Being an American Expat abroad can be a scary prospect when it comes to taxes. Worldwide banks have implemented FACTA reporting which means that big brother knows how much money you have overseas for accounts you opened using your American passport. Also, the USA is one of the few countries that exercises a worldwide tax system. Not to mention, for tax year 2017 the individual mandate for health insurance is still in effect, so if you don’t declare to the government that you were out of the country, you’ll be slapped with a fine for not having health insurance.
But don’t let those things get you down! The overseas exemption is pretty high (102,000 USD as of 2017) and if you make more than that you should be investing some money into to a professional to do your taxes for you anyway. If you are making lower than that, filing your taxes is easy!
You may try to file taxes online using Turbo Tax or something similar, but once you declare you have an overseas bank account, you will run yourself into trouble. The tax software will only be able to process this if you pay an extra $50 or something for the “professional version.” Who wants to pay $50 on a tax form that you are declaring nothing on, right?
The simple and free solution is to send in your tax form via pencil and paper. The government has made this relatively simple for us foreigners abroad. And they give us an extra 3 months to file! Below is a rough guide on completing your taxes via pencil and paper from overseas.
Paper and Pencil Tax Filing Guide
Disclaimer: I am not a professional in US tax. Below is simple a guide that follows the tax instructions given by the IRS. If you have complex overseas tax issues, I would suggest you seek professional advice. If you file yourself, you need to read the IRS instructions carefully and make sure you do not misreport anything. I cannot take responsibility for any tax misfiling on your part..
With that in mind, I am going to assume that you are:
I will walk you through the following 6 steps:
Step 1: Fill Out Schedule B of Form 1040
Yes, before you even start on Form 1040, you need to begin with Schedule B of Form 1040. This is because you have a foreign bank account; you must declare it as well as other foreign assets. Because of FACTA, the US has forced banks worldwide to share the account information of American citizens. Big brother knows, so you might as well declare.
Click here for Schedule B instructions and here for the Schedule B itself. Be sure to print it out and read the instructions carefully.
Skip parts I and II. On part three, you should check "Yes" for 7a. Do you need to check yes for 7b and 8? Let’s see:
If your account had over 10,000 in an account during a calendar year (you may have), then you need to fileFinCEN form 114. You may also need to fill out form 8938 if you own other foreign financial assets. Otherwise check no for 7b and 8.
If you want to avoid this crap, then send your money back home or keep it with your foreign spouse. I’m not going to go on to FinCEN form 114, but it’s not that hard to figure out and your income derived from foreign assets can also be included in the foreign income exemption.
Step 2: Start Filling out Form 1040
The second thing you need to do is go download the 1040 form and print it out. Click here for From 1040 instructions and here for the 1040 itself. Be sure to read the instructions carefully.
First you need to fill in our personal info. Fill in your foreign address as your home address. Write in the country you live in.
On line 7, write in your USD equivalent foreign income. Don’t try to skip this part. It’s okay because it will go away after the foreign exemption.
You have no income from the USA. But you have other income. Now is the time to fill out form 2555 – EZ
Step 3: Fill out Form 2555 – EZ
Click here for From 2555-EZ instructions and here for the From 2555-EZ itself. Be sure print it out and read the instructions carefully.
Form 2555-EZ is important because it will:
Write in the dates you were not in the USA and calculate the days to see if you meet either test. If you meet the Bona Fide Residence Test or the Physical Prescience Test then woohoo! You can take the foreign earned income exclusion!
Next write in the days you were in the USA and the money you earned (I assume you earned none).
Finally, you need to figure out how big your exclusion is. If you were overseas for 365 days, then you can get a maximum of 102,100 USD exclusion.
For instance, I stayed overseas for 357 days. I divide 365 by this number: 365/357= .978. I then multiply this decimal by 102,100, so my exclusion is 99,853.
Then write your foreign income in USD, and I am assuming that it is less than your exclusion. If not, you will be subject to pay tax on the amount that exceeds the exclusion.
Step 4: Fill out Form 8965
Click here for From 8965 instructions and here for the From 8965 itself. Be sure print it out and read the instructions carefully.
Although it doesn't explicitly tell you on the Form 1040 instructions to fill out this form, you can find that this is a requirement by searching the health care exemption requirements on the IRS website: www.irs.gov/pub/irs-pdf/p5187.pdff
So as you can see above, form 2555-EZ is not enough to prove you do not need to pay for healthcare. You also need to fill in the 8965 form as well.
So what kind of health care exemption cod should you write on the form? If you were outside of the US for at least 330 days in a year, your exemption code is "c."
Can't I just count Taiwan's or another country's health insurance as coverage? No! Taiwan is not considered minimal essential coverage, and very few insurance plans outside the USA are, as you can see in this report.
Start filling in form 8965. Write your name and the months you had coverage. If you were in the US for a few months, you need to calculate that and enter in the health insurance calculation (see form8695 instructions for more details).
If you are claiming a coverage exemption, all you need to do is attach this form to your 1040. You don’t check box 61 on Form 1040.
This step was a pain in the butt. But the good thing is this is requirement will be gone next year thanks to the abolition of the individual mandate! Trump has done something right during his presidency.
Step 5: Finish Form 1040
On form 2555-EZ it will tell you to write your foreign income in parentheses and Form 2555-EZ on line 21 of From 1040. Write the excluded foreign income in parentheses on line 21 (this means its negative). If your income exceeded the foreign exclusion, then write the foreign exclusion amount. If your income was 20,000 USD and your exclusion was (20,000) the total (20,000-20,000) is zero.
If you are claiming a health coverage exemption, all you need to do is attach the completed form 8965 to your 1040. You don’t check box 61 on Form 1040.
Next write zeros, sign the 1040 form and give some basic info. You’re done with Form 1040!
Now you can mail in your tax return and breathe a sigh of relief. Remember to order the files numerically according to the number in the top right of each form.
Where do you mail it to?
This can also be found at https://www.irs.gov/pub/irs-pdf/i1040gi.pdf p. 107.
When do you need to file?
June 15th! The government gives foreigners living abroad an extra two months to file their tax return. Your tax return mail must be postmarked by June 15th.
Step 6: Correct Mistakes With Form 1040X:
If after sending your form 1040 filing, and you realize you forgot to file something or there was a mistake, you will need to send in return 1040X. Otherwise you can skip this step.
Click here for From 1040X instructions and here for the From 1040X itself. Be sure print it out and read the instructions carefully. Remember that you don't have to send a copy of your old return, but you may be required to later. Also you should redo all the above forms and send them in together in the right order.
Where do you send your 1040x and revised documents?
Okay, you’re done! That was a pain, but it was free! You saved yourself $50 bucks by not buying the professional edition of some tax software, so go out and buy yourself a nice buffet dinner.
Still Have Questions?
Need help filing Taiwan taxes?
America's worldwide tax system is a joke. FACTA is too. It's an invasion of privacy and inhibits Americans from doing business worldwide. Just because I live overseas, I have to jump through a ton of hoops and file 4 separate forms just to prove that I owe $0 on my tax return. Getting rid of he healthcare mandate is a step forward, but FACTA and worldwide tax also need to be abolished. I fear that American Expats don't have a voice in congress on this issue, weather it be because we are few in number or because we are too focused on the politics and tax system of the country we actually live in. This subject deserves a blog of its own, so I will just stop here for now.
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We are US Expats that have extensive experience living and working in Taiwan. In our day, we had to learn many things about Taiwan the hard way. But we have come to learn that Taiwan is one of the best places in the world for Foreigners to live. Our blog does not represent the opinions of every foreigner in Taiwan. We are just trying to help others learn more about this beautiful country.