1040, discusses the reportable income items.
While some expats have some US source income, they should pay particular attention to items of foreign income and corresponding taxes paid or accrued. As income items rise, the possibility of being taxed twice - by both the foreign country and IRS - increases dramatically.
US taxes can be offset by applying the Foreign Earned Income Exclusion, the Foreign Tax Credit and the Treaty Based Return Position (Form 8833). Pay particular attention to putting together the following documents:
Foreign Country of Residence -
Earnings statement from foreign employer
Foreign taxes paid and/or accrued
Foreign tax return
Income and expenses from self-employment (sole proprietorships and partnerships)
Income from investments in foreign corporations
Interest earnings from investment accounts
Sales of stocks
Rental income and expenses
Income from installaments
Bonuses and reimbursements
NOTE: All foreign income and expense items must be reported in US dollars
US source income -
W-2 wage statement
Employee-related reimbursed and non-reimbursed expenses
1099 Dividend and/or Interest Statements
Refunds of state income taxes
Alimony received
Earnings from self-employment
Sales of investments
Sales prices, dates of sales, cost bases, dates of purchases
Income from Rental activities
Income from K-1s (trusts, partnerships, corporations)
Gains from other sales
Note: Sale of residence carries a life-time exclusion: $500,000 married filing joint; $250,000 single
1099 Pension income
IRA distributions
Traditional or Roth?
Farm income and expenses
Unemployment compensation
Social Security
Other income - prizes, gambling winnings, jury pay (see 1040 instructions, p. 24)
Reductions to World-wide Income
Foreign earned income exclusion (See How to Qualify)
Foreign tax credit
Form 8833
Expenses
Education, health savings, IRA, alimony paid, student loan interest
Other
Medical costs, charitable contributions, casualties, state income taxes, property taxes, mortgage interest, job search (if
employed)
Dependent exemptions (Social Security numbers required)
Tax preparation can be complex and challenging. Most Americans untrained in tax preparation who attempt to prepare their own tax returns commit one or more errors on their returns. But if the income items involve a pension, social security and some investment income, then one is not so apt to make a mistake.