Essential US Tax tips for Americans Living Abroad

As specialist US tax accountants to US Expats we are all too familiar with the issues that occur when US Expats overlook their tax filing obligations. Below are our top 10 tax tips for Americans living abroad.

 

1.     File your US tax return

It may seem obvious, but with millions of US Expats failing to file their tax return every year it has to be mentioned. You must file a US tax return if your income exceeds the filing threshold, which is set extremely low.

 

2.     Foreign Earned Income Exclusion (FEIE) will save you money!

Foreign Earned Income Exclusion can be used to exclude up to $100,800 of foreign income on your US tax return. In order to claim FEIE you must pass a residency test, as well as the physical presence test.

 

3.     Use Foreign Tax Credit (FTC) to reduce taxes

Foreign Tax Credit allows you to offset US taxes that you have already paid tax on in another country.

 

4.     File your FBAR

The FBAR deadline falls on Tax Day, 18th April 2017. US Expats receive an automatic extension to the 15th June, which can be extended further to 17th October. You are required to file an FBAR if you have $10,000 or more in your foreign accounts at any point during the year.

 

5.     You can offset your housing costs

Foreign Housing Exclusion means that US Expats are able to offset some living expenses incurred abroad.

 

6.     Be aware of FATCA

The Foreign Account Tax Compliance Act means individuals must report their foreign financial assets if they exceed a set level.

 

Contact us now for more US Expat tax advice

US Expatriate Tax Help- FBAR, FATCA, FEIE and FTC advice

The US ‘Tax Day’ is only a few weeks away. US Expats may have an automatic filing extension, but that doesn’t mean you should sit back and leave everything to the last minute. There are a number of different forms you may need to file and a wide variety of deductions and exclusions you must be aware of.

 Do you need to file an Foreign Bank Account Report (FBAR) or a Foreign Account Tax Compliance Act (FATCA)?

If you’re a US Expat you may have already heard of an ‘FBAR’ or/and an ‘FATCA’. However, you may be confused about what exactly they are and whether you have to file one.

 Foreign Bank Account Report (FBAR)

The FBAR form is used to report any foreign bank account information you may have to the US Treasury Department> The form must be filed annually by US individuals and businesses who own or have an interest in foreign bank or financial accounts that exceed $10,000 at any point during the calendar year. The FBAR deadline will be due on the 18th April this year. For US expats the automatic deadline extension until the 15th July 2017.

Foreign Account Tax Compliance (FATCA)

 The FATCA (8938) form is used to report any foreign financial accounts that you may have. You must file the form if your foreign assets are greater than $200,000 on the last day of the tax year or over $300,000 at any point during the year for single or married filing separately taxpayers. For married filing jointly taxpayers, you must file the FATCA form if the value of your foreign assets are greater than $400,000 on the last day of the year or more than $600,000 at any point during the year.

 

Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC)

Another area many US Expatriates struggle to understand is FEIE and FTC. Luckily for US Expats, there are a number of tax credits, deductions and exclusions these are classed under either FEIE or FTC.

 Foreign Earned Income Exclusion (FEIE)

 FEIE can be used to reduce or eliminate the risk of being taxed by both your host country and the US. FEIE can exclude up to $101,300 of your foreign earned income on your US tax return. To do so you must pass either the Physical Presence Test or the Bona Fide Residence Test.

Contact us now for more information on FEIE

Foreign Tax Credit (FTC)

 FTC can be used to reduce your US tax liability on your foreign earned income. You cannot claim FTC against income you have already excluded through FEIE.

Contact us now for more advice on FTC

UK families to see tax-bills cut as date announced for the launch of Tax-Free Childcare

UK parents can now pre-register for the governments new childcare offers. (Available at https://www.childcarechoices.gov.uk/).

From the 28th April Tax-Free Childcare will be available to parents of young children. Childcare costs for working families across the UK should be cut by as much as £4,000 per child each year.

Approximately 2 million working families are eligible for the Tax-Free childcare.

The scheme will be gradually rolled out, with the parents of children under two being the first eligible to enter the scheme.

Parents of three and four year old children living in England will have access to 30 hours of free childcare from September 2017.

By December 2017 eligible parents will be entitles to government top-ups of £2 for every £8 the parent pays for their Tax-Free Childcare account. This will be open to all working parents across the UK with children under 12, or 17 if disabled.

 

Contact us now for more tax advice.

2017 US Expat tax Changes. FBAR Deadline has moved.

The Foreign Bank Account Report (FBAR) is a tax document, commonly used by US Expats, which is used to report foreign financial account balances. The FBAR tax deadline has been moved up this year to fall in line with Tax Day. The change should help US expats to remain compliant with their reporting requirements.

Contact us now for details on your reporting requirements.

Previously, FBAR forms had their own separate filing deadline and were due at the end of June. Starting this year, FBAR’s will be due on 18th April, (otherwise known as Tax Day). As a US Expat living abroad, you are entitled to an automatic extension for filing your FBAR and tax return- making the deadline for both 15th June.

There can be series penalties and interest for those who fail to file their FBAR. For those who were not aware they had to file the fine could be as high as $10,000 per violation. On the other hand, those who know their filing obligations and still fail to do so could face a fine of $100,000 or 50% of the balance of the account at the time of violation (whichever is greater).

Contact us now for help filing for FBAR or US taxes.

Conservative Party revolt threatens rises in NIC for the self-employed

The announcement, in the 2017 Budget, of increased National Insurance Contributions (NIC) for the self-employed has triggered a growing rebellion amongst Conservative MP’s.

According to figures expressed in The Guardian, there are at least 18 potential conservatives that oppose the NIC increase decision. Therefore this could determine the governments working majority vote: 17. 

The general concerns expressed from the Conservative MP’s about the NIC rise ranges from the perception that the rise unfairly targets the self-employed and entrepreneurs; as well as the fact that the 2015 Conservative manifesto promised no income tax, VAT or NIC rises before 2020.

While it is not certain what percentage of MP’s oppose the 2017 NIC changes, the numbers are likely to apply pressure on to Chancellor Hammond and the prime minster to reconsider the policy.

Chancellor Hammond has argued that higher NIC charges for the self-employed in fact narrows the gap between the self-employed and workers to promote fairness.

Contact us now for expert advice on tax as a self-employed worker

2017 Budget Announcement: What the tax rise for the self-employed really means

In todays 2017 budget it was announced that millions of self-employed workers are to face high National Insurance rates. This will essentially narrow the gap between the self-employed and conventional PAYE employees.

The average self-employed person will face a 60p more expense per week. The most affected party by the change is partners in professional firms, such as accountants and lawyers. 

The tax-free dividend allowance that is often used by company directors, will be cut from £5,000 to £2,200.

Self-employed workers will now have to pay two types of National Insurance:

1.     A tax fund that benefits the state pension

2.     Job seekers allowance

The 2017-18-tax year will see self-employed workers pay Class 2 NI at £2.85 per week on profits between £6,025 and £8,164. Profits that exceed the £8164 cap will be subject to Class 4 NI at 12% on earnings between £8,164 and £45,000.

From April 2018 Class 2 NI will be abolished and Class 4 NI will rise from 9% to 10%. The national insurance is due to rise a further 1% in April 2019.

Chancellor Hammond's argument supporting the decisions behind the 2017 Budget are that it is unfair for an employee earning £32,000 to pay £6,170, while a self-employed worker will pay just £2,300.

Much like employees, self-employed workers have a ‘personal allowance’ this means that they can earn up to £11,500 in 2017-18 before having to pay income tax. However, unlike employees, self-employed workers pay income tax on the previous year’s profits, revenues after business expenses. IT is possible to deduct certain costs and losses from previous years in some cases.

Income Tax and National Insurance is paid on the 31st January each year, based off of the profits that were made in the previous year.

 

Contact us now for help on your tax return

Musicians Expenses Explained

As specialist accountants to musicians our aim is first and foremost to make sure that you are claiming all the eligible expenses, so that you can lower your taxes and avoid unnecessary penalties! Musicians have many tax deductions that are unique to any other industry.

 

Below we have broken down some of the expenses and deductions you are entitled to as a musician.

 

I’m a musician. What are my claimable expenses?

 

Expenses that are wholly and exclusively for the purpose of your trade are regarded as an allowable expense on your tax return on your tax return. Please note: Some expenses can be for dual purposes. Therefore a certain percentage of this dual-purpose expense can be claimed as a business expense.

 

Below is a list of expenses that can be claimed as an expense as long as they relate to your business:

·      Accountancy and other professional fees

·      Administrative costs

o   Stationary

o   Postage

o   Fax

o   Photocopying

o   Other office costs

·      Advertising

·      Agents and Managers fees/commission

·      Research

o   CDs

o   DVDs

o   Downloads

o   Books

o   Scripts

o   Sheet music

o   Theatre tickets

o   Cinema tickets

·      Clothing- is allowable if is specifically and exclusively for work. A self-employed person cannot claim a wardrobe of everyday clothing. However, clothing worn for a gig is claimable as a business expense.

·      Cosmetic Surgery- The surgery must have taken place for the purpose of business only. You will need a letter from an applicable person, such as an agent, to confirm that this was truly a business expense for the expense to be allowable.

·      Costume and props- This includes repairs, laundry and cleaning

·      Use of home costs-  The home cost expenses incurred due to work- such as practicing or holding meeting are all claimable. The expenses must be apportioned appropriately.

o   Council tax

o   Gas

o   Electricity

o   Insurance

o   Water rates

o   Mortgage interest/rent

·      Website costs

·      Subscriptions

o   Musicians Union

o   Other organisations that relate to your business

·      Maintenance of instruments and insurance

·      Make up and hairdressing costs that you incurred solely for work

·      Photographic sittings and reproductions

·      Professional publications

·      Start up costs

·      Telephone, mobile and internet

·      Travelling expenses to interviews, auditions and training courses

o   Taxis

o   Train

o   Tube

o   Bus

o   Car, van, motorcycle and bicycle

·      Travelling and subsistence on tour

·      Tuition and coaching

·      Capital expenditure- items that are used for a long period of time e.g., a laptop.

 

Contact us now for more advice on accounting for musicians

 

Everything you need to know about the new VAT Flat Rate Scheme

On the 5th December 2016 the HMRC released the Tackling aggressive abuse of the VAT Flat Rate Scheme- technical notes. This document went into the details of the new VAT Flat Rate Scheme. Below we have highlighted the key points everyone should know.

Why have these changes been introduced:

These changes have been introduced to crack down on those who misuse the VAT flat rate scheme.

The new rules will be introduced from 1 April 2017.

  • These will primarily affect Limited Cost Businesses

What is a Limited Cost Business:

  • You'll be classes as a 'limited cost business' if your goods cost less that either:

    • 2% of your turnover

    • £1,000 a year (if your costs are more than 2%)

    • When working out the amount spent on goods, the following purchases cannot be included:

      • Capital goods

      • Food and drink (such as staff lunches)

      • vehicles or parts for vehicles (unless running a vehicle hire business)

Who will be affected:

  • The introduction of this new scheme will increase the VAT paid by labour-intensive business who spend very little on goods. e.g. IT contractors, photographers and consultants. 

How to stay compliant:


Additional Info:

Contact us now for more advice

US EXPAT TAX ADVICE: Do I have to pay social security for both the US and my country of residency? US Totalization Agreements

Whether you, a US Expat, have to pay social security to the country you live in and the US depends on whether the country you reside in has a totalization agreement with the United States.

Generally, if you receive employment income from an American employer you are subject to pay into the US Social Security system. Many affiliates of American companies are also subject to this payment liability.

Dual social tax is a normal tax for a expat to receive. This is because most countries impose social taxes on individuals performing services within their territory.

If the country has a totalization agreement with the United States US expats are not required to pay two social security taxes. Under the US totalization agreement, workers who are eligible to coverage under both the U.S. and a foreign social system are subject to only the coverage laws of the country where he or she is working.

Contact us now for US Expat tax advice

Passport Revocation beginning for those with late US tax

The IRS’s new power to revoke the passports of late taxpayers was announced during 2016 and is well on the way. US citizens who owe the IRS more than $50,000 are at risk of having their passports revoked. The IRS have confirmed that passport revocation will begin in early 2017.

Expats are particularly at risk, since although $50,000 may seem quite dear, the FATCA Form 8938- a filing requirement for many Americans abroad with assets overseas- has a hefty $10,000 penalty for failing to file and increases for continued failure to file. 

The IRS will issue certification notices to the State Department of applicable, late taxpayers. At this point the taxpayer will be give 90 days to resolve erroneous certification issues, make a full payment of the debt or enter into a satisfactory payment alternative with the IRS.  Once the decision to revoke an individuals passport is made, the department may choose to limit the passport only to return travel to the US.

How will this negatively affect US Expats?

Having your passport revoked for a late US tax payment can be particularly complicated for US expats, since your passport is your key identity while living abroad.  This can lead to the loss of your job and home abroad. 

Thankfully, most US expats do not owe money on their tax returns due to Foreign Earned Income Exclusion, Foreign Tax Credit and tax treaty provisions. However, it is more essential than ever to avoid penalties and the interest that can come from failing to file your tax return or filing incorrect forms.

 

For advice on your US tax return contact us now

 

Essential Tax guide for freelance musicians

As an accountant to self-employed musicians, we have come across every problem and challenge a musician could face when it comes to taxes. Working as a self-employed musician can be incredibly rewarding. Here is a guide on how to legitimately set up your business as a musician

Step 1- Register with HMRC

 

As soon as you start working for yourself you are classed as a sole trader.  At this point you should register with HMRC as self-employed so you can complete your tax return as a musician.

 

It takes 10 days for HMRC to complete your registration. Once the registration is complete HMRC will send you your Unique Tax Reference (UTR) number, which is how HMRC will identify you. Your UTR must be included on all documents you send back to HMRC each year.

Step 2- Record your income and expenses

 

One of the most essential tasks for musician is bookkeeping. Without proper bookkeeping your career as a self-employed musician could quickly face many unnecessary hurdles. Good tax records can save you a lot of time, stress and money in the long run.

 

A lot of people think that bookkeeping only plays an important role in avoiding a HMRC audit. Although it is true - properly kept records can keep HMRC at bay - bookkeeping can also allow you to accurately portion your expenses as claimable expenses.

 

The law states that expenses are only claimable when ‘wholly and exclusively incurred in the performance of business.’ Therefore as a musician, money you spend on equipment such as instruments, work-related travel, office costs and much more can be claimed back on in your tax return – to help reduce any tax you need to pay.

 

Step 3 - Know your tax deadlines – Musicians Tax Returns

 

Missing tax deadlines can cause unneeded expense and stress. We’ve listed below all the important HMRC tax return deadlines:

 

31st October: Paper Returns

 

All paper tax returns must reach HMRC by midnight on 31st October. So for the 2016-17 tax year (ending on 5th April 2017) the deadline is midnight on 31st October 17.

 

31st January: Online Returns

 

Any online tax returns must reach HMRC by midnight on 31st January. So for the 2016-17 tax year (ending on 5th April 2017), you must file your online return by 31st January 2018.

 

31St January: Tax Payments

 

You must pay any tax you owe by 31st January following the end of the tax year. Payments on account are part payments towards your next tax bill. You may not have to pay these - it’s dependant on the amount of tax due and the kind of income you receive.

 

HMRC will usually send you a ‘Self Assessment Statement’ that shows how much you owe or you can check your tax bill online.

 

Step 4 – Minimise your tax - Musicians

 

Once you are up and running, there a few simple ways to minimise your tax:

·      Make sure you keep all your receipts, so you can claim these at the end of the year

·      If you are going to buy any instruments and other music equipment, try and do that before the end of the tax year (5th April)

·      When you first start out, you may have more expenses than income. In this case you can use those expenses to reclaim any tax you’ve paid over the last 3 years which should help with your cash-flow

 

If you have any queries, feel free to contact us and we can discuss your situation and tell you the next steps to get your photography business up and running.

Bambridge Accountants is a team of award winning, chartered accountants based in the heart of Covent Garden. We specialise in providing tax and accountancy advice to the creative industries, including many musicians, and US expat tax services.

 

Expat Itemized Deductions

US expatriates can claim many of the same itemized deductions on their US expatriate tax returns as back home.

 

Casualty disaster and theft losses

 

The rules and regulations around casualty, disaster and theft losses are the same for both taxpayers living in the US and US expats.

 

US expats can claim tax deductions for casualty, disaster and theft losses of foreign property on the Schedule A form. To be eligible to claim this type of loss on your US expat tax return you must:

·      Itemize the deduction on Schedule A

·      Be a taxpayer with taxable income.

 

Charitable Donations

 

The rules that apply to taxpayers in the US relating to charitable contributions also apply to US expat taxpayers

 

In order to qualify tax deductions:

·      Charitable contributions must be towards a qualified organization

·      The tax deductions must be itemized on Schedule A

·      You must be a taxpayer with taxable income

 

Foreign Mortgage Interest Deduction

 

If you are a US expat that owns a home overseas you may qualify for the mortgage interest deduction on your foreign home.

 

If you are an American or a green card holder you are able to deduct mortgage interest paid on qualified foreign home if the following criteria are met:

·      The deduction is itemized on your Schedule A form

·      You have an ownership interest in a qualified home on which the mortgage is a secured debt

 

For more advice on itemized deductions for US citizens living abroad contact us now

Can a US expat deduct moving expense for a move abroad?

For American citizens living abroad taxes can be an extremely complex. When you first move abroad you are likely to incur many expenses. Several are deductible. Deductible moving expenses must have been paid or incur in connection with starting a new job at the new location. There are several rules and regulations around this matter, so it is best to consult a US Tax expert first (+44 (0)20 3829 3492).

 

The following are requirements that must be met to claim moving expenses:

·      Your move must be related to the start of work

·      You must meet the distance test

·      You must meet the time test.

 

If you meet the bona fide residence test or the physical presence test for at least 120 days in the year of your move, your moving expense is regarded as connected to your income entirely during that year. If your moving expenses spread over two years it is recommended that you request a filing extension for the tax return for the year of the move until after the end of the second year to make an accurate calculation.

 

What expenses can be deducted?

·      The cost of moving household goods and personal effects from your old house to your new house

·      Cost of traveling from an old house to the new house

·      Cosy of moving household goods and personal effects to and from storage

·      Cost of storing household goods and personal effects while at your new location

 

Are moving expenses between two foreign countries deductible?

 

Moving expenses between foreign countries are deductible if those expenses are allocable to income earned in the year of the move.

 

Contact us for more infomation

Tax deduction every US Expat needs to know about

As an expert accountant in US Tax and US expat tax we have a wealth of knowledge and experience with US Expat Tax deductions that can’t be found anywhere else.

 

The post offers a summary of some of the US Expat deductions that are often overlooked or forgotten about. Contact us for more advice.

 

You can only deduct expenses that definitely relate to the earnings you are including on your tax return. If you decide to exclude your foreign earned income and/ or hosing amounts, any item that can be allocated or charged against your excluded foreign earned income or housing amount cannot be deducted, excluded and is not eligible for a credit.

 

You can deduct any items that are not definitely related to any type of income. These can include:

·      Personal exemptions

·      Qualified retirement contributions

·      Alimony payments

·      Charitable contributions

·      Medical expenses

·      Mortgage interest

·      Real estate taxes on your personal residence

 

You cannot generally take a deduction for a contribution to a foreign charitable organization. You can deduct contributions made to a US charitable organization that transfers funds to a charitable organization that is foreign.

 

There are also instances where you can deduct donations to Canadian, Mexican and Israeli charitable organizations.

American expat due dates

As an American expat you have several regulations that you may have to abide to under American tax law. US citizens and green card holders are taxed on their worldwide income. US expats can also have to file a Report of Foreign Bank and Financial accounts, as well as a state tax return..

 

Contact us now to find out your tax filing requirements.

 

For 2017 the American Expat deadlines you must be aware of are:

 

18th April- Due date for payments of any taxes due for 2013

18th April- Form 1040 ES- 1st instalment quarterly income and self-employment taxes

15th June- Due date for tax returns for expatriates living abroad on 15th April

15th June- Form 1040 ES- second instalment quarterly income and self-employment taxes.

15th June- Due date if you are filing an extension on Form 4868 or Form 2350

30th June- Form TDF 90-22.1 US Treasury Form Report of Foreign Bank Accounts Due Date

18th September- Form 1040 ES- 3rd instalment quarterly income and self-employment taxes

16th October- Final Expat Form 1040 due date

 

Contact us now for more help on your US return

Do you have to file your foreign financial assets to the IRS? FATCA

The Foreign Account Tax Compliance Act (FATCA) was put into action during 2010. This means that U.S. taxpayers who own financial assets outside of the Unite States and meet the filing requirements must report the fair market value of those assets on an annual basis to the IRS.

 

FATCA applied to U.S. tax payers who live within the U.S. and those who live abroad. The act requires foreign institutions such as banks to report certain information about their financial accounts held by U.S. taxpayers or by the entities in which U.S. taxpayers hold a substantial ownership interest.

 

 

Individuals who are required to report their foreign assets to the IRS under FATCA on the Form 8938 include:

·      U.S. citizens

·      Non-citizens who meet the substantial presence test

·      A non-resident alien who makes an election to be treated as a resident alien for the purposes of filing a joint tax return

·      A non-resident alien who is a bona fide resident of American Samoa or Puerto Rico

 

For more advice on FATCA contact us now

Foreign Tax Credit and Form 1116

Double taxation on foreign income is a problem that most US expatriates and Green Card holders face each year when they file their income returns. However, this is not necessary all of the time. There are several ways to avoid taxation on foreign income. Naming two: the Foreign Earned Income Exemption (FEIE) and the Foreign Tax Credit (FTC). Both can provide US expats with a valuable benefit that is intended to reduce the double tax burden that would otherwise arise when their foreign source income is taxed by both the US and the foreign country from which the income is made.

Foreign tax credit laws are extremely complex and tax treaties complicate matters even more. That is the main reason that expats should consult a international tax professional when preparing their income tax returns. If you are seeking advice contact us now.

 

Foreign Tax Credit

Foreign tax credit can beneficial to many taxpayers living and paying income overseas. With Foreign Tax Credit you are able to:

·      Reduce your actual US income tax on a dollar for dollar basis

·      If the taxes paid or accrued exceed the credit limit for that year, you may be able to carry back the excess to the prior tax year or carry it forward up to 10 years

·      You do not have to meet the bona fide residence or physical presence tests

·      You may more easily qualify for tax benefits such as Child Tax Credits or the ability to make a contribution to a Roth IRA.

 

Contact us now for more details

 

Are you eligible for Foreign Earned Income Exclusions, Foreign Housing Exclusion or the foreign housing deduction : Is your tax home in a foreign country?

As an accountant to U.S. citizens or resident aliens of the United States living abroad, we have come across almost every question and answer imaginable when it comes to US tax. In order to qualify for the Foreign Earned Income Exclusion, the foreign housing exclusion or the foreign housing deduction, expats must own a tax home in a foreign country.

A tax home can be identified case-by-case. The IRS audits taxpayers claiming the foreign eared income exclusion frequently and therefore it is imperative that the tax exemption is claimed accordingly with tax law. There are two concepts expatriate taxpayers must be familiar with: ‘tax home’and ‘abode’.

A tax home is defined as a general area of your main place of business, employment or post duty. You are not required to maintain your family home in the same area as your tax home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual.

 

However, US expats must be aware: If your ‘abode’ is located in the United States you are not considered as having a tax home in a foreign country.

 

An abode is defined as an individual’s home, habitation, residence, domicile or place of dwelling. This does not have to be your principle place of business. The location of your abode can differ from your tax home and often will depend on where you maintain your economic, family and personal relations. If you own an abode in the US then you are ineligible to have a tax home in a foreign country.

 

When identifying n individuals tax home the IRS will consider other factor to determine whether your abode is in the US or in a foreign country.  These factors include:

·       Blocks of time spent in the US

·       If you maintain a US bank account

·       If you maintain a US drivers licence

·       If you are a registered US voter

 

If the factors listed above are positively identified the taxpayer will be identified as having familial, economic and personal ties in the US. Therefore, the taxpayer will not be eligible for the mentions foreign tax exclusions.

 

For more advice on US tax for US expats contact us now.