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Foreign Earned Income Exclusion and FBAR

 
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kazpat



Joined: 04 Jul 2010
Posts: 96
Location: Kazakhstan

PostPosted: Sun Mar 13, 2011 3:45 am    Post subject: Foreign Earned Income Exclusion and FBAR Reply with quote

I have done research on the web and on here and I just want to make sure I have this all straight.

As an American living overseas I can file under the foreign earned income exclusion if my salary is behold the threshold established by the IRS this year.

I moved to Kazakhstan on April 5, 2010 and have spent exactly 10 days back in USA and 8 days in Turkey during the period that will preceded my filing date, June 15th, 2011 for overseas Americans. I can therefore file under the physical presence litmus due to the fact that in the last 12 months I have spent 330 or more days physically present in a foreign country. I simply complete form 1040 and attach form 2555 to that?

I worked for the 3 months prior to moving in the USA and paid taxes and received a W2, does this change the threshold that is exempt? I cannot seem to fine the answer to that question.

A second related question is that I am applying for KZ residency and to do so I need to have 10,000 USD or more in a bank account. From what I understand I need to file a FBAR Foreign Bank Account and Financial Accounts statement with the Treasury Department by June 30, 2011 if I have 10,000 USD or more in a foreign account any time during the year.

Am I also correct on this?

Thanks,

KP
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Glenski



Joined: 15 Jan 2003
Posts: 12844
Location: Hokkaido, JAPAN

PostPosted: Sun Mar 13, 2011 3:55 am    Post subject: Reply with quote

I'm totally confused about your times.

Think January to December for starters.
You moved to Kazakstan in on April 5, 2010, so you will have to file for any U.S. taxes from January to that date.
From April to December 31, you said you were in the U.S. and Turkey for a total of 18 days. Ok. Let's assume you weren't working there at those times. That means your physical presence for Kazakstan is not 330 days. It is April 5 to December 31.

Physical presence assumes, I believe, that you are not somewhere on vacation, but that you are actually a registered resident there.

Quote:
I worked for the 3 months prior to moving in the USA and paid taxes and received a W2, does this change the threshold that is exempt?
This money (earned in the U.S.) is completely separate from the foreign earned exemption because it is not ... uh... foreign earned income.
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kazpat



Joined: 04 Jul 2010
Posts: 96
Location: Kazakhstan

PostPosted: Sun Mar 13, 2011 4:25 am    Post subject: Reply with quote

Glenski wrote:
I'm totally confused about your times.

Think January to December for starters.
You moved to Kazakstan in on April 5, 2010, so you will have to file for any U.S. taxes from January to that date.
From April to December 31, you said you were in the U.S. and Turkey for a total of 18 days. Ok. Let's assume you weren't working there at those times. That means your physical presence for Kazakstan is not 330 days. It is April 5 to December 31.

Physical presence assumes, I believe, that you are not somewhere on vacation, but that you are actually a registered resident there.

Quote:
I worked for the 3 months prior to moving in the USA and paid taxes and received a W2, does this change the threshold that is exempt?
This money (earned in the U.S.) is completely separate from the foreign earned exemption because it is not ... uh... foreign earned income.


As far as I understand physical presence differs from bona fide residence in that physical presence can be any 12 month period and not the tax year. Correct me if I am wrong.

Quote:
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months


http://www.irs.gov/businesses/small/international/article/0,,id=96817,00.html

So as of the filing date for overseas Americans I will indeed have been in KZ for 330 days. Or does the trip home for Christmas disqualify me? That was like December 20th of 2010 to December 29th.

This stuff confuses me so I may have it all wrong. Embarassed
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naturegirl321



Joined: 04 May 2003
Posts: 8818
Location: home sweet home

PostPosted: Sun Mar 13, 2011 11:50 am    Post subject: Reply with quote

Yep, you're right. You can file from April 5 2010 to April 4 2011 and get the 2555ez, but you'd still have to pay US taxes from Jan 1 to April 5 2010.

PPT, physical presence test, sorry Glenski, but it's JUST being present in a foreign country or countries, you CAN just be there on vacation. The main thing is that you're not in the US, or its territories, such as PR or Guam. The bona fide residence is different, you don't HAVE to be a resident of that country, but it helps. The IRS leaves a HUGe loophole for that one.

Now, you COULD use the bona fide residence test, which does NOT require any time spent in country . Bona fide residency is pretty much flexible and up in the air, you just have to prove ties to that country, library card, licenses, job, family, house, a dog Smile etc.

OR

File the 1116, which again, does NOT require any time in country.
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naturegirl321



Joined: 04 May 2003
Posts: 8818
Location: home sweet home

PostPosted: Sun Mar 13, 2011 11:57 am    Post subject: Re: Foreign Earned Income Exclusion and FBAR Reply with quote

kazpat wrote:
A second related question is that I am applying for KZ residency and to do so I need to have 10,000 USD or more in a bank account. From what I understand I need to file a FBAR Foreign Bank Account and Financial Accounts statement with the Treasury Department by June 30, 2011 if I have 10,000 USD or more in a foreign account any time during the year.


Unfortunately yes.

So if you have 11K in one, you file
If you have 5K in one and 5 in another, you file.

It stinks. And you have to file for the max time during the year. If that makes sense. Supposedly banks tell you, I check my statements, look at the max amount and dates and have to add. It's a bit of a nightmare. So if I had a high amount in bank A May 1, but a low amount in bank B on the same date, I could still be under 10K. So then you have to check bank Bs high dates. when you have five bank accounts it can really do your head in Smile
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maastricht



Joined: 11 Feb 2011
Posts: 38

PostPosted: Mon Mar 14, 2011 1:38 am    Post subject: Re: Foreign Earned Income Exclusion and FBAR Reply with quote

kazpat wrote:


I worked for the 3 months prior to moving in the USA and paid taxes and received a W2, does this change the threshold that is exempt? I cannot seem to fine the answer to that question.

KP


http://www.irs.gov/businesses/article/0,,id=182017,00.html

"Figuring the tax: Beginning with tax year 2006, a qualifying individual claiming the foreign earned income exclusion, the housing exclusion, or both, must figure the tax on the remaining non-excluded income using the tax rates that would have applied had the individual not claimed the exclusions"

The US income doesn't change the threshold under the physical presence test, but it could change your tax rate. I'm guessing your US withholding is probably off (either too much or too little). You can either download Turbo Tax and hope they figure it out correctly or just report to the best of your ability and if the IRS disagrees with your numbers, they can send you an assessment and you can go from there (you can just agree with them if you think their calculations are right). If you make a lot of money (100k+), I would consider hiring a professional to make sure you are maxing out on exclusions/deductions. If you don't make much money, I would consider Turbo Tax to make sure you are getting enough of a refund from what was withheld. I'm assuming they updated their software for the 2006 changes and if they haven't, you can probably demand your money back.
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maastricht



Joined: 11 Feb 2011
Posts: 38

PostPosted: Mon Mar 14, 2011 2:02 am    Post subject: Reply with quote

About the foreign bank accounts, I believe you have to use the exchange rate on that particular day, and based on that exchange rate, if you exceed $10k outside the US on any given day you have to file.

Now, if you wire exactly $10k in, and the bank takes a commission and/or uses its own exchange rate (not the spot, which it surely won't) and your balance immediately drops below $10k, there might be a question. The easiest option I think is just to report, since I find it unlikely the IRS even cares about $10k. If your interest rate is high and Kz tax rate is low, you might owe a small amount of tax to the IRS. If it is, let me know, I might be opening a bank account in Kz as well. Very Happy
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kazpat



Joined: 04 Jul 2010
Posts: 96
Location: Kazakhstan

PostPosted: Mon Mar 14, 2011 4:01 am    Post subject: Reply with quote

Thanks for all the replies, I understand what I am responsible for reporting now.
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naturegirl321



Joined: 04 May 2003
Posts: 8818
Location: home sweet home

PostPosted: Mon Mar 14, 2011 4:08 am    Post subject: Re: Foreign Earned Income Exclusion and FBAR Reply with quote

maastricht wrote:
You can either download Turbo Tax and hope they figure it out correctly or just report to the best of your ability and if the IRS disagrees with your numbers, they can send you an assessment and you can go from there (you can just agree with them if you think their calculations are right). If you don't make much money, I would consider Turbo Tax to make sure you are getting enough of a refund from what was withheld. I'm assuming they updated their software for the 2006 changes and if they haven't, you can probably demand your money back.


DOuble check the numbers yourself. TurboTax screwed up my taxes last year, if I hadn't checked them I would have filed wrong.
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naturegirl321



Joined: 04 May 2003
Posts: 8818
Location: home sweet home

PostPosted: Mon Mar 14, 2011 4:10 am    Post subject: Reply with quote

maastricht wrote:
The easiest option I think is just to report, since I find it unlikely the IRS even cares about $10k. If your interest rate is high and Kz tax rate is low, you might owe a small amount of tax to the IRS. If it is, let me know, I might be opening a bank account in Kz as well. Very Happy


They don't. They just want utter control over everything Smile

And part of me wonders how we can be held responsible. We were never taught this in school. It's like giving a 16 year old a license with no classes and no exam and then giving them a ticket for breaking the rules that they had no idea about. And then change the rules every year.
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kazpat



Joined: 04 Jul 2010
Posts: 96
Location: Kazakhstan

PostPosted: Mon Mar 14, 2011 4:34 am    Post subject: Reply with quote

naturegirl321 wrote:
maastricht wrote:
The easiest option I think is just to report, since I find it unlikely the IRS even cares about $10k. If your interest rate is high and Kz tax rate is low, you might owe a small amount of tax to the IRS. If it is, let me know, I might be opening a bank account in Kz as well. Very Happy


They don't. They just want utter control over everything Smile

And part of me wonders how we can be held responsible. We were never taught this in school. It's like giving a 16 year old a license with no classes and no exam and then giving them a ticket for breaking the rules that they had no idea about. And then change the rules every year.


Thats what is so crazy, I randomly ran into the FBAR requirement while looking up the foreign tax info. Rich people hiding money offshore or drug dealers have a tax lawyer (s) to tell them these requirements but us regular folks? And just imagine someone who thinks "meh, they won't care about my 10-12k" and gets hit with a penalty of 50% of the maximum balance of the account during the year plus interest.

I guess it is my responsibility as an adult to know but it still is frustrating.
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naturegirl321



Joined: 04 May 2003
Posts: 8818
Location: home sweet home

PostPosted: Mon Mar 14, 2011 5:42 am    Post subject: Reply with quote

kazpat wrote:
Thats what is so crazy, I randomly ran into the FBAR requirement while looking up the foreign tax info. Rich people hiding money offshore or drug dealers have a tax lawyer (s) to tell them these requirements but us regular folks? And just imagine someone who thinks "meh, they won't care about my 10-12k" and gets hit with a penalty of 50% of the maximum balance of the account during the year plus interest.

I guess it is my responsibility as an adult to know but it still is frustrating.


I just found out about it as well. NOt that I've ever HAD 10K in the bank. We sold our first house and actually kept ALL the money in our house, not becuase of the FBAR, but becuase lovely Peru charges a tax every time you deposit or withdraw money. Smile

Seriously, if the IRS wants to go through my records, they can be my guest. I've got three different names on three different continents and different passports. Never making more than 91K or even close, I think I'm in the clear.
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Guerciotti



Joined: 13 Feb 2009
Posts: 598
Location: In a sleazy bar killing all the bad guys.

PostPosted: Tue Mar 15, 2011 4:32 am    Post subject: Reply with quote

naturegirl321 wrote:
Seriously, if the IRS wants to go through my records, they can be my guest. I've got three different names on three different continents and different passports. Never making more than 91K or even close, I think I'm in the clear.


You are the female Jason Bourne!
Cool
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maastricht



Joined: 11 Feb 2011
Posts: 38

PostPosted: Tue Mar 15, 2011 4:51 am    Post subject: Re: Foreign Earned Income Exclusion and FBAR Reply with quote

naturegirl321 wrote:


DOuble check the numbers yourself. TurboTax screwed up my taxes last year, if I hadn't checked them I would have filed wrong.


What mistake did Turbo Tax make?
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