By Olga Kocybik CPA, US Tax & Banking Committee Chair, AIWC Düsseldorf
If you are a U.S. citizen or resident alien living outside the United States, even though you may not owe any U.S. tax, you generally are required to file U.S. income tax returns, estate tax returns, and gift tax returns. Some may also be required to file a state or local tax return.
Regardless of whether you are required to file U.S. tax and information returns, if you have an interest in or signature or other authority over foreign (non-U.S.) financial accounts - and the aggregate value exceeded $10,000 at any time during the year - you generally must file a Report of Foreign Bank and Financial Accounts (FBAR).
If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated taxes are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you currently or generally reside.
Using the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC) means - for most international taxpayers (U.S. Persons including U.S. citizens, dual citizens and green card holders) - that no U.S. tax will be payable.
In addition to earned income, other income may be required to be reported to the IRS whether from the U.S. or a foreign country - such as investment income, government benefit payments including retirement and unemployment. Or, in some cases, you may not be required to file a U.S. tax return but a Foreign Bank and Financial Accounts Report (FBAR), Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts (Form 3520), or other information reports.
Deadlines for Filing 2019 Tax Returns and Information Returns
Monday, March 16, 2020
- file foreign trust return (Form 3520), or apply for an extension until September 15, 2020
Wednesday, April 15, 2020
- file individual tax return (Form 1040) - for expats, this deadline is automatically extended until June 15, 2020
- file Report of Foreign Bank and Financial Accounts (FBAR) - or simply wait until October 15 - the automatic extension deadline
Note: Expat children with foreign financial accounts are also required to file FBARs
Monday, June 15, 2020
- file Form 1040 or an extension of time to file until October 15, 2020 (extension filed with Form 4868)
- in order to avoid late payment penalties, make a payment of any U.S. tax you owe
Note: In general, such late payment penalties - as well as interest on unpaid tax amounts - would apply to those who changed residence countries during 2019 and, therefore, may owe some taxes in the U.S.; those who owe Net Investment Income Tax (NIIT); and/or to some business owners
Tuesday, September 15, 2020
- deadline to file the extended trust return (Form 3520)
Thursday, October 15, 2020
- file the extended tax return (Form 1040); or
- apply for an additional two-month extension to file Form 1040 until December 15
- file the FBAR (October 15 is an automatic 6-month extension/no additional extension is possible)
Tuesday, December 15, 2020
- the final deadline to file 2019 U.S. tax returns.
2019 Minimum Income Filing Thresholds:
Whether someone must file a federal income tax return depends on their worldwide gross income, filing status, age, and whether they are a dependent.
As the tax reform of 2017 eliminated personal exemptions through 2025, minimum gross earned income requirements for filing a U.S. tax return now equal only the standard deduction for one’s filing status. It is important to note that other minimum income filing requirements apply to those over age 65 and children with unearned or investment income, as well as self-employed individuals with annual net earnings of at least $400. The below gross “earned” income figures would also include non-employee income reported on Form 1099-MISC.
- $5 if married filing separately (MFS)
- $12,200 if filing single
- $18,350 if filing as a head of household (HOH)
- $24,400 if married filing jointly (MFJ)
Foreign currencies will need to be converted to U.S. dollar equivalents as per the Euro exchange rates below:
- Yearly average January 1-December 31, 2019: €1=$1.1198; $1=€ 0.893 (when reporting income on tax returns)
- At the end of the calendar year (as of December 31, 2019): €1=$1.1236; $1=€0.89 (when reporting balances of financials accounts on FBARs and on a Statement of Specified Foreign Financial Assets (Form 8938))
In addition, some individuals may be required to file a tax return or submit other information returns even if they earn less than the minimum income for their filing status. It is also important to note that because retirement benefits are not “foreign earned”, they are not eligible for the Foreign Earned Income Exclusion and, although, these payments are usually taxable only in the country of residence, you are/may be required to file a U.S. tax return to report such income.
Inflation Affected Changes for Tax Year 2019: Foreign Earned Income Exclusion (FEIE): Up to $105,900 per person;
Note: The exclusion amount does not apply to rental income, dividends, interest or capital gains, social security, retirement benefits and unemployment or any income other than earned income.
Tax on a Child's Investment and Other Unearned Income (Kiddie Tax): The kiddie tax generally applies to children under age 19 (but 24 if full-time student) who have unearned income in excess of $2,100. Such income exceeding $2,100 is taxed with the parents’ tax rates if the parents’ tax rates are higher than the tax rates of the child.
If a parent has more than one child affected by the kiddie tax, the net unearned income of all children is combined in calculating tax with the parent's tax rate.
Alimony: Effective 2019 alimony is no longer deductible by the payor spouse and includible in income by the recipient spouse. This rule only applies for divorce or separation agreements executed after December 31, 2018.
Estate and Gift Tax Exclusions:
For the tax year 2019 the exclusion from tax on estates is $11,400,000.
The annual exclusion from tax on gifts (cash and fair market value of property, assets, intangibles, etc.) is $15,000 per donee per year. This includes gifts of assets located outside of the U.S. If you give any individual (resident or nonresident) more than $15,000 during a calendar year you may need to file a Gift Tax Return (Form 709).
Moreover, an unlimited amount can be gifted to a spouse who is a US citizen, whereas gifts to a non-US citizen spouse are subject to an annual exclusion. This annual exclusion for gifts to non-US citizen spouses is $155,000 as of 2019.
Form 1040 – New Schedules
The following provides a list of new tax forms and changes to existing forms for 2019.
Form 1040 and Schedules 1 through 3 —
The 2019 form has changed significantly in comparison to the 2018 Form 1040. Whereas the 2018 Form 1040 included six schedules that needed to be attached to the 1040, the 2019 version has been reduced to the following three schedules:
- Schedule 1, Additional Income and Adjustments to Gross Income (is generally unchanged from the 2018 version),
- Schedule 2, Additional Taxes (combined Schedules 2 and 4 from the 2018 version), and
- Schedule 3, Additional Credits and Payments (combined Schedules 3 and 5 from the 2018 version).
Schedule 1 virtual currency question
A new question was added to the top of Schedule 1 about virtual currency. If the taxpayer engaged in any transaction involving virtual currency, check the “Yes” box next to the question.
A transaction involving virtual currency includes:
- The receipt or transfer of virtual currency for free (without providing any consideration), including from an airdrop or following a hard fork,
- An exchange of virtual currency for goods or services,
- A sale of virtual currency, and
- An exchange of virtual currency for other property, including for another virtual currency.
If the taxpayer disposed of any virtual currency that was held as a capital asset / investment, use Form 8949 to calculate capital gain or loss and report it on Schedule D. If the taxpayer received any virtual currency as compensation for services or disposed of any virtual currency that was held for sale to customers in a trade or business, report the income as any other income would be reported of the same type.
Disclaimer: In applying the provisions of this and any other tax article, it is important to understand the impact of applicable tax laws will vary between individual taxpayers. Please consult your tax adviser to determine how the tax laws discussed may affect your particular U.S. tax situation.
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