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US taxes are due April 15, are you ready?

April 14, 2015

Wednesday is tax day for U.S. residents and citizens. But if you’re an expat living abroad and haven’t filed, there’s no need to panic — yet. U.S. taxpayers living abroad get an automatic extension filing their taxes until June 15.

Just be sure the return indicates that you live outside the United States, said James Brohl, a U.S. accountant who has been living and practicing in Costa Rica for 11 years.

Paying taxes can be confusing and frustrating for people living stateside. But it’s even more arcane for those who live abroad. The Tico Times spoke with Brohl about some of the most frequent questions U.S. expats have about filing their tax returns for Uncle Sam.

Do I need to file taxes if I live and work outside the United States?

Yes. The United States is one of the only countries in the world that taxes its citizens and residents (green card holders) on their worldwide income. This has led some in recent years to renounce their U.S. citizenship to avoid the tax burden.

U.S. residents and citizens must file taxes but filing does not necessarily mean someone has to pay taxes.

OK, so how much money do I have to make abroad before I start paying taxes?

Anyone who made more than the standard deduction plus exemptions on their return — $10,150 for a single person in 2014 — needs to file taxes.

Foreign earnings up to $99,200 in 2014 are excluded from U.S. income tax.

Brohl noted that these rules apply regardless of whether foreign earnings are deposited in the United States or elsewhere.

What about Obamacare? Do I need to pay a fine if I don’t have insurance in the US?

No. As long as you have moved your tax home outside the United States, you do not have to pay the “individual shared responsibility” fee required by the Affordable Care Act for those U.S. residents/citizens without qualifying health care coverage. Expats do need to file a form with their taxes to claim this exemption.

If you’re covered under a U.S. government plan like Medicare, you do not need to file the exemption even if you live abroad.

What is an FBAR?

The FBAR, Report of Foreign Bank and Financial Accounts, is not related to U.S. taxes. Instead, this is a form that needs to be filed if you have more than $10,000 in foreign financial accounts.

This must be filed if you, at any time during the last year, had a highest daily balance of more than $10,000 cumulative in your foreign accounts. This includes accounts where the taxpayer has only signatory authorization, as well as brokerage accounts, mutual funds, trusts, or other type of foreign financial accounts.

Add the highest daily balances for each of these foreign accounts. If the accumulated amount is greater than $10,000, an FBAR must be filed online for that year by June 30.

Check out this previously published Tico Times piece from U.S. accountant Ross Lustman about the FBAR for additional details.

This is, of course, far from an exhaustive list of potential questions about expat taxes. Brohl recommends consulting an accountant familiar with the U.S. tax code for further questions.

“There are no simple situations when foreign financial assets are involved,” Brohl said in an email to The Tico Times. “It is best to do the research to make sure you are filing properly.”

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