For American Expats: A Checklist of U.S. Tax Forms
By Peggy Creveling, CFA and Chad Creveling, CFA
This article is for general information purposes only and is not intended as specific tax advice. Please consult your tax advisor for advice relevant to your situation.
As 1099 forms from U.S. banks and brokerages roll in, many Americans living overseas are collecting the documents needed to file their 2014 U.S. taxes. Since there are a number of sometimes obscure tax forms that U.S. citizens living overseas are required to file, we've provided an updated checklist below to help you keep track of them. Please note that U.S. citizens and Green Card holders cannot "opt out" of filing or paying U.S. federal income tax even if they're legally residents in another country. The following list should be used as a starting point only. More detail on expat filing requirements as well as the details of each form can be found on the IRS website: www.irs.gov.
- Form 2555—Foreign Earned Income. If you qualify, use this form to exclude foreign earned (salary) income of up to USD 99,200 for 2014, as well as potentially exclude or deduct housing costs. The standard housing deduction for 2014 is limited to USD 29,760; however, greater deductions may be allowed in 2014 if you live in a high-cost city—for example, Bangkok (USD 59,000), Hong Kong (USD 114,300), Singapore (USD 86,300), or Shanghai (USD 57,001).
- Form 1116—Foreign Tax Credit. If you've paid foreign taxes on foreign income (either from your salary or investments) and you haven't otherwise excluded the income from your U.S. taxes, you may be able to take a credit against any U.S. taxes owed by filing this form.
- FinCEN 114—Report of Foreign Bank and Financial Accounts (FBAR). If you own or have authority over a foreign financial account—including a bank account, brokerage account, mutual fund, or unit trust—and the aggregate value of all foreign financial accounts was over USD 10,000 at any time during the year, you're required to report the account each year to the Department of the Treasury. This form must be filed online through the BSA E-Filing System website by June 30 of each year with no extensions. Please note that this form is still required even with the introduction of Form 8938, described next.
- Form 8938—Statement of Foreign Financial Assets. As a U.S. expat, you need to file Form 8938 for tax year 2014 if your filing status is single, head of household, or married filing separately and you had more than USD 200,000 in aggregate specified foreign assets on the last day of the year or USD 300,000 at any time during the year. If your status is married filing jointly, you need to file Form 8938 if you had aggregate specified foreign assets of USD 400,000 on the last day of the year or USD 600,000 at any time during the year. Some examples of specified foreign assets include:
- Savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer
- Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value
- Stock or securities issued by a foreign corporation
- A note, bond, or debenture issued by a foreign person
- A partnership interest in a foreign partnership
- An interest in a foreign retirement plan or deferred compensation plan
- Real estate that is owned through a foreign entity, such as a corporation, partnership, trust, or estate
- An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer
- An interest in a foreign estate
- Form 8621—Information Return for Passive Foreign Investment Company (PFIC). PFICs can include foreign-domiciled mutual funds, offshore investment schemes, foreign money market funds, or resident country tax-deferred funds, such as Thai Retirement Mutual Funds (RMFs) or Long-Term Equity Funds (LTFs). If you own shares in a PFIC (either directly or indirectly), under updated regulations you're generally now required to file Form 8621 for each PFIC that you own on an annual basis if the aggregate value of all PFICs is greater than USD 25,000 at year's end, or USD 50,000 for joint filers.
- In some cases, your PFIC may provide shareholders with a "PFIC Annual Information Statement." This statement allows you to elect qualified electing fund (QEF) treatment on Form 8621, resulting in U.S. taxation similar to a U.S.-domiciled mutual fund. If your PFIC does not provide this statement, your options are either to elect "mark to market" treatment or otherwise default to the more onerous "excess distribution" rules, which result in the highest amount of U.S. tax owed. PFIC rules and tax calculations are complex—seeking help from a professional tax preparer well-versed in the form is advisable.
- Form 5471—Information Return of U.S. Person with Respect to Certain Foreign Corporations. If you're a shareholder of a controlled foreign corporation (CDC), you must file this form. A foreign company is generally classified as a CDC if you own 10% of the shares or control 10% of the voting rights. American expats who own foreign registered businesses or significant stakes in restaurants, bars, or other companies may need to file this form.
- Form 926—Return of a U.S. Transferor of Property to a Foreign Corporation. Generally, you are required to file this form in the year you transfer cash, assets, or property (tangible or intangible) to a foreign corporation. U.S. citizens either just setting up and providing initial capital to a foreign business or injecting fresh capital or new assets to an existing business may need to file this form.
- Form 8865—Information Return of U.S. Persons with Respect to Certain Foreign Partnerships. If you're a partner in a foreign partnership with five or fewer U.S. partners who each own 10% or more interest and in aggregate have more than 50% of the partnership, you may need to file this form to report income and transactions between you and the partnership.
- Form 3520—Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. This form is used to report transactions you may have with foreign trusts, as well as if you receive large gifts from foreign persons (greater than USD 100,000), or corporations or partnerships (greater than USD 15,358 for 2014).
- Form 3520A—Information Return of Foreign Trust with a U.S. Owner. If you own a foreign trust, you need to file this form to provide information about the trust, its U.S. beneficiaries, and anyone who's treated as an owner of any portion of the trust.
The above list is not intended to be comprehensive, and other forms may be needed depending on your particular situation. Failure to file required forms can result in substantial penalties, even if the omission was not intentional. Please consult your tax advisor for advice relevant to your situation.
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This article is a revised and updated version of previous articles that have appeared on www.crevelingandcreveling.com .