2014 tax filing season will officially start on January 31, 2014. American expats are advised to review expat tax filing deadlines in 2014 to avoid any penalties or interest. 2013 tax law changes have a significant effect on filing US expat taxes in 2014.
2014 expat tax guide for American expats living abroad
Medicare Tax and Higher Income Tax Bracket
Higher income taxpayers will be subject to additional Medicare tax and higher income tax bracket.
New Income Tax Bracket 39.6% on High Earners
US taxpayers with a taxable income in excess of $400,000 (filing single), $450,000 (married filing jointly) and $425,000 (filing as head of household) will have to pay taxes at a new tax bracket of 39.6%.
Net Investment Income Tax 3.8%
Net Investment Income Tax 3.8% will be levied on investment income of US citizens and residents only if their income exceeds 200,000 (filing single) or $250,000 (married filing jointly) or $125,000 (married filing separately).
Additional 0.9% Medicare tax
Additional 0.9% Medicare tax is due on earned income exceeding 200,000 (filing single) or $250,000 (married filing jointly) or $125,000 (married filing separately).
Foreign Earned Income Exclusion – 2014 Expat Tax Guide
American expats working abroad can exclude up to $97,600 from their earned income in a tax year 2013. The IRS adjusts the amount of foreign earned income exclusion annually for inflation. However, this exclusion is not granted automatically. Americans living abroad must have foreign earned income and meet either the physical presence test or bona fide residence test to qualify for the foreign income exclusion. It is essential that American expats keep a track of all travel days. For example, Americans working abroad must spend 330 full days in a foreign country to meet the physical presence test.
Foreign Housing Exclusion – 2014 Expat Tax Guide
US expats working abroad can deduct certain foreign housing expenses if they are eligible to claim the foreign earned income exclusion. The IRS has increased the maximum amount of foreign housing exclusion in a tax year 2013. Foreign housing exclusion varies per location. For example, American expats living in Tokyo can claim up to $117,100 in foreign housing costs less the base amount of $15,616. Please find below a summary of some major cities:
- Paris and 4 suburbs – $82,500
- London – $88,200
- Geneva – $98,300
- Hong Kong – $114,300
FBAR – 2014 Expat Tax Guide
Effective July 1, 2013, the FBAR must be filed online. The form TD F90-22.1 is not applicable for a tax year 2013. American expats and US taxpayers must file form FinCEN Form 114 if they own or have a signature authority over the foreign financial accounts and the aggregate value of these accounts exceeds $10,000 at any time during the year. FBAR is filed separately from an expatriate tax return.
FATCA – Foreign Account Tax Compliance Act – 2014 Expat Tax Guide
FATCA or Foreign Account Tax Compliance Act has been introduced to fight international tax evasion. Although, it has been initiated by the USA, it has had a global effect. Effective July 1, 2014, foreign financial institutions will be required to report to the IRS the information about financial accounts owned by US persons or by entities owned by US taxpayers. American expats with past-due returns must realize that it is very important to become compliant before the IRS finds them.
Late Filers – Streamlined Program and OVDP – 2014 Expat Tax Guide
Americans living abroad still have a chance to become compliant in 2014. On September 1, 2012 the IRS introduced a new streamlined program for American expats living abroad. This program is still active. The IRS has not set up a deadline for this program. Low-risk taxpayers are encouraged to participate in this streamlined program because they have to file only 3 years of past-due tax returns and 6 years of FBAR to become compliant. OVDP program is still active too. American expats should seek an advice of an expat tax CPA and international tax experts before entering these programs.
Conclusion
American expats living abroad, overseas contractors, late filers and retirees are advised to contact expat tax accountants for the latest updates. International tax experts at Artio Partners are pleased to assist with US expatriate tax preparation, IRS help, late tax returns and other overseas tax issues.