Tax Documents for Expat Tax Return
As an expat, preparing your taxes can feel overwhelming. However, If you take your time and go through each step of the process thoroughly, you can avoid most of the pain normally attributed to it. When you visit your expat tax preparer, it is important to have all the necessary documentation ready. This article will outline what documents you should prepare to make this process simple and straightforward.
I. Basic Information
A. Tax Questionnaire
Before filing your return, your expat tax preparer will ask you to complete a questionnaire. On this form, you will provide basic identifying information and information about your dependents. Additionally, you will answer questions about other activities that relate to expatriates. It is important to read and answer each of these questions carefully, not assuming anything. Any misinformation on this questionnaire will greatly slow down the rest of the process.
B. Last Year's Return
If you filed last year, it is extremely important to provide your tax preparer with last year's form. Your expat tax professional will want to cross reference your current information with previous information and be made aware of drastic changes. Additionally, he or she will look for deductions that were previously overlooked. When filing online, information on last year's form is essential.
C. Calendar of Travel Dates
If you travel back and forth between the U.S. and your foreign home, it is essential to know how many days are spent stateside and how many are spent overseas. Your taxable income and relevant deductions are affected by these numbers. To determine residency and whether or not you qualify for the Foreign Earned Income Exclusion, keeping an accurate travel calendar is key.
A. Compensation, Wages and/or Tips
It is essential that you provide all W-2, P60, P45 and any other wage reporting forms. For self-employed expats, provide accurate and detailed records of all earnings and deductions. Some foreign countries do not have income taxes. In such cases, you will need to keep careful records (and save bank statements or check stubs) on your own for the purpose of reporting to the IRS.
B. Interest/Dividend Income
Any income generated through interest or dividends will be reported on Form 1099 (or the foreign equivalent). You must provide this information to your tax preparer, even if the account was closed within the year. Each interest earning account will require its own form, so be sure you have received them all before filing.
C. Securities and Stocks
At the end of every year, your broker will send you a statement detailing all stocks and securities that were purchased or sold that year. This information is important for your tax preparation as an expat. Before providing your tax preparer with this statement, be sure that it outlines the purchase price, transaction fee, purchase/sale date (as these details are relevant to your tax return).
D. Real Estate
Any real estate purchased or sold is relevant to your expat tax forms. Your tax provider will need to know the purchase price as well as the transaction date. Rental property income (and expenses relevant for deductions) should also be included on your expat tax forms.
E. Distributions (including Pensions, Annuities, Profit Sharing Plans and IRA)
It is also important to provide your preparer with information about withdrawals from your IRA, pensions or other retirement accounts. In such cases, your employer's financial institution will normally mail a 1099-R (or the foreign equivalent). Include this form in the paperwork provided to your preparer. Additionally, Social Security benefits are reported on Form 1099-SSA. This form should also be provided to your preparer. Be sure to enlist an international tax expert when preparing your expat taxes, as some countries have agreements with the IRS (regarding Social Security), and these agreement can have a significant affect on your taxes.
F. Other Income
Partnership, trust or business interest is usually reported on the Schedule K-1 (or the foreign equivalent). Provide this form to your preparer. Unemployment income is reported on Form 1099- G. Don't forget to use Form 1099-MISC to report any miscellaneous income not covered in the previous sections. Child support and alimony must also be reported.
A. Interest & Taxes Paid
Under the expatriate tax rules, interest paid on a home mortgage or student loan will earn you deductions. In addition, property taxes and foreign income taxes are examples of deductions that may be claimed through taxes paid. You must be able to prove interest paid and deductible taxes, however, so it is important to keep accurate records and provide this proof to your preparer.
B. Foreign Housing Expenses
Certain expats are allowed to deduct a portion of their overseas housing expenses. If you qualify, your preparer will need all of the financial details of your housing situation.
Just as it is with in-country taxes, children and dependents result in deductions and credits for expats. You must provide information on all of your dependents (including child care expenses). If you are paying for your children's higher education, this may also result in deductions and credits. All of this information should be provided to your preparer.
D. Other Deductions
Gifts to family members, business expenses that were never reimbursed, alimony and child support payments, medical expenses, donations to charity, etc are all things to bring up (and provide documentation for) when speaking with your preparer. These are expenses that usually result in deductions.
IV. Other requirements
A. Foreign Bank Accounts
Foreign banks accounts are not irrelevant to your taxes as an expat. In fact, if your foreign accounts meet or exceed $10,000 (combined) on any given day during the year, you must report this amount to the IRS by June 30th of each relevant year. This amount is reported via Form 90-22.1 (Foreign Bank and Accounts Report) and is filed separately from your expat tax return.
Each document mentioned in this article is important to the correct filing of your taxes. If you cannot locate one of these forms (and it applies to you), contact your employer or financial institution and ask them to resend the form. Any ommission will be noticed by the IRS, and will therefore result in an audit. It is much easier and wiser to simply do things right the first time.
I.J. Zemelman, EA is the founder of Taxes for Expats