Basic Required Information
The first thing you will need is the basic information, such as SSN, marital status, joint or separate filing, tax liability etc. Having our previous year tax return helps a lot, in not only the basic required information, but also if there is any carry forward foreign tax credit that can be utilized with the current year’s tax return. Finally, the travel dates for the year, so that important details like whether you qualify for Foreign Earned Income Exclusion(FEIE) or Foreign Housing Deduction, can be determined.
As a U.S. citizen or permanent resident living and earning abroad, you may have several sources of income from investments, salary, rental income etc., which must all be declared.
Salary/Compensation – In the U.S. your employer would give you a W-2 form, which is a statement of your annual earnings. If working abroad, then the equivalent would be given by your employer. If by chance, you do not receive such a statement, you will need to provide your salary slips to your CA or tax preparer.
Self Employed – For those who are freelancers or self-employed, you will need to maintain records of your income, before deductions and your total annual expenses.
Social Security or Pension Payments – If you receive social security in the U.S., you must submit form SSA-1099 and form 1099-Ret for other retirement income. If you receive pension from your foreign resident country, then you keep a record of payments received, if no statement is sent regularly in your resident foreign country.
Rental – Whether you hold property in the U.S. or abroad, if you are earning rental income, then you must report your income and any expenses incurred.
Interest/Dividend – If you hold interest income, such as from fixed deposits, then you will need to keep a record of these statements from the bank. If you do not receive quarterly or annual reports from the bank, then your monthly statements may have this information, which can be used when filing your tax return. If you hold dividends from any companies, then the quarterly and annual reports must be safe-guarded and produced when filing your taxes.
Sold Property – Whether its land or property that is sold, you must report this in your annual tax return. You must include the date of the sale, the value of the sale, initial date of purchase, purpose of use (business or personal), improvement costs etc.
Stocks/Securities – Just as you report your capital gains in the U.S., so must you, if you hold any investments in the foreign country of resident. Keep statements of all your investments and returns on them, to give to your tax preparer at tax filing time.
Other Sources – These include income from farming, royalties, compensation or disability income. Also, if you are part of a foreign partnership or corporation, then you need to submit end of year accounting statements.
Documents Outlining Deductions
Various deductions can be utilized when filing your expat tax returns. Keeping a detailed record of all such expenses incurred can help reduce your tax legality.
Interest Paid – Mortgage interest paid in the U.S. is shown in form 1098. The foreign counterpart form from your resident country must also be submitted. If no such form or statement exists, then bank account statements showing the amounts paid, need to be submitted.
Foreign Housing Expenses – You may be able to deduct certain housing costs such as, rent, property insurance, repairs etc. So, keeping a record of these expenses is important so that you can submit the proofs with your tax return.
Dependents – To claim deductions for expenses incurred on your dependents, keep a track of tuition fees paid, for example. Also keeping their SSN OR ITIN of each dependent will help when claiming these deductions on your tax return.
Property Taxes – Any taxes paid on property in the U.S. or abroad need can be deducted. Therefore, supporting documents need to be submitted with your annual tax return.
Income Taxes – To avoid double taxation, accurate records of all income earned abroad need to be maintained and submitted.
Other Miscellaneous – Medical expenses, charitable donations, etc., qualify for deductions. So, keep track of these expenses/costs and let your tax preparer submit the relevant documents with your tax return.
Finally, as per FATCA, you must report all foreign bank accounts. So, keep track of all your foreign bank accounts and assets, which will need to be reported on form 8938 and submitted with your annual tax return.
Earning and living abroad need not have a dark cloud lingering around the corner. Enlist the aid of U.S. expat tax filing experts to ensure your taxes are filed properly and follow the laws of both countries, so that you never find yourself in a difficult situation.