Financial Planning - End of Year Tips for Expats
We are now in the 4th quarter of 2012. Before we know it, we will be facing the end of another tax year. In order to make your tax year more profitable and less stressful, here are a few things you can do before the end of the year to help maximize your return. While the suggestions in this article apply to every taxpayer, they are especially beneficial to American international employees subject to expat taxation.
Double Check Your Portfolio
Make sure you account for all of your losses through your investments gone sour. The IRS generally allows up to your total amount of capital gains to be declared in losses with an additional $3000 from other income. If you have more of a loss than your capital gains tax, you may apply the overage to the following tax year(s).
The best thing you can do to make sure you are prepared for the end of the year is to keep a spreadsheet of all your gains and losses so you can quickly calculate them. Choose a day each week to make sure all of your losses are accounted for. Obviously, it will be easier to verify by the week than to verify an entire year right before December 31st.
It is important to remember that – as a United States citizen – international capital gains are to be accounted for when you file taxes. These capital gains, however, do also qualify for deductions from loss. Additionally, if your overseas accounts contain an amount equal to or in excess of $10,000 you must report these accounts to the Department of Treasury no later than June 30th of the year after the current tax season. You will submit this information on FBAR Form TD-F 90-22.1
If you have an IRA, 401(k) or other retirement accounts, you are able to claim your out-of-pocket contributions on your taxes. This particular tax law is extremely lenient, and if you file at the maximum date, you can claim contributions all the way through mid April of 2013. Even if you set up a new IRA account in the beginning of the year you will still be able to claim your contribution to this account when you file your 2012 taxes next year.
Additionally, if you are a low to moderate income worker you may qualify for the Retirement Savings Contribution Credit of up to $1,000 for single filers and $2,000 for married couples filing jointly. It’s important to note, however, that other tax credits may affect the actual size of your allowable Retirement Savings Contribution Credit.
Working under expat conditions can make it difficult to plan your retirement effectively. If you get started early, you can take full advantage of taxation benefits and secure your future at the same time.
Donate to a Qualifying Charity
Some taxpayers are under the impression that any donation qualifies as a charitable donation through the IRS, and this simply isn’t true. You can refer to the IRS for a list of qualifying international charities, and you will need to file your charitable donation on a Schedule A along with any other qualifying deductions such as local sales tax, job expenses, miscellaneous expenses and more. If you are making a charitable donation for the tax benefit you must make the donation on or before December 31st. Make sure to keep cancelled checks, bank or credit card statements, or donation record slips offered to you by places to which you donated noncash items such as clothes or toys in good saleable condition. If you charge a donation to a credit card prior to or on December 31st, you can still claim a deduction for 2012 even if your card isn’t charged until a later date in 2013.
I.J. Zemelman, EA is the founder of Taxes for Expats