American citizens and U.S. resident aliens, including individuals holding dual citizenship, who have lived or worked outside of the United States during all or part of the year 2011 may have a U.S. tax liability and are required to file a U.S. Individual Income Tax Return. Even if you may not have a tax filing liability, failing to file a U.S. tax return will leave the protective Statute of Limitations open, allowing for the IRS to audit that open year without the passage of time, which would have closed the door on an IRS audit. Normally, the IRS is not allowed to audit a tax return that has been filed with IRS more than 3 years earlier. Another important factor to keep in mind, the burden of proof showing that you did file your tax return is upon you and you alone. It is easy and cheap to file your tax return via Certified Mail Return Receipt Requested as the IRS recognized way to prove your timely mailing of a tax return.
WHAT IS MY DEADLING FOR FILING?
Citizens of the United States and U.S. resident aliens living and/or working outside of the United States or serving in the U.S. military outside the U.S. in 2011 can claim an automatic extension of time to file after the normal due date of April 17, 2012. To use this automatic two-month extension beyond the regular April 17, 2012 deadline, you must attach a statement to your tax return explaining which of the two situations above qualifies them for the extension. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, you will need to fill out and attach Schedule B, Interest and Ordinary Dividends, to their tax return. You may also have to fill out and attach to your tax return the new Form 8938, Statement of Foreign Financial Assets. In addition, you may also have to file Form TD F 90-22.1 with the Treasury Department by June 30, 2012. Many Americans who live and work abroad qualify for the foreign earned income exclusion. If you qualify for tax year 2011, this exclusion enables you to exempt up to $92,900 of wages and other foreign earned income from U.S. tax. You may be able to take either a credit or a deduction for income taxes paid to a foreign country or a U.S. possession. This benefit is designed to lessen the tax burden that results when both the U.S. and another country tax the same stream of income.
Caution: Living and/or working overseas allow you to use the IRS’s free filing software. This means U.S. citizens and resident aliens living abroad with adjusted gross income of $57,000 or less can use brand-name software to prepare their returns and then electronically file them for free. There are a few things to keep in mind. First, the IRS will never send you anything via the Internet. The IRS is held to strict mandates for privacy of the taxpayer’s information and to disseminate it to the wrong email holder or have the email hacked will be a serious violation of our privacy rights. Second, if you make a mistake on completing the e-filed tax return, your chances of a full audit is extremely high.
If you think that filing out a simple tax return works for you as an individual living and/or working overseas, just try finding you way around the IRS Publication 54, http://www.irs.gov/app/picklist/list/publicationsNoticesPdf.html. with its 43 pages of triple column complex explanations that still does not cover the foreign tax credit for gaining tax relieve on the same stream of income taxed twice by two countries. Even the IRS has estimated that the average time to prepare a complex tax return, like the tax return for an American living and/or working overseas, is more than 6 hours and that does not include the time to educate yourself on the laws or prepare the various attachments and supplements to are necessary for this type of tax return.
A competent tax advisor and tax preparer in this area of U.S. citizens and resident aliens working and/or living overseas is a real lifesaver. The tax counsel can advise you in planning, implementing a tax relief strategy, preparing your tax returns to pay the least and legal tax liability while minimizing your tax exposure for IRS audits.