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FAQs

 

Q. Why should I use Wise CPA Group for my U.S. tax preparation needs?
A. With a staff trained as U.S. CPA’s, Wise CPA Group prides itself on the personalized service we provide all of our clients with. Lance, the founder, with over 30 years of accounting/tax experience, still works with clients one on one delivering exceptional service. Gabriel, a former Revenue Auditor, coupled with his background in State and International taxation, consults and assists clients will all their of tax preparation needs.
Q. Who needs to file an individual income tax return?
A. A U.S. citizen and/or U.S. resident are taxed on their worldwide income. Depending on the individual’s filing status and income limits will dictate whether they’ll need to file an income tax return annually. Nonresident aliens need to file an individual tax return on their effectively connected U.S. source income.
Q. When do individual tax returns need to be submitted by?
A. Individuals, assuming a calendar year taxpayer (January 1 – December 31), needs to submit their returns by April 15th if living in the United States. If living abroad, individuals receive an automatic 2 month extension until June 15th. Each taxpayer can apply for either a 4/6 month extension using form 4868 extending the deadline till October 15th. In certain scenarios, taxpayers living abroad can apply for an additional 2 month extension extending their already extended deadline from October 15th to December 15th.
Q. What kind of income needs to be reported for an individual?
A. Unless exempted from law, any taxable income you receive during the year (The year begins January 1 – December 31 for calendar year taxpayers) needs to be reported on your tax return. Income from wages, interest, dividends, taxable refunds, alimony, self-employment income, capital gains, sale of property, IRA distributions, pensions, rent, farm, unemployment, social security, and other types of income need be reported.
Q. I work and live abroad and get paid in a foreign currency. How do I report this?
A. U.S. citizens/residents are taxed on their worldwide income. This means that if you live London, for U.S. tax purposes, it’s equivalent to living in the United States. If you receive compensation in a foreign currency, all currency needs to be translated to U.S. dollars come filing time.
Q. If I paid tax to a foreign country why do I have to pay tax to the U.S. government?
A. The U.S. taxing system allows for individuals/corporations to offset U.S. taxes assessed with foreign taxes legitimately paid to foreign governments. Foreign taxes paid are grouped into either category; General or Passive. Depending on the taxes paid on the income earned will dictate what basket the foreign taxes paid will be grouped in. Generally, most foreign countries have higher tax rates than those of the United States, subsequently eliminating the double taxation effect. In the scenario the aggregate foreign taxes paid on general income was not sufficient to offset U.S. taxes assessed, and depending on your income limits, other options are available to reduce an individual’s U.S. taxable income. We can help you with those options.
Q. I work and live abroad and pay my real estate taxes and mortgage interest on my primary residence located outside the United States. What are the tax implications?
A. U.S. citizens/residents living abroad are entitled to the same deductions as those living in the States. An individual is automatically entitled to a standard deduction, adjusted annually, or can opt to itemize their deductions. Common itemize deductions are medical expenses, real estate taxes, home mortgage interest, charitable contributions, casualty or theft losses, unreimbursed employee expenses, tax preparation fees, and other miscellaneous deductions. For an individual to benefit from their itemize deductions, their deductions must be in excess of their standard deduction.
Q. I’m self-employed and reside outside the United States. How does this affect my tax filings?
A. U.S. expats who are self-employed are generally required to pay self-employment taxes including social security taxes if they have earnings of $400 or more from self-employment sources. Unfortunately, the foreign earned income exclusion cannot be used to exclude income from self-employment taxes. However, if the U.S. has a “Totalization Agreement” with your country of residence, then you may be able to exclude your foreign earnings from self-employment taxes.
Q. Besides for my tax return, are there any other reports I should be aware of?
A. Yes. Depending on your foreign financial interests and amounts held in your foreign bank account can trigger a disclosure report. If you have or maintain foreign corporations, foreign partnerships, foreign trusts, foreign disregarded entities, contribute property to a foreign corporation, foreign passive investments, and foreign bank accounts all these types of foreign activities could require disclosure reports, and if required but not provided, you could face very steep fines and penalties.
Q. What is a FBAR?
A. A FBAR stands for Foreign Bank Account Reporting. U.S. citizens/residents that maintain either (a) financial interest or (b) signature authority in a foreign bank account in aggregate of $10,000 during the year must file form TDF 90-22.1 disclosing such activity. This form is due June 30th following the close of year, and must be filed electronically now.
Q. What is FATCA?
A. FATCA stands for “Foreign Account Tax Compliance Act.” FATCA is a relatively new law that was initially enacted in 2010 as part of the HIRE Act. The objective behind FATCA was to force U.S. citizens to report their holdings in financial accounts and assets overseas as part of the U.S. government’s focus on combatting offshore tax evasion. As part of enforcing FATCA, starting with the 2011 tax season, the IRS requires certain U.S. citizens to report the total value of their “foreign financial assets.” Generally, FATCA reporting applies to any account in a foreign financial institution and to stock or securities issued by a non-U.S. entity.
Q. Do I need to be concerned with State tax filings?
A. The answer to this question revolves around whether (a) if you’re a resident, (b) part year resident, or (c) nonresident with income from sources within that State. These three areas will dictate whether you’ll need to file the related State tax return.
Q. I haven’t filed my tax returns in the past 3 years since I moved abroad. What does this mean?
A. Assuming you were supposed to file and didn’t, you are not in compliance with the revenue laws of the United States and penalties and interest can be assessed on any underpayment of tax. Additionally, even if no tax is owed but disclosure reports were required to be filed but were not, severe penalties may be assessed unless reasonable cause is shown. You should come into compliance by filing the past 3 years of returns reporting all income earned from worldwide sources and file any FBAR’s if need be. The I.R.S. may audit any return so long as the statute has not expired yet.
Q. What are I.R.S.’s statute of limitations for individual’s?
A. The general rule is the I.R.S can go back up to three (3) years after the return was filed and audit a taxpayer. Exceptions to the general three year period are cases where taxpayers under-report their income in excess of 25%, then the period is extended from 3 to 6 years. There is no statute of limitations when the taxpayer has committed or fraud or has not filed a return, therefore it is highly recommended to remain in compliance.
Q. What type of penalties and interest may the I.R.S assess on any underpayment of tax?
A. The table below covers the typical penalties the I.R.S. assesses on taxpayers, see below:

Typical Penalties    
Types of Penalty Reason Assessed Amount
Failure to File If you did not file by the tax filing deadline 5% of unpaid taxes for each month or part of a month that a tax return is late up to 25%
Failure to Pay If you did not pay all of the taxes you owe by the tax filing deadline 1/2% of 1% for each month or part of a month that a tax return is late
Over 60 days late If you file your return more than 60 days after the due date or extended due date The minimum penalty is the smaller of $135 or 100% of the unpaid tax
Foreign Penalties Not filing or Inadequte Filing $10,000 per penalty