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PRESENTED BY TAXES FOR EXPATS

US expats: don’t let the IRS put you in a bad mood this tax season

Sure, sorting through tax forms may not be a top priority for many US expats. But is it really worth putting things off when the result could be hefty penalties and huge administrative headaches?

US expats: don't let the IRS put you in a bad mood this tax season
Photo: Pixabay

For many, filing tax US returns is an unpleasant and complicated task under the best of circumstances. And most often, filing from abroad doesn’t make things any easier.

Not only do different rules apply, but even the ‘regular’ rules work in different ways – and keeping track of everything is no easy task.

To help sort through the confusion, The Local has compiled a list of some common tax questions asked by US expat readers.

For answers, we turned to Ines Zemelman, founder and President of Taxes for Expats (TFX) who specializes in American expatriate taxes:

Q: Are there any changes to the tax code that will affect US taxpayers living abroad? Has the incoming administration made any tax promises specifically related to expats?

A: This is certainly a huge topic of discussion. While this is purely conjecture, much of the focus has been on consolidating tax rates into three tiers (from the current seven), elimination of the estate tax, and possible corporate tax changes.

One item that has been discussed but yet not clarified is the possible increase of the standard deduction in conjunction with elimination of personal exemptions. This combination would disadvantage families with children.

Click here to see how TFX can help you

For example, a married couple without children would see a decrease of taxable income by $10,000, while a couple with three children would have a $3,000 increase in taxable income. Currently families with children can deduct $33,000 through standard deductions and personal exemptions, whilst under the new rules they could only deduct $30,000.

Q: I’ve never filed an FBAR, should I be afraid to start? What happens if I keep putting it off?

A: There is absolutely nothing to be afraid of, except inaction. If you are behind on tax returns, FBARs, or other reporting requirements, the IRS has instituted a specific programme to help you get compliant with amnesty from penalties. Our advice is to get compliant ASAP, as the only real risk is that the IRS changes the programme that allows people to avoid penalties by coming clean now.

Q: What's the difference between FATCA and FBAR? What are the consequences of not filing them?

A: They are similar in that they are both informational forms that describe your non-US financial accounts and do not generate any tax due. FBAR is a stand-alone form submitted to the US Department of Treasury and has a minimum filing threshold of $10,000 at any point in time in aggregate across all non-US financial accounts. FATCA (Form 8938) is submitted to the IRS as part of your US tax return and carries higher thresholds which vary depending on your location and filing status. You can learn more here.

Q: Should I file using the Foreign Earned Income Exclusion or the Foreign Tax Credit?

A: If you have children living at home you should consider using the Foreign Tax Credit (FTC), which allows you to claim the child tax credit ($1,000 per child). This credit can’t be utilized using the Foreign Earned Income Exclusion (FEIE). For example – a family with three children living in Germany, and earning €80,000, can get a $3,000 US tax refund with the FTC, but with FEIE they get no refund.

Get more expert tax advice with TFX

For those earning more money, however, the FEIE allows you to exclude up to $100,000 of income, so this option can lead to a lower tax outcome with some financial engineering. It’s also important to bear in mind that, if you utilize FEIE, and then choose not to, you cannot utilize it again for five years, so planning ahead is key.

Of course, it’s always wise to consult with a qualified expat tax professional to help determine which option is best for you.

Q: I’m looking to sell the home I purchased abroad. What are the US tax implications?

A: The tax implications are the same as if you owned property in the US: selling property abroad is a reportable item and the income must be reported on your US tax return. There may also be capital gains tax if you make a gain on the sale, but there are mitigating factors in place that allow you to exclude up to $250,000 of gains if the house was your primary residence.

Don’t fear the IRS. Let TFX handle it

You should also keep all records of money spent on home improvement, which can help raise the cost basis of your home. And the purchase of a home is not a reportable item in the year when the purchase occurred, however purchase-related expenses will be accounted for at the time of property sale.

Q: I've left my job and am now self-employed and living abroad. What do I need to do differently when I file taxes in the US as someone who is self-employed?

A: The biggest difference is that self-employed individuals may be liable for SECA (Social Security and Medicare) taxes. If you live in a country that has a totalization agreement with the US then you have the option to just pay into one system. If you live in a country that does not have one then you may face double taxation as you are required to pay into the US Social Security system and result in a 15.4 percent tax hit.

Q: I haven't filed a US tax return in years. What are the risks if I start filing now?

There is always a risk of getting audited when filing a tax return (roughly 2 percent of returns are audited annually), however the bigger, and far more realistic risk is failure to file penalties and FBAR penalties if you are under investigation by the IRS. Once an examination is underway, you would be ineligible for the amnesty programmes discussed above and at risk for draconian penalties. We strongly recommend to utilize the IRS’ olive branch and get into compliance right away.

Q: My local, non-American bank asked me to tell them whether or not I am a US citizen. What are the risks of sharing or withholding this information with my bank?

A: If you are a US citizen with a non-US bank account, the ‘FATCA Letter’ from your bank may come sooner or later because the local banking regulators are cracking down on them. You can either provide them with the information they want (simply that you are a US citizen and that you are up to date on your US tax returns), or you can risk having them close your account.

Remember – FBAR and FATCA do not carry tax implications – they are simply informational forms declaring your non-US financial accounts so that governments can track the flow of money and prevent money laundering. It’s best to use the streamlined foreign offshore programmes to get compliant without fear of penalties.

Still have questions? Click here to register with TFX for expert tax advice for US expats.

This article was produced by The Local and sponsored by Taxes for Expats (TFX).

For members

WORKING IN SWEDEN

CHECKLIST: Here’s what you need to do if you move away from Sweden

What authorities do you need to inform before you leave, are you liable to Swedish tax and how can you access your Swedish pension? Here's a checklist.

CHECKLIST: Here's what you need to do if you move away from Sweden

Tell the relevant authorities if you’re leaving for more than a year

If you’re planning on leaving Sweden for more than a year, you will have to let the authorities know. The main authorities in question are Skatteverket (the Tax Agency) and Försäkringskassan (the Social Insurance Agency).

Försäkringskassan

You have to tell Försäkringskassan when you leave so they can assess whether or not you still qualify for Swedish social insurance. As a general rule, you aren’t eligible for Swedish social insurance if you move away from Sweden, but there are exceptions, such as maternity or paternity benefits if you’re moving to another EU country.

This also applies to any family members who move with you – any over-18’s should send in their own documentation to Försäkingskassan about their move abroad. If you’re moving abroad with anyone under 18, you can include them in your own report to Försäkringskassan.

If both legal guardians are moving abroad together, both need to include any children in their application. If one legal guardian is moving abroad and the other is staying in Sweden, you need the guardian staying in Sweden to co-sign your application. If you are the sole legal guardian of any under-18’s travelling with you, you don’t need any documentation from the other parent.

You can register a move abroad with Försäkringskassan on the Mina sidor service on their website, here (log in with BankID).

Skatteverket

If you are moving abroad for a year or longer, you also need to tell the Tax Agency. This also applies if you were planning on moving abroad for less than a year but ended up staying for longer.

If you move to another Nordic country, you will also need to register your move with that country’s authorities if you will be there for six months or more. You’ll be deregistered from the Swedish population register the same day you become registered in another Nordic country’s register.

This doesn’t mean that you’ll lose your personnummer – you’ll still be able to use it if you ever move back to Sweden – but you will no longer be registered as resident in Sweden.

Similarly to Försäkringskassan, you will also need to report any children you are bringing with you, and both legal guardians must sign the form, whether or not both guardians are moving abroad or not.

In some cases, you may still be liable to pay tax in Sweden even if you live abroad – particularly if you are a Swedish citizen or have lived in Sweden for at least ten years. This could be due to owning or renting out property in Sweden, having family in Sweden, or owning a business in Sweden.

You can tell the tax agency of your plans to move abroad here.

Contact your a-kassa, if relevant

If you are member of a Swedish a-kassa (unemployment insurance), make sure you tell them that you’re leaving the country. As a general rule, you have unemployment insurance in the country you work in, so you will most likely have to cancel your a-kassa subscription.

If you are moving to another country with the a-kassa system, such as Denmark or Finland, it may pay to wait until you have joined a new a-kassa in that country before you cancel your membership in Sweden.

This is due to the fact, in some countries, you only qualify for benefits once you fulfil a membership and employment requirement. In Sweden and Denmark, you must have been a member for 12 months before you qualify. In Finland, the membership requirement is 26 weeks.

If you qualify for a-kassa in Sweden before you leave the country, you may be able to transfer your a-kassa membership period over to your new a-kassa abroad and qualify there straight away, but this usually only applies if your period of a-kassa membership is unbroken.

Check what applies in your new country before you cancel your membership in Sweden – your a-kassa should be able to help you with this.

Contact your union, if relevant

Similarly, if you are a member of a Swedish union or fackförbund, let them know you’re moving abroad.

If you’re moving to another Nordic country, they might be able to point you in the direction of the relevant union in that country, if you want to remain a member of a union in your new country.

If you’re moving to another EU country, you may be able to remain a member of your Swedish union as a foreign worker with the status utlandsvistelse.

If you chose to do this, you will usually pay a lower monthly fee than you do in Sweden, and they can still provide assistance with work related issues – although it may make more sense to join a local union in your field with more knowledge of the labout market.

If you don’t want to be a member of a union in your new country and don’t want to be a member of a Swedish union, you should contact your  union and ask them to cancel your membership.

Collect relevant documents regarding your Swedish pension

If you have worked in Sweden and paid tax for any length of time, you will have paid in to a Swedish pension. You retain this pension wherever you move, but you must apply for it yourself.

To do so, you will need to give details of when you lived and worked in Sweden, as well as providing copies of work contracts, if you have them. If you have these documents before you leave Sweden, make copies so that you can provide them when asked.

If you move to the EU/EES or Switzerland, you may also have the right to other, non-work based pensions, such as guarantee pension for low- or no-income earners, or the income pension complement (inkomstpensionstillägg).

Currently, you can receive your Swedish pension once you turn 62 – although there is a proposal in parliament due to raise pension age to 63 for those born after 1961 from 2023, so this may change.

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