Hertsel Shadian, Attorney at Law, LLC

Tax Tips for U.S. Taxpayers with Foreign Income

20 March 2012

U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2011, might have a U.S. tax liability and a filing requirement in 2012. Following are some tips from the IRS for U.S. taxpayers with foreign income:

1. Filing deadline. U.S. citizens and resident aliens residing overseas or those serving in the military outside the U.S. on the regular due date of their tax return have until June 15, 2012 to file their federal income tax return. To use this automatic two-month extension beyond the regular April 17, 2012 deadline, taxpayers must attach a statement to their return explaining which of the two situations above qualifies them for the extension. An initial automatic extension to file and pay goes to and includes June 15th, with an additional four-month extension to file only (not pay) available upon request using IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.
2. World-wide income. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.
3. Tax forms. In most cases, affected taxpayers need to fill out and attach Schedule B, Interest and Ordinary Dividends, to their tax return. Certain taxpayers also might have to fill out and attach to their tax return the new IRS Form 8938, Statement of Foreign Financial Assets. [See also, Instructions to Form 8938]. In addition, some taxpayers also might have to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, with the Treasury Department by June 30, 2012, to report amounts in foreign bank and financial accounts. Stiff penalties can apply for the failure to file the necessary forms.
4. Foreign earned income exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion. If you qualify for tax year 2011, this exclusion enables you to exempt up to $92,900 of wages and other foreign earned income from U.S. tax.
5. Credits and deductions. You may be able to take either a credit or a deduction for income taxes paid to a foreign country or a U.S. possession. This benefit is designed to lessen the tax burden that results when both the U.S. and another country tax income from that country.
6. Free File. Taxpayers abroad now also can use IRS Free File. This means U.S. citizens and resident aliens living abroad with adjusted gross income of $57,000 or less can use brand-name software to prepare their returns and then electronically file them for free.
7. Tax help. If you live outside the U.S., the IRS has full-time permanent staff in four U.S. embassies and consulates. A list is available on the official IRS Website (www.IRS.gov) in the “Contact Your Local Office Section,” under International. These offices have tax forms and publications that can help you with filing issues and answer your questions about notices and bills.

For more information about this topic, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. More information also is available in IRS Publication 4261, Do You Have a Foreign Financial Account? IRS publications, forms and more information on topics useful to individual international taxpayers can be found on the International Taxpayer page on the IRS website. Please feel free to share this article with others that might benefit from this information.