U.S. citizens overseas face a June 15 deadline to file their 2010 tax return, and the best advice an expat organization can give is to see a professional.
Geneva-based American Citizens Abroad has an extensive outline of U.S. taxes on its Web site, including links to the dreaded Foreign Bank Account Report regulations. Citizens who do not file by June 15 face penalties and interest on taxes due. But they also can file for an extension with the Internal Revenue Service.
There are many pitfalls. American Citizens Abroad pointed out one:
“Another quirk regarding the 15 June 2011 deadline is that returns mailed to the IRS are treated as filed on the date of domestic or foreign postmark. However, payments with foreign postmarks are not considered received until the date of actual receipt rather than the postmark date. So it is possible that your return mailed close to the deadline can be deemed as filed on time, but the payment in the same envelope with it may be arriving late!”
Local tax expert James Brohl has noted that U.S. citizens can exclude $91,500 in overseas earned income for 2010. But there are plenty of footnotes for that rule, too.
U.S. citizens also have to report their assets in some cases.
Said American Citizens Abroad: “Remember that the report on foreign bank accounts which have at any time during the tax year totaled more than $10,000 is due (in the sense of received) by 30 June 2011.”
Randall J. Lindner, of Rohrmoser-based U.S. Tax International, points out on his Web site that the $10,000 figure means for even one minute of one day and that U.S. expats must file for accounts they have signature power over but may not own.
The stories of expats confused by U.S. tax rules are legion. Complications set in when one member of a couple is not a U.S. citizen. In the past, the Internal Revenue Service used to have agents stationed at embassies to answer questions and help with tax filing. Those days are gone.
The only overseas offices now are in London, Paris, Frankfurt and Beijing, noted American Citizens Overseas. U.S. Embassy officials here say they get their tax information from the Internal Revenue Service Web site, too.
June also is a time to consider the fairness of U.S. taxes overseas. Both American Citizens Abroad, Association of Americans Resident Overseas and the Federation of American Women’s Clubs Overseas have filed congressional testimony that favors residency-based taxation to put the United States in line with taxation policies of the rest of the world. In the alternative, the groups argue, the federal government should at least remove the cap on foreign earned income exclusion and make some other adjustments favorable to overseas Americans.
The summary continues:
The present system, under which Americans abroad are liable for taxation both in their country of residence and in the US, constitutes “a unique competitive disadvantage that the United States has created for itself,” the overseas groups posit. “Government and professional studies have systematically concluded that eliminating America’s citizenship-based tax burden would increase exports, and furthermore the administrative burden for the taxpayer and the IRS is out of proportion with the tax revenue generated.” The paper ends with an appendix listing almost a dozen examples of US tax code discrimination against Americans residing abroad.