Expat Tax Planning Strategies: Charitable Contributions and Social Security Benefits

By ZM Ishmurzina

The year is coming to an end. Christmas is the time full of joy and happiness. However, it is also the best time to review and implement 2014 year-end expat tax planning strategies.

We get multiple questions from American expats living abroad about various deductions and social security benefits. The purpose of this article is to focus on 2 expat tax planning strategies.

Expat Tax Planning Strategies for American Expats: Charitable Donations and Social Security

#1 Expat Tax Planning Strategies – Itemized deductions

Americans living abroad have a wide selection of charities to choose from. Most taxpayers believe that they can always deduct the charitable donations on the US expatriate tax return. However, American expats should remember that they must itemize the deductions if they want to claim a gift on expat taxes. The amount of itemized deductions must exceed $12,400 in 2014 for married filing jointly.

#2 Expat Tax Planning Strategies – Qualified Charities

American expats must remember that they can deduct gifts made only to qualified charities like US churches, synagogues, temples, mosques and government agencies. Unfortunately, the contributions to international charities are not deductible on the US expat tax returns.

#3 Expat Tax Planning Strategies – Monetary donations

To qualify as a deductible donation, the charitable contribution must be made in cash or by check, credit card, automatic payroll deduction or electronic funds transfer. To prove the deduction, American expats must have a bank record or a written statement from the charity. In case of payroll deduction, Americans must retain a paystub or other document from the employer indicating the total amount and pledge card with the name of the charity. The written statement from the charity must show the charity name, date and amount of contribution. For each donation $250 or more, a written proof from a charity is required. Special reporting rules apply in case of a car, boat or airplane donation to a charity.

#4 Expat Tax Planning Strategies – Household goods

Before moving abroad most American expats donate household items to Goodwill and other charities. Household items include various items like furniture, furnishings, electronics, appliances and linens. Household goods must be in good used condition in order to qualify for the deduction. Qualified appraisal of the item must be enclosed to the US expat tax return if a charitable deduction is over $500.

#5 Expat Tax Planning Strategies – Timing of deductions

American expats can deduct contributions made during the calendar year. Most US expats use a credit card to make a gift. The key thing to remember is that if a charge to a credit card is made on December 31, 2014, then it will still count for a tax year 2014. This is true even if a taxpayer pays a credit card bill in 2015.

#6 Expat Tax Planning Strategies – Social Security Benefits

American expats living abroad frequently ask whether their social security benefits are taxable. The answer to this question depends on each individual situation and the planning must be done during the year. If American expats owe taxes on social security benefits, any payment must be made by April 15 to avoid any interest. To determine whether any amount will be taxable, the following expat tax tips will be useful:

  1. If American expats receive social security benefits in 2014, then they should receive a Form SSA-1099, Social Security Benefit Statement. This statement indicates the total amount received during the year.
  2. If Social Security is the only source of income in 2014, then these benefits are not taxable. Moreover, an American expat is not required to file a federal return. However, if a taxpayer living abroad receives income from other sources (this is usually the case), then they might have to pay expat taxes.
  3. The income threshold as well as filing status affect whether a US expat is required to pay federal income taxes on social security benefits. The easiest approach is to add one-half of Social Security benefits to all other income, including any tax-exempt interest. Next, compare the total to the base amounts listed below. If the total amount is higher than the below base amount, then the benefits might be taxable.

The three base amounts are:

  • $25,000 – for single, head of household, qualifying widow or widower with a dependent child or married filing separately who did not live with a spouse at any time during the year
  • $32,000 – for married couples filing jointly
  • $0 – for married persons filing separately who lived together at any time during the year

#7 Expat Tax Planning Strategies – Social Security Number for Recently Married or Divorced Taxpayers

Many American expats get married to nonresident spouse (NRA) but they forget to update their SSN with the Social Security Administration. It is important to update the SSN timely before filing an expat tax return because the IRS computers match the SSN to the name. If this information does not match, then it will affect the amount of refund. This situation is quite common among American expats who have not filed a US expat tax return for several years. If they decide to submit their returns through the IRS Streamlined Program for Offshore Compliance, then they have to verify their SSN before submission to avoid any delays.

Conclusion

This article covers key expat tax planning strategies in regards to charitable contributions and social security benefits. Each situation is unique. Expat tax CPA from Artio Partners will be pleased to assist with various expat tax issues and compliance.