Expatriate Tax Return – Working Abroad, Paying Taxes at Home

Working and living abroad can make the tax situation a bit difficult sometimes. An expatriate tax return is not as difficult as it sounds. If you get stuck, enlist the help of an international tax attorney or CPA that has international experience. There are a whole set of laws just for Americans working and living outside the US. Those waters can be difficult to navigate at times, but with proper help and knowledge you can get your taxes done with little problem. Expatriates can benefit from some great exclusions and credits that everyone back home doesn’t have access to.

Whether you work abroad for a US company or work for a foreign company, you will definitely be paying US taxes as a citizen of the US. You may also be subject to foreign taxes. The US has made provisions for this with the Foreign Earned Income Exclusion. They also have a foreign tax credit so you can deduct from US taxes any taxes you pay to that country. The US has treaties with many countries about how taxes will be handled for US citizens living in that country. Expatriate tax return is subject to these laws and codes, but most of the time they will help you to avoid paying redundant taxes, expatriate tax return.

Employees of US companies who are working offshore have a less complicated expatriate tax return. The system continues to work in much the same way as it does onshore. But for employees of foreign companies, it gets a bit sticky. US Social Security and Medicare will not be collected by your company in this case. You may be subject to other withholding for foreign social programs. Some US companies abroad have made provision with the US government to forgo social withholding altogether in order to participate in the foreign country’s social programs instead. There are only a few dozen companies that have made special arrangements for this.

The self-employed who work abroad are subject to a bunch more paperwork than anybody else. They must report their income from inside the US and outside the US and pay taxes and social withholding for themselves and for their enterprise. Though taxes can be more complicated when an international element comes into play, it is important to stay on top of it so that you don’t have to end up paying hefty fines for non-payment, non-filed expatriate tax return.


When You Should Not Use an Offer in Compromise to Settle Your Tax Debts

The IRS Offer in Compromise (OIC) is a structured IRS program which provides the tax payer a great opportunity to settle all tax obligations with the IRS permanently. Yes, many of us see new true stories on the internet often about several tax promoters’ failure to run their business continuously such as JK Harris and American Tax Relief due to their inability to match up their promises but don’t let that discourage you. If used effectively, the OIC program can eliminate your owed taxes completely.

One important thing you have to consider though is that the IRS isn’t stupid. They work for the federal government, so never expect that they will accept your offer just because you asked for it or you approached them through a tax attorney. The reality is that they may consider your offer only if it is within the best interest of the IRS. This is where a tax lawyer can help you to get to an agreement with the IRS. But did you know that there are situations in taxpayer’s life where it is best to not file for an Offer in Compromise? Yes, it’s true and here they are…

1. When you have pending taxes and you are planning to file bankruptcy

Would you believe that one can file Chapter 7 bankruptcy to completely wipeout old individual tax liabilities? So why worry about outstanding dues when you can walk away without paying a cent to the IRS. You might have noticed advertisements from so called tax relief firms who claim that choosing bankruptcy is not an ideal solution. But, the hidden fact is that these companies cannot make any money if you go for personal bankruptcy.

2. For people who have never been in compliance and never will be

Many do not know that whenever the IRS accepts your Offer in Compromise, the IRS expects the tax payer to be totally complying with the tax law. Upon acceptance, the person needs to file his returns and pay his taxes on time for a period of 5 years. If not, your OIC will be declared default and the IRS can demand all your outstanding tax dues with interest.

3. If you had rejections from previously filed OIC

The IRS doesn’t want to see several Offers in Compromises from a taxpayer. It will only lead to a rejection. Also if the offer isn’t competitive, then it will probably get rejected. In order to get your offer accepted, you need to come up with a true story that can persuade the IRS employee to consider your proposal. If you neglect this, either your offer will get rejected or you find yourself paying too much.

The IRS has only 10 years to collect the tax dues, after that they no longer can claim the debt and they write it off. But there are certain things that can halt the ten year clock from running. One such thing is the filing of offer in compromise. This is called as tolling the statute of limitations. Consider you filed your tax return for the financial year 2001 on time. Your taxes got evaluated on April 15, 2002 and there were some unpaid tax dues. When you did nothing to stop the clock, the IRS can’t collect your tax debt on or right after April 16, 2012. Yes, it means you owe nothing now to the IRS.

But if you file an Offer in Compromise, the statute of limitations will not run the entire time your offer is under review. I know of a case where a person filed six offers in compromise for 2002 year taxes. For every Offer in Compromise filed, the time limit will extend by a year. So in this case, the IRS can demand the tax due right up till 2018. If that taxpayer didn’t make the mistake of filing an offer in compromise, his problem will be already resolved now.

One drawback to this plan of action is that the taxpayer can’t expect the tax lien to get withdrawn or released if it was filed against him. An accepted OIC will show as payment in full on the credit report but a tax lien would appear as debt on his credit since it was went unpaid.