Sunday, 3 July 2011

Use Turbo Tax for Filing Expat Tax Returns

What is the Best Online Software Package for Expats?

For many expats it is now time to file taxes and they are looking for the right place to file their taxes. TurboTax offers a software package to help.

TurboTax is the number one selling software package on the internet and they have now created software to accommodate all Americans living abroad or expatriates. Besides TurboTax, the other software package available to expats is TaxAct.

TurboTax Basic, Home and Business and Premier software will accommodate expats desiring to file their taxes. Premier is the best version to use for expats as suggested by William Perez (about.com). It contains deductions and forms for 1116 (foreign tax credit), form 2555 (foreign income exclusion) and form 90-22.1 (foreign bank accounts). According to the IRS, "Your worldwide income is subject to U.S. income tax, regardless of where you reside."


What is Form 1116?

Form 1116 is not mandatory. This form is used to claim a credit for income taxes paid to another approved country when the taxpayer is also paying US taxes on the same form. This form will take approximately four hours to complete according to the IRS and is complicated. If the taxpayer resides in these countries, a tax credit will not be accepted: Syria, Iran, Iraq, Cuba, Libya, Sudan and North Korea.
The information on this form will include:
  • Country where the taxes were paid.
  • Amount and type of income.
  • Deductions and or losses incurred.
Taxpayers who make less than $300 per person ($600 if filing jointly) of income in a foreign country may be able to simply claim the credit without filling out form 1116. TurboTax will show the guidelines and exception to this rule.


What is Form 2555?

Anyone who lives and works outside the US will be able to exclude $91,500 of foreign earned income. The taxpayer must reside outside the US to qualify. This amount is effective for the tax year of 2010.


Foreign Bank Accounts

A taxpayer must fill out Treasury Department form 90-22.1 if they have a foreign bank account. If the total amount of all bank accounts and financial institutions equal $10,000 or more this form must be filed. This form is due to be filed annually and anyone not filing may face stiff penalties by the IRS.

When do Expats File Their Taxes?

Expatriates are given an automatic two month extension until June 15, although the owed tax must be paid by April 15th or be subject to interest charges. If unable to file by June 15th, taxpayers may apply for an extension using form 4868 to extend the due date to October 15th. Any owed tax not paid by June 15th would be subject to both interest and failure to pay tax owed penalties.


Where do Expats Send Their Taxes?

TurboTax will not allow e-file for any foreign address. Below are the addresses to mail in the completed IRS forms. Some may decide to use Federal Express instead to assure their payment is received. Federal Express can be reached here.

Mailing address to send in completed taxes:
Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215

To mail in estimated tax payments and form 1040-ES:
Internal Revenue Service
P.O. Box 660406
Dallas, TX 75266-0406

Expatriates or Americans living and working overseas can now file their taxes easily and without much delay. Although there is an automatic two month extension for anyone living over seas, the payment is due by April 15th. Make sure the payment is mailed early as the mailing from an overseas address may take longer than expected. Even with Federal Express, expect them to take from 4-6 days.


Perez, William (February 2, 2006), "Software for Expatriates: Tax Question of the Day", About.com

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