Home - About - Contact Toll Free (888) 916-7070

TrustMakers

Think You Can
Take the Free Quiz
Change the Font-Size on this pageLargest Article Text SizeLarger Article Text SizeNormal Article Text Size

Email Article Print Article

Think You Can’t Exclude $200,000 of Wages From Your U.S. Taxes For 2008, Think Again

By Michael B. Nelson, Esq. - Email Editor

Date : December 15, 2009

We are a country of entrepreneurs who thrive in the practice of free enterprise and global opportunities. Many Americans are seeking employment in all geographical locations without boundaries. Our own economy is still stagnated and shows no immediate signs of recovery. Although President Obama’s campaign rhetoric was based on isolationism for American’s purchasing only “Made In America”, it was obvious to most that America does not really manufacture on a global prospective. We are a country of consumers, not manufacturers. It was not too long before Obama retreated from that rhetoric. Economies of Europe and Asia are much more robust and unrestricted with heavy legislation and, therefore, attractive to American businesses and American workers.

Not since the mid 70s have we seen such a wanting exodus of American workers seeking gainful employment overseas. Americans are bright, educated, willing to work and want to apply their experience and skills in the workplace. Right now, the workplace is mostly outside of the U.S. I was a part of that exodus of the 70s working for Price Waterhouse International CPA Firm in their London, England office. Our presence there was a part of the demand for qualified and specialized individuals to assist American businesses and their American citizen workforce living and working overseas. London was of prime importance as the largest population of wealthy working and retired U.S. citizens outside of the United States. My position was in the consultation and preparation of Americans’ U.S. Tax Returns for these overseas U.S. expatriates, defined as Americans living and working in a foreign country. What always struck me as odd was that almost all of my clients had no idea that they legally had to continue filing tax returns for the U.S. They thought being outside of the U.S., not requiring U.S. protection or services and now living overseas should not necessitate the tax return filing and payment of taxes to the U.S. government. They questioned why they should file tax returns and pay income taxes to two countries on only one source of income. In some circumstances, the payment of the foreign income taxes and the U.S. income taxes together were more than the income they earned. Outrageous, indeed!

Currently, there are 195 countries in the world, with 192 belonging to the United Nations, 153 countries that are full members of the WTO; but only 71 fully negotiated double tax relief treaty countries with the U.S. That makes a mere 37 percent of the world’s countries that have fully negotiated treaties with the United States. Thus, 124 countries lack double tax treaties with the U.S. and if you are living and working in one of these non-treaty countries that real horror of being double taxed indeed exist. If you find yourself looking for positions within countries that fall outside of the Treaty benefits, then you can still fall back on two special exclusions of earned income from your U.S. taxes. The two exclusions go hand-in-hand: (1) Foreign Sourced Earned Income Exclusion; and (2) Foreign Housing Exclusion. Together these exclusions can allow you to file your U.S. tax return, disclose your foreign sourced earned income and then exclude over $200,000 of this foreign sourced earned income where both you and your spouse live and work overseas. Even in situations where your new work assignment puts you in an ultra high taxing country, it is still feasible to arrange your tax structure on your earned income to significantly lower you overall taxes.

According to the Internal Revenue Code, these benefits listed above are allowed on a timely filed tax return. So, if you are currently living and working overseas and have filed your extension date to December 15, 2009 the window of opportunity is closing very quickly to timely file your 2008 return. However, there still exists the potential to claim these benefits if your tax return is not filed timely or you missed these exclusions and already filed the 2008 tax return. However, if more than 3 years pass from the actual filing date of your tax return, then it will be extremely remote that these tax benefits can be enjoyed for those years. So, for years 2006, 2007 and 2008 tax years, they can be procedurally re-opened and the tax benefits of exclusions can be gained in the form of refunds. Also, some tax returns can be procedurally opened up and refunds allowed for a period of up to 10 years from their original filing date with the Internal Revenue Service. These opportunities are complex and each day that you allow to pass may just close the door for your chance to embrace these large tax benefits.

Each year your doctor warns you of the dangers in not getting a current physical check-up. It is always better to find the problems before it is too late. The same is true for your financial and tax situation. You need a specially skilled and experienced tax professional to look at your past tax returns to determine if the best elections, options, alternatives and disclosures were made for you. I hear the U.S. Treasury complaining about how much revenue is lost to the Government by unallowable claims or simply non-reporting of income. What you do not hear is how much money was overpaid by Americans by not claiming legally allowed deductions or exclusions that they were not aware existed or applied to their tax situation. It is always a great idea to locate an experienced and skilled international tax professional to review your past filed tax returns and determine if you have overpaid the U.S. Treasury. In my experience over the past 33 years, I always ask for at least the past three years tax returns and sit down with the client, either in person or over the conference phone, and determine whether the tax returns are missing large deductions, exclusions or tax credits. This is just preventative care for the future and possibly getting money back that did not belong to the U.S. Treasury in the first place. Now that you are better informed with this article, the next step is yours: finding those past tax returns for review by a competent tax professional as well as looking at the current year for any end of the year tax benefits that you can still create before December 31, 2009.

Feel free to email us at info@trustmakers.com or call to discuss your options.

Taking Action

If you have a company, foundation or trust outside the US borders and want to know if you have correctly set it up for structural and/or tax purposes our advisors are now handling these cases. Please reply to info@trustmakers.com.


By Michael B. Nelson, Esq.
TrustMakers.com

 

 

RELATED ARTICLES:

ABOUT THIS EDITOR:

Michael Nelson is an international tax attorney licensed to practice before the United States Tax Court in Washington, D.C. as well as before the U.S. Treasury and the Internal Revenue Service

Full Bio - Email Michael B. Nelson, Esq.