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an idiot with a tax question
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denise



Joined: 23 Apr 2003
Posts: 3419
Location: finally home-ish

PostPosted: Mon Jan 16, 2006 1:13 pm    Post subject: an idiot with a tax question Reply with quote

OK, so I am an idiot. Or at least a bit lazy when it comes to paperwork...

I know that there is some sort of exemption for foreign salaries, up to a certain amount, and I know that we have to actually file a specific form and request that exemption. But... I also heard (or maybe I just wanted to hear!) that we aren`t really required to file taxes when we`re abroad--it`s just something that we "should do." So I took the easy/lazy way out, and haven`t filed for two years now.

Now I want to come clean! Assuming I can track down my financial records from the past couple of years, I will file for that exemption and do whatever other paperwork needs to be done. My question: will there be a big fine for being so late? And just how nasty will it be? On my current salary, I really can`t afford to pay big late fees! (yeah, yeah, my own damn fault!)

Any advice? Words of hope?

Oh, by the way, I am American.

Thanks!

d
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spiral78



Joined: 05 Apr 2004
Posts: 11534
Location: On a Short Leash

PostPosted: Mon Jan 16, 2006 1:55 pm    Post subject: Reply with quote

I don't have 2005 info, but there was an exemption up to 60,000USD. In the past, I've simply written a letter every year explaining where I live full time and stating the amount I earned (which was always far less than 60K!!). Just for the record, so to speak.
It has also been my understanding that we are not required to file, so long as we live full time elsewhere and earn less than the 60K gross. However, I did hear some rumors that that shrubbery currently in the White House wanted to drastically lower the amount. I will be doing some checking this year before I write my annual letter.
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guest of Japan



Joined: 28 Feb 2003
Posts: 1601
Location: Japan

PostPosted: Mon Jan 16, 2006 1:55 pm    Post subject: Reply with quote

Yes Denise, you have to file, though you don't have to pay anything. Get the expat tax package from your nearest consulate or embassy. It's a thick book, loaded with tons of forms and explanations to meet all your needs. I don't think you'll really need to worry about filing your past taxes unless you are thinking about sponsoring someone for a green card in the near future.
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taikibansei



Joined: 14 Sep 2004
Posts: 811
Location: Japan

PostPosted: Mon Jan 16, 2006 2:42 pm    Post subject: Reply with quote

spiral78 wrote:
I don't have 2005 info, but there was an exemption up to 60,000USD.


The exemption was up to at least $70,000 in 2001, and I think it's close to $75,000 now. As you suggest, there was some talk of either reducing or doing away with the exemption entirely, but that discussion's thankfully been put off at least another year.

Denise, Guest's advice (as usual) is spot on.
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denise



Joined: 23 Apr 2003
Posts: 3419
Location: finally home-ish

PostPosted: Mon Jan 16, 2006 8:14 pm    Post subject: Reply with quote

Thanks for the advice!! I used to be so good about getting all that damn paperwork done early...

d
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naturegirl321



Joined: 04 May 2003
Posts: 9041
Location: home sweet home

PostPosted: Mon Jan 16, 2006 8:36 pm    Post subject: Reply with quote

It's 80,000 now and was last year.
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Glenski



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

PostPosted: Mon Jan 16, 2006 8:57 pm    Post subject: Reply with quote

This is why it pays to speak to your embassy or the IRS.

Americans MUST file taxes every year, even if they live abroad.

Americans are exempt from paying taxes on money earned overseas up to $80,000.

You don't have to show receipts; most of us don't have them anyway. I just include a letter outlining each of my monthly paychecks, and I convert yen to USD to help them out. I also state when I was in Japan, just to lend credence to the 2555 form that goes along with the 1040 long form.

File. Get exempt. Pay on any other income you might have. You have until JUNE 15th, not April when living overseas. Sleep better.
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antonia v



Joined: 27 Mar 2005
Posts: 49

PostPosted: Tue Jan 17, 2006 7:13 pm    Post subject: Reply with quote

Hi Denise,

I wouldn�t go so far as to call you an idiot, but if you don�t file with the IRS every year, you�re making a big mistake. All American citizens--expatriates included--are required by law to file with the IRS every year regardless of whether they�re income is taxable or not. Anyone who does not, out of ignorance or sheer laziness, is asking for trouble with the IRS, and that�s the kind of trouble you don�t want to have.

Let me give you newbies some sage advice: money spent to stay on the good side of the IRS is money well spent. Every year I pay a professional tax preparer to do my taxes. The money that costs--a few hundred bucks in my case--is worth the peace of mind it brings me. I don�t have to worry that eight years from now, when maybe I have a house, money in the bank, and lots of financial responsibilities, I�m going to get called in for an audit and have to come up with all sorts of nonexistent financial records to convince some suspicious IRS agent that I really was exempt from paying taxes all those years ago.

Get on the internet or have someone at home do a little legwork for you to identify a tax preparer who is familiar with expatriate income exemption (many are not). Better safe than sorry.
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Jizzo T. Clown



Joined: 28 Apr 2005
Posts: 668
Location: performing in a classroom near you!

PostPosted: Tue Jan 17, 2006 7:33 pm    Post subject: Reply with quote

But what happens if your parents claim you as a dependent (as mine have done for the past two years while I was abroad)??
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antonia v



Joined: 27 Mar 2005
Posts: 49

PostPosted: Tue Jan 17, 2006 7:53 pm    Post subject: Reply with quote

Beats me. If you're over 18 (I assume) and you live in another country, how can your parents claim you as a dependent? Seems to me you are not a dependent and they are lying to the IRS to get an additional exemption which is even more foolish than simply failing to file and even more likely to be a big problem when the IRS catches up with you (or your parents).

And they will catch up with you. I know from my own experience. Twice in my life, before I went overseas and before I learned the importance of being totally on the up and up with the IRS, I have been shocked to receive letters from the IRS, totally out of the blue, informing me that they had reviewed my taxes from a few years earlier and determined that I owed them a few thousand bucks.

I suggest having a talk with your parents about the wisdom of this subterfuge.
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guest of Japan



Joined: 28 Feb 2003
Posts: 1601
Location: Japan

PostPosted: Fri Jan 20, 2006 1:54 am    Post subject: Reply with quote

Thanks Taiki. That was nice of you to say.
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menace2society32



Joined: 17 Aug 2003
Posts: 92

PostPosted: Sat Jan 21, 2006 10:00 am    Post subject: Am I in the clear??? Reply with quote

I have filed every year, but I have not attached a note explaining my situation. I have only included my interest income in my EZ form (interest from my U.S. bank account). I have read the entire thread, but am hearing contrasting advice. Does a note suffice? If it doesn't what form should I use along with the routine 1040 to disclose my overseas income.
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antonia v



Joined: 27 Mar 2005
Posts: 49

PostPosted: Sat Jan 21, 2006 7:15 pm    Post subject: Reply with quote

Massive US government agencies like the IRS have thousands of forms and procedures for everything, so it�s a little naive to think a little Post It note will suffice. But who knows? Maybe whoever looks at your return will read your note and just think that�s good enough, or maybe he or she will require the correct forms and you�ll get a letter from the IRS.

I�m not a tax expert�as I�ve said I let someone who is an expert do my taxes--but I�m looking at the copies my tax guy sends me and here�s what I�ve got: The main thing you�re missing is the Foreign Earned Income Exclusion (Form 2555-EZ). It proves that you meet the criteria for your income being tax exempt. That is filed with Form 1040. Whether you could use the EZ form I really have no idea. I also see a Form 8812, Additional Child Tax Credit. I�ve never even noticed that before, and I have no idea what it�s for (we have three kids), but the nice thing is I don�t need to know.

The US tax system is such a complicated mess, and figuring out your taxes is such a pain in the a**, that I'm happy to pay an expert to save me from having to spend several nights trying to make sense out of it all, and I don�t have to worry that I�ve done it wrong and and my mistake is going to come back to haunt me someday.

And what about your state income taxes? Have you sent them a note too?
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thelmadatter



Joined: 31 Mar 2003
Posts: 1212
Location: in el Distrito Federal x fin!

PostPosted: Sun Jan 22, 2006 6:06 pm    Post subject: taxes Reply with quote

I file every year... like antonia says. its worth it to not piss off the IRS. I may never return to the US... or I might. Nice to keep my options open. If your only income is from teaching, you dont need an accountant. I use Turbo Tax and file electronically. Costs me in total about 50 bucks. I dont bother either with state forms because I have no taxable income.

Denise... it might be worthwhile to contact a pro in the US to find out what you need to do to straighten things out. Might cost a bit but then it will be done. The longer you wait, the more it will cost.
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denise



Joined: 23 Apr 2003
Posts: 3419
Location: finally home-ish

PostPosted: Sun Jan 22, 2006 6:37 pm    Post subject: Re: taxes Reply with quote

thelmadatter wrote:
I file every year... like antonia says. its worth it to not piss off the IRS. I may never return to the US... or I might. Nice to keep my options open. If your only income is from teaching, you dont need an accountant. I use Turbo Tax and file electronically. Costs me in total about 50 bucks. I dont bother either with state forms because I have no taxable income.

Denise... it might be worthwhile to contact a pro in the US to find out what you need to do to straighten things out. Might cost a bit but then it will be done. The longer you wait, the more it will cost.


I�m working on it, although the "pro" is my dear ex-boyfriend, who kinda handles everything for me! He is going to check with his accountant to get an idea of what to do.

What is Turbo Tax? I suppose I can do a google search to find it, but just thought I�d ask anyway, since you�ve got experience using it.

d
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