Navigating your US expat taxes as a multicultural family
As an American woman either moving or already living with family abroad, the last thing you will want to worry about is your US expat taxes.
However, ironically enough, living abroad often complicates rather than simplifies your taxes. Specifically, many families who live abroad are multicultural, for example: Americans married to spouses of another nationality; children born outside of the US to American parents, etc. In our experience with US expats, we find that multicultural families have a specific set of tax complications that they need expert advice on.
Some common questions:
• Can you file jointly with your foreign spouse?
• Can you claim children born outside the US as dependents?
• How does this process impact your spouse’s green card application?
This article intends to answer all of these questions and more for the benefit of the multicultural family.
Filing Status
Before you can even think about filing your US Expat taxes, you will need to determine the filing status most beneficial to your situation. For US income tax purposes, your marital status on the last day of the calendar year will be treated as your marital status for the entire year. You have three options for filing status: married filing separate, married filing jointly, or head of household.
• Married Filing Joint
If you are married to a non-US citizen, you can elect to file jointly with your foreign spouse by attaching a statement to your US expat tax return. By making this election, you agree to allow your non-US spouse’s income to be taxed in the US in current and future years. Making this election allows you to double your foreign earned income exclusions. For the 2010 tax year, this would increase the amount of the foreign earned income exclusion from $91,500 for a single person to $183,000 for a couple. If your spouse does not have much income to speak of, this may be the better option from a US expat tax prep perspective. Keep in mind that to file jointly, your spouse will need to obtain an Individual Tax Identification Number (ITIN) by completing Form W7 and submitting to the IRS. The processing of this application can take up to six weeks, so be sure to submit early to make the tax filing deadlines. The election to file jointly with your non-US spouse continues indefinitely, until a revocation is made by either spouse or death. If this election is revoked, it cannot be elected on the same two people ever again.
• Married Filing Separate
If your spouse has considerable income, Married Filing Separate may be the better choice for your US Expat tax preparer to recommend. By filing separately, your spouse’s income is not taxed in the US. If you have income from rental properties or investments in foreign countries, it would be advantageous from a US expat tax preparation perspective to allocate this income to your spouse and file separately, thereby not subjecting this income to US tax. The restriction to this tax planning strategy is the US “community property” tax laws. Earned income will be treated as the income of the spouse who performed the work, or exercised control over the business.
• Head of Household
If you have a dependent and are not married, you can file as Head of Household. Electing this filing status provides a higher standard deduction and lower tax rates. If you are married, however, you can only claim Head of Household status if you are legally separated or have lived apart from your spouse for at least the last six months of the year.
Dependents
US citizens can claim exemptions for dependents if five criteria are met. The dependent must:
1. be a US citizen or resident,
2. be a relative or member of your household,
3. earn less than the current year’s exemption amount,
4. not be married and filing a joint return, and
5. you must provide more than half of their support
If you have a child with your non-US spouse, you can generally claim this child on your tax return (filing jointly or separately) if that child is a US citizen or US resident for some part of the tax year. Please note that only one spouse can claim the child on their US expat taxes.
If you have elected to file separately and your spouse has no income, you can also claim an exemption for your non-US spouse if he/she meets the same criteria specified above. You must have a social security number or ITIN for each dependent claimed on a tax return. Without this, the IRS will automatically reject the exemption claim.
Green Card Impact
If your non-US spouse has applied for or intends to apply for a green card, it is often in his/her best interest to make the election to file jointly with you and allow their income to be taxed in the US. The US government usually looks favorably on your proactive income reporting, which makes the chance of receiving a green card more positive. Once a green card is received, keeping compliant with US tax filing laws is a requirement so meeting that condition in advance is a good thing! If you have not been filing your US expat taxes and now want to apply for a green card for your spouse it is best to get caught up on your US taxes before you apply, otherwise your application may be denied for failure to file your US expat taxes.
Tax Compliance
If, after further research, you discover that you should have filed and didn’t, or that you filed something incorrectly, relax! Becoming compliant with your US Expat taxes is likely easier than you think; it just requires an experienced preparer, some patience and documentation. The IRS traditionally has required an individual to file for the previous 3 years, but more and more they are now asking individuals to file for the previous 6 years. If you have a local embassy you should look on the website to see what they recommend as this can differ from country to country. Most US expat tax preparers will recommend filing for the full 6 years at once to ensure full compliance. There is no statute of limitations on unfiled returns, but if you don’t owe any money then the IRS will likely not require more than 6 years worth of tax returns. For help with your US expat taxes, please don’t hesitate to contact us today.
This article was written by David McKeegan, MBA, EA, Director of Greenback Expat Tax Services. All information is correct at the time this article was written (April 2011).
About Greenback Expat Tax Services:
Greenback Expat Tax Services specializes in preparation of US Expat Taxes for Americans living abroad. Incorporated in New York, Greenback’s CPAs have 30+ years specialist experience in US expat taxes. Greenback offers flat fee pricing ($329 for a federal return); a simple, hassle-free process; and, most importantly, CPAs who are experts in the ins-and-outs of US expat taxes. For more information and to download a free guide to US expat taxes, visit www.greenbacktaxservices.com.
Some common questions:
• Can you file jointly with your foreign spouse?
• Can you claim children born outside the US as dependents?
• How does this process impact your spouse’s green card application?
This article intends to answer all of these questions and more for the benefit of the multicultural family.
Filing Status
Before you can even think about filing your US Expat taxes, you will need to determine the filing status most beneficial to your situation. For US income tax purposes, your marital status on the last day of the calendar year will be treated as your marital status for the entire year. You have three options for filing status: married filing separate, married filing jointly, or head of household.
• Married Filing Joint
If you are married to a non-US citizen, you can elect to file jointly with your foreign spouse by attaching a statement to your US expat tax return. By making this election, you agree to allow your non-US spouse’s income to be taxed in the US in current and future years. Making this election allows you to double your foreign earned income exclusions. For the 2010 tax year, this would increase the amount of the foreign earned income exclusion from $91,500 for a single person to $183,000 for a couple. If your spouse does not have much income to speak of, this may be the better option from a US expat tax prep perspective. Keep in mind that to file jointly, your spouse will need to obtain an Individual Tax Identification Number (ITIN) by completing Form W7 and submitting to the IRS. The processing of this application can take up to six weeks, so be sure to submit early to make the tax filing deadlines. The election to file jointly with your non-US spouse continues indefinitely, until a revocation is made by either spouse or death. If this election is revoked, it cannot be elected on the same two people ever again.
• Married Filing Separate
If your spouse has considerable income, Married Filing Separate may be the better choice for your US Expat tax preparer to recommend. By filing separately, your spouse’s income is not taxed in the US. If you have income from rental properties or investments in foreign countries, it would be advantageous from a US expat tax preparation perspective to allocate this income to your spouse and file separately, thereby not subjecting this income to US tax. The restriction to this tax planning strategy is the US “community property” tax laws. Earned income will be treated as the income of the spouse who performed the work, or exercised control over the business.
• Head of Household
If you have a dependent and are not married, you can file as Head of Household. Electing this filing status provides a higher standard deduction and lower tax rates. If you are married, however, you can only claim Head of Household status if you are legally separated or have lived apart from your spouse for at least the last six months of the year.
Dependents
US citizens can claim exemptions for dependents if five criteria are met. The dependent must:
1. be a US citizen or resident,
2. be a relative or member of your household,
3. earn less than the current year’s exemption amount,
4. not be married and filing a joint return, and
5. you must provide more than half of their support
If you have a child with your non-US spouse, you can generally claim this child on your tax return (filing jointly or separately) if that child is a US citizen or US resident for some part of the tax year. Please note that only one spouse can claim the child on their US expat taxes.
If you have elected to file separately and your spouse has no income, you can also claim an exemption for your non-US spouse if he/she meets the same criteria specified above. You must have a social security number or ITIN for each dependent claimed on a tax return. Without this, the IRS will automatically reject the exemption claim.
Green Card Impact
If your non-US spouse has applied for or intends to apply for a green card, it is often in his/her best interest to make the election to file jointly with you and allow their income to be taxed in the US. The US government usually looks favorably on your proactive income reporting, which makes the chance of receiving a green card more positive. Once a green card is received, keeping compliant with US tax filing laws is a requirement so meeting that condition in advance is a good thing! If you have not been filing your US expat taxes and now want to apply for a green card for your spouse it is best to get caught up on your US taxes before you apply, otherwise your application may be denied for failure to file your US expat taxes.
Tax Compliance
If, after further research, you discover that you should have filed and didn’t, or that you filed something incorrectly, relax! Becoming compliant with your US Expat taxes is likely easier than you think; it just requires an experienced preparer, some patience and documentation. The IRS traditionally has required an individual to file for the previous 3 years, but more and more they are now asking individuals to file for the previous 6 years. If you have a local embassy you should look on the website to see what they recommend as this can differ from country to country. Most US expat tax preparers will recommend filing for the full 6 years at once to ensure full compliance. There is no statute of limitations on unfiled returns, but if you don’t owe any money then the IRS will likely not require more than 6 years worth of tax returns. For help with your US expat taxes, please don’t hesitate to contact us today.
This article was written by David McKeegan, MBA, EA, Director of Greenback Expat Tax Services. All information is correct at the time this article was written (April 2011).
About Greenback Expat Tax Services:
Greenback Expat Tax Services specializes in preparation of US Expat Taxes for Americans living abroad. Incorporated in New York, Greenback’s CPAs have 30+ years specialist experience in US expat taxes. Greenback offers flat fee pricing ($329 for a federal return); a simple, hassle-free process; and, most importantly, CPAs who are experts in the ins-and-outs of US expat taxes. For more information and to download a free guide to US expat taxes, visit www.greenbacktaxservices.com.
