Do you receive income from a foreign source? Are you a U.S. citizen or resident who works abroad? If you answered ‘yes’ to either of those questions, here are some tax tips to keep in mind about reporting foreign income:
Report Worldwide Income. By law, U.S. citizens and residents must report their worldwide income. Be sure you’re reporting foreign income from foreign trusts and foreign bank and securities accounts.
File Required Tax Forms. You may need to file Schedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts, also known as FBAR.
Review the Foreign Earned Income Exclusion. If you live and work abroad, you may be able to claim the foreign earned income exclusion. If you qualify, you won’t pay tax on up to $100,800 of your wages and other foreign earned income in 2015. (Figures may change for 2016).
Don’t Overlook Credits and Deductions. You may be able to take a tax credit or a deduction for income taxes paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.
Additional Child Tax Credit. Unfortunately, you cannot claim the additional child tax credit if you file Form 2555, Foreign Earned Income, or 2555-EZ, Foreign Earned Income Exclusion.
Tax Filing Extension is Available. If you live outside the U.S. and can’t file your tax return by the April 18 due date, you may qualify for an automatic two-month extension until June 15. This extension also applies to those serving in the U.S. military abroad. You will need to attach a statement to your tax return explaining why you qualify for the extension.
Reporting foreign income to the IRS is very important to avoid tax issues. Many US citizens working overseas mistakenly believe that filing a tax return is not necessary, but that is not the case. At Gurian PLLC Dallas CPA Firm, we work with many ex-pats and overseas workers to comply with and fulfill tax reporting regulations. Contact us today to schedule a consultation.
