Friday 28 October 2022

Business Advisor Work Abroad Info From Cash Tracks Financial

Business Advisor Work Abroad Information From Cash Tracks Financial

Should I Work Abroad?

The Challenge of Foreign Earned Income

The Tax Answers Advisor Transcript

Marcelino: Welcome to The Tax Answers Advisor, I am Marcelino Dodge and just a few moments we’ll get to our main topic of the day. “Should I work abroad, Foreign Income?” meet the challenge. Our quote for this show today is an unknown source but really summarizes taxes very nicely. It says, “The best things in life are free but sooner or later, the government will find a way to tax them.” And yes, I can certainly agree with that that yes, if there’s something out there, the government will find a way to eventually tax it.

I’m always available to discuss what is on this show, you can reach me through my website, which is cashtracksfinancial.com or email, which is success@cashtracksfinancial.com. You can also give me a call at 844-394-4287 or visit our website home page at Cash Tracks Financial.

I want to take a thank you, a big thank you to those listening to this podcast in China, Ireland, Italy, Netherlands and Germany. Appreciate all of you taking the time to listen to this program, it has much valuable information for various people dealing with the IRS and the US tax code there’s much to be learned and much to be understood. One of the points today that we’re going to touch on here real quick is the Taxpayer Bill of Rights, which is a list of rights that taxpayers with the Internal Revenue Service have.

And one thing that we’re just going to touch on today has to deal with taxpayers have the right to representation. What that half understands is that you get a notice from the Internal Revenue Service, that you have, perhaps unreported income. They’re giving you some type of audit, be it in a mail in audit, or an in person audit or they want you to come to an Internal Revenue Service Office.

You as a taxpayer, have the right to have a representative of your choice. Deal with the IRS so you do not have to deal with them personally, your representative can deal with them. A good quality to keep in mind with this is that, when you have a representative, unless you are formally summoned to an IRS meeting. You are not required to attend that meeting, your representative can attend that meeting in place of you as your representative and make offers to the IRS on your behalf and make settlements to the IRS on your behalf as well.

And also help you as a taxpayer to actually it’s mainly time anytime is a good reason not to be present, with an in the case of an IRS audit because the IRS is looking for slip-ups, and sometimes a taxpayer just unknowingly may slip up and say something that just as not the business of the IRS so just something to keep in mind now who can you use as a representative for you with the Internal Revenue Service. This could be an attorney, a CPA, an Enrolled Agent like myself. There’s also enrolled actuaries, or other persons permitted to represent taxpayers. So each of these individuals can represent you before the IRS, in tax matters in appeals, hearings for taxes due. If you feel that the IRS is still charging for tax that they shouldn’t you have a right to appeal and your representative can represent you at such hearings, so that’s right, one of the rights that you have from the Taxpayer Bill of Rights and perhaps in another show, we’ll discuss these more in particular that all of the rights that a tax payer has with the IRS so good some good reminders.

We’ve also going to touch a little bit on here that as a business, Cash Tracks Financial strives to work with clients, not just in preparing a tax return. But looking at your overall financial situation because people are many tax preparers mainly just focus on taxation and don’t take a whole year-round approach. Our goal here is our process that we put into place here is to help you achieve success in the quickest way possible, and how this is done? Is through a strategy session where we take a look at key financial picture key data in your financial picture.

We look at the things within that picture, that’ll help you to reach goals that we sit down, we discuss, and these are goals that I give you are my goals. These are what your personal goals are to help you to get to where you want to be in 6 months, 12 months, 18 months, 24 months, and then getting years down the road. And we can help you to do that and as we prioritize your list that you have, so that we start with what is most important. Help you to achieve that goal in the shortest time possible, and then move on to the next.

And then, as we pursue to help you reach those goals, then take a look, and also help you with your compliance needs which are automatically part of our processes, which is your Income Tax Return, be it a Personal Income Tax Return, or a Business Income Tax Return. We also address all of your compliance needs. And with this, we have all of your financial goals taken in one place. We have it all there.

We take a look at it we help guide you through the whole process and it’s a service that is for an affordable monthly payment starts at $49 per month for individuals. And $149 a month for businesses. And with this, it’s a whole round about service so that you get where you want to go faster, and a good part about this service is that you never pay for time again.

Like many times and most practicing tax preparation circumstances you pay for the tax return but and that’s all you get. And that’s how we had done it for many years, but we’ve actually changed to where, instead of charging people each time they bring in a notice. And for something that perhaps was unreported income, or maybe the IRS challenging something like claiming independent on a tax return these kinds of situations are not situations related to the fault of the tax preparer. But situations where it’s just it is, but yet we need to charge for our time to do that. Well, in this in our process in our program, we don’t charge for that. And as under current circumstances, we provide service through phone, email, and video chat, so we can get very effective business done on a consistent basis, and not, not physically meet. Which is very important to people and some of the in many of these circumstances were describing, because of the COVID.

It’s a good option for you to be able to sit down and have this visit with someone to help you to determine goals, help you to put a strategy plan to reach their goals. So that’s where we’re reaching out as a company. Now, to really help people not just in their tax return, but help them to be proactive throughout the year so they can have the biggest tax deduction possible and get the biggest tax refund possible.

And even do even to the point of maybe working, and even working to increase your cash flow throughout. Onto our topic for the week which is working abroad, working outside the United States and another country. And this, we’re talking about working abroad, of course we’re talking about this could be working for a United States based Company. But yet, working at a facility that they may that they have in another country, could even be Canada, could be Japan, could be Australia could be somewhere in Europe.

So, and that’s where you’re working for the company. It could also apply to, you’re working for a foreign company, like a company based in Australia for example. You could be working in Australia for an Australian company. When you do so, what some citizens may miss, United States citizens may miss is that even if you’re working in a country outside the United States. That income must be reported to the Internal Revenue Service.

This would be true even if this income is subject to tax in that foreign country. Which in many cases that tax, whatever you’re making in a country area say Europe or Australia. You do pay tax in those countries for that so it’s just something to keep in mind that you think, to avoid the thought that, well, I’m living outside the US, I’m working outside the US. So I don’t need to pay income tax. Well no, you definitely do need to pay income tax.

While you may not have to pay income tax, but you need to at least be reporting the income straight. Because there are provisions within the law we’re going to discuss this a little bit more as we go through, is the fact that there are credits and exclusions that apply so you may actually not have any tax due on income earned in another country, but you still need to be reporting it. Now the United States is one of the few, just a few countries that actually has this type of taxing situation when it comes to a citizen living abroad.

Because people sometimes think, I’m going to renounce my US citizenship, I’m not going to be subject to US income tax. Well, it’s not quite that easy because you still could be subject to income tax, even if you renounce your US citizenship. So that’s something to keep in mind as well and this is interesting because this actually developed from the Civil War, back in 1862. Because at the time of the Civil War, many individuals were basically dodging the draft to avoid fighting the Civil War, so they would go to another country.

And that’s how we ended up with this is because for that. So that one’s good, basically not be dodging things and trying to go to another country saying we’re not subject to US laws, well, you are subject to the laws, even if working in another country. So yes, living abroad, you are subject to this as citizens and residents. The same reporting requirements as citizens and residents of the United States. Now, one thing is if you are living abroad. On April 15th. This is when this is a nice provision.

You do automatically have an extension to June 15th. Now what I usually recommend for clients who do work outside the United States, even though that automatic extension is granted. It just it’s just as easy just to say you know it’s April 15th, lets us file an extension, and then right there. We are we have till October 15th already in the system. Don’t need to file any other extension it’s done. That way, we don’t have to worry about it.

And that makes that part really easy and simple to deal with there. Another area that comes in is that as the income is reported, because you have different denominations or different types of currency throughout the world. Like you’re living in Britain, you have the pound, and Russia you got rubles, and there’s different types of the American dollars, Australian Dollar, Canadian Dollar. All these different forms of income and there’s an exchange rate throughout the world and those rates do fluctuate, daily, and even throughout the day those rates date and those, vary.

When you have income and expenses. Those need to be reported to the IRS. In dollar amounts, that is United States dollar amounts. And it’s, it can get really difficult at times to do that for a tax preparer because a lot of research. We need to be done and this is where the taxpayer needs to help their tax preparer in it because according to the rules and the direction we need to take a look at it according to when the income was received by you, as well as when the expense was paid.

So these are some very important considerations and things to keep in mind so as a lot of bookkeeping, we could say is actually, what actually need to be done. When working abroad in order to properly report income and the correct amounts to report them, do. And especially if it’s a US company, that is, you’re working for abroad US based company that is you must that company must withhold US income tax on those wages paid to their employees abroad or US citizens abroad. Now, there may be in some countries, like say if they’re working in Australia for example, there could be some in like similar income tax withholding in that country.

And that’s true throughout many foreign lands is the fact that they have their own income tax requirements and thus granted that may be a US based company, that company may need to go may need to go ahead and withhold tax withholding for that particular country. Now, there are a few exceptions, and there are some exclusions where you can actually be request exemption from US withholding.

And there’s a form it’s a form 673 that you can use to claim that extension to see if you qualify, and usually, many times, whenever it comes to any form with the IRS. I usually say, “’Let’s file it”. And let the IRS like make the determination, because if we don’t ask. We don’t get it. And we’re gonna go ahead and take a quick break now and come back and talk a little bit more about this on withholdings.

As we step away from income tax withholdings and take a look at some other types of withholdings. So we’ll be back in just a little bit. This is Marcelino Dodge, on The Tax Answers Advisor on the Voice America Business Channel.

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Today’s tax and financial environment is constantly changing. Tax laws change rapidly, the traditional reactive approach to tax preparation and taxes, no longer works. To deliver the best possible outcomes in today’s world, you need a year-round approach to take advantage of tax law changes, and to pay as little tax as possible. Marcelino Dodge of Cash Tracks Financial helps his clients to implement proactive tax strategies throughout the year to limit his client’s tax liability. Plus, with this year-round approach clients can increase their cash flow and be as prepared for the future as they can be. Email Marcelino at success@cashtracksfinancial.com or call 844-394-4287.

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This is The Tax Answers Advisor with host Marcelino Dodge. To reach our program today, please call in the number is 1-866-472-5790. That’s 1-866-472-5790. You may also send an email to success@cashtracksfinancial.com. Now, back to The Tax Answers Advisor.

Marcelino: Welcome back to The Tax Answers Advisor, this is Marcelino dodge, I appreciate you listening to today’s program. As we were discussing just before the break about income tax withholding on income earned abroad or in a foreign country, there’s US withholding that a US company may do. And they may also be doing withholding for the country where you are working. Now though, host country whatever that country is we’ll say Australia, it seems to be my favorite example today, had may have some withholding requirements for income tax purposes.

And what we can do as we meet with our clients on such matters which we always encourage clients, as we sit down and discuss tax matters, and even other financial matters with them. We encourage them to have these discussions with them to give us a call, to schedule a online meetings. We sit down and discuss these areas so we can say, sit down and make the suggestion and help them to plan if they’re thinking of working abroad.

These are areas that need to take into consideration what we can learn and then help as far as so that they don’t have over withholding. Have both US withholding and then say withholding for income tax in another country, there’s just areas that need to be researched with something we can certainly help clients and help people to understand. And then of course where appropriate help them file the necessary form, so that they do not have US Tax Withholding if they qualify for the exclusion of that.

And then also, in part of the planning and process if you’re looking to work abroad. What we help our clients with is areas that the United States has Social Security Tax and Medicare Tax that is with withheld, out of the checks, which everybody every employee is subject to that. Now, there can be an exception to that when you’re working abroad, but this applies only in 30 countries and I have to go in and look and do the research to make sure what 30 countries.

If one of the countries that you are working in is one of them that the United States has what’s known as a totalization agreement. That’s a one of those long words there. So, if the US has a totalization agreement and one of the countries I know the US does have that with is Australia is that, then the US employer is not required to withhold Social Security tax on your behalf. They have some type like in Australia they have some system similar to Social Security, and thus, you would not, they would not.

The Social Security tax would not need to be withheld if the country you’re working in, is one of those 30 countries. And then another area to hit in is your Tax Home. Because your Tax Home is basically your main place of business or employment. That is where you are because the tax home is not necessarily your residence or domicile or where you live. That can be two different things because many people living within the United States have a residence in say Colorado, but because of where they mainly work, their tax home, in our case may be, Kansas.

That could very well be true for those who work abroad. They may work in a foreign country outside of the United States but they still may have their residents are domiciled inside the United States. Now, this is where what certain comes to certain income exclusions, when it comes to foreign income. Is that where the tax player maintains their family economic or personal ties, facts and circumstances all play a part in this is that if they have that abode, basically if they still have the home in the United States.

Then their foreign tax home, they don’t have a foreign tax home. They would also not be eligible for what’s considered the Foreign Earned Income Exclusion. So that’s something to keep in mind if you’re looking to work abroad or it would be like if you were say if you were thinking of commuting, working over there for a few days coming back home, the United States. That’s an example. Say you fly to Australia for a few weeks each to do go take care of your work then you fly on back to the US, and your family and everything still here if you’re that’s kind of like commuting back and forth.

That wouldn’t be an area that would qualify for a Foreign Earned Income Exclusion, which when they do work abroad, and live abroad they can usually qualify for that. Now, oftentimes, when it comes to foreign earned income, dealing with the military, they’re generally not eligible for a foreign earned income exclusion because oftentimes when Military Personnel is abroad. It could be they could have a combat pay exclusion. It could be deemed non-taxable income.

They could be receiving services that’s not in, they could be working, not in a foreign country literally which could be they could be in International Waters. It’s like Navy Personnel. Or perhaps it’s paid to individuals who do not have a foreign tax home so it just once again, facts and circumstances all coming in there when dealing with military personnel on this. But yet and again the automatic extension applies for Military Personnel of serving abroad. Plus, if they’re in a combat zone.

They are also get an additional six months extension if serving in the combat zone. Now we’re going to talk a little bit now and go into the what’s and delve into the Foreign Earned Income Exclusion. What exactly is this exclusion that’s provided to a US Citizens that are working abroad? And this could also be relative to a resident alien US resident alien. Now first of all, of course, to qualify for the Foreign Earned Income Exclusion, you must have earned income. Now this does not include meals, lodging, it doesn’t include foreign pensions or annuities, and it does have tests.

That once need to pass in order to even qualify for this exclusion. Now, first we think about is that what how much can you exclude? While you can exclude up to 107,600. That amount is for 2020, and that is indexed for inflation each year. There’s also a specific form, it’s a form 2550 which needs to be completed and with this form. Just by filing the form with your form 1040 you’re electing to take the foreign earned income exclusion. Now there are some qualifications for this in order to be able to take this.

And one of these that you need to take is has to do with days. It’s a Physical Presence Test that you must have, which basically means you need to be abroad, you need to be in the country where you’re living for at least 330 days during the year. That would be part of the physical presence test, then that would be over a 12 consecutive month period. And now what’s nice is that you can have one year, the 12-month period and then another 12-month period.

Those periods can actually overlap from one filing year to another filing year because you actually enter those amounts on there. Which also when we look at this talks about 330 days which means you spend no more than 30 days in the United States during a year. And very, the people I’ve worked with on this. They’ve come close to the 30 days but they’ve it’s always been like way under closer like 20 to 25 days. Now, if one is forced to leave these time limits can be waived if it’s due to war.

An interesting fact on this is that for those who are looking to, for this exclusion during 2020. There has been some adjustments on that, which this day count has been suspended for 2020. If the travel has been suspended due to the COVID pandemic, because that applies if you left the foreign country on or after December 1st, 2019. That deals with China particularly than all other countries that’s February 1st.

Now, in order to qualify for this. You do need to have been expected to satisfy the 330 day limits. So more flexibility on that particular exclusion and will discuss this, even a little bit more here as we’ll take a short break again on The Tax answers advisor. This is Marcelino Dodge on the Voice America Business Channel.

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Today’s tax and financial environment is constantly changing. Tax laws change rapidly, the traditional reactive approach to tax preparation and taxes, no longer works. To deliver the best possible outcomes in today’s world, you need a year-round approach to take advantage of tax law changes, and to pay as little tax as possible. Marcelino Dodge of Cash Tracks Financial helps his clients to implement proactive tax strategies throughout the year to limit his client’s tax liability. Plus, with this year-round approach clients can increase their cash flow and be as prepared for the future as they can be. Email Marcelino at success@cashtracksfinancial.com or call 844-394-4287.

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This is The Tax Answers Advisor with host, Marcelino Dodge. To reach our program today, please call in the number is 1-866-472-5790. That’s 1-866-472-5790. You may also send an email to success@cashtracksfinancial.com. Now, back to The Tax Answers Advisor.

Marcelino: Welcome back to The Tax Answers Advisor, this is Marcelino Dodge. Surely appreciate your listening to the program today, we’re talking about the Foreign Earned Income Exclusion. For those who are looking to satisfy the physical presence test we’ve been talking about that so that you can have the foreign earned income excluded from your tax filing with the Internal Revenue Service. Now this option here and counting to 330 days.

Now there’s a couple other areas that a person has to keep in mind, and one is that travel days like the day you arrive. And the day you leave, those are not counted in the day so you must actually have a physical presence, where you are, where you are to for those days to count for the 330 business days of physical presence. But as mentioned earlier there’s been some exceptions allowed, because of the COVID pandemic.

Also we want to keep ones in mind that there’s another test which could be the Bona fide Residence Test, which is a little harder to establish than the physical presence test, which basically says you’re going to become a resident of the host country. But if you certify to the foreign government whatever government that is, that you’re not a resident of that country. You cannot satisfy that test. So the vast majority of people that I have worked with over the years when it comes to foreign earned income. It’s easier, at least in my experience to establish the physical presence test of being in the foreign country as you earn the earned income.

So that you can definitely take advantage of the foreign earned income exclusion. And for this of course, to qualify this is also a Personal Services that you have performed through the year so that basically just like any other employment that you have but it has to be for those type of services that you have performed, and it must be affirmed by and once again you elected on the tax return.

Now another area and sometimes when you’re working in some countries there is housing provided by your employer which is often separate from your other compensation. Now these amounts, this is called the Foreign Housing Exclusion, which is provided by the employer. And this is a very nice provision, because it has eligible costs, rent, repairs, utilities, insurance, even Furniture Rental and parking.

That’s very nice that you can have those excluded there with the costs of those for you, especially in a lot of lands when you’re outside of the US. Furniture Rental can be very handy to do and thus the employer provides that. Definitely, being able to exclude that is very much, can be very handy and save you. Save your money. All earnings, when it says employer provided, that’s all earnings except those for self-employment.

It is presumed is a nice presumption here is some presumptions aren’t good, but this one is a very good presumption and employees use what the employer provides, uses their wages to pay for housing. And so all these qualified housing expenses, whether paid directly by the employer or paid through the wages. These are eligible for exclusion. Now the housing expenses. As we mentioned earlier the housing expenses can only go up to the amount of the foreign earned income, which that limit is the 107,600.

So that’s where the maximum Housing Exclusion or let me step back here. The maximum Housing Exclusion actually like for example, for 2020. Because it’s limited to 30% of the income exclusion, which means that the most the person can take in a housing exclusion for the year is $15,064. Now there could be some high cost locals, locales, or some high cost areas where you may be working, which there could be some additional exclusion amounts but those are each of those are taken on a case by case basis.

Now you take this housing exclusion, before you take income exclusion and is taken in addition to it. So when it comes down to is very nicely is that when you have this exclusion that you’re working on. Between the Earned Income Exclusion, the Foreign Earned Income Exclusion, and then the exclusion that you take for housing provided by the employer. Between those two, you can actually take a combined exclusion, up to $122,664.

That is a very nice deal for ones to be able to take these exclusions and essentially not be double taxed on their money that they’re earning abroad up to those amounts at least which is again a very nice provision within the tax code. Because you’re already probably paying some type of income tax to that Foreign Government, and then to turn around and have to pay tax to the United States Government. That’s like, oh my. How crazy is that? But at least this is in there, so that you can take that exclusion.

Now, I haven’t talked much here about self-employment. Because you can be self-employed in a country that is foreign outside the United States, which some do. I’ve had a few people that had some foreign had been self-employed as individuals working in a foreign country, which is tax similar to how it is here in the US. But what you can do, working self-employed, is you can take a Foreign Housing Deduction, which what this allows ones to do is that this cannot be less.

Well, I cannot exceed your Foreign Earned Income. Once again, whatever you take in a housing deduction, and it is nice part is after expenses because in a self-employed situation, keep in mind when you’re self-employed, you get self-employed deductions. So you may, you may make $100,000 in gross income. But yet, you may, you have expenses and your expenses could total say 50,000. So your actual net income in the foreign country may only be like $50,000.

Jamie actually only have like 50,000 of actual earned income, so your Foreign Housing Deduction cannot exceed what your income was, which is like the $50,000. So, it’s calculated and claimed that is on the same form that’s 2555. You calculate and claim that same deduction the self-employed people, individuals can definitely do that it is very nice deduction that you can claim it makes it very easy for you to be able to once again not be able to have to pay that additional tax to the IRS, because you’re working abroad there.

Now, sometimes you may have a credit or a deduction for your foreign housing that, for example, may be in excess of what you can actually claim for the year because you can’t. It cannot take you into basically like negative status so if you have, are eligible to claim a foreign housing deduction. But yet, you’re not able to claim at all, or you’re just able to claim a portion of it, but you’re still going to be working abroad.

The next year, on a self-employed basis. Well, you can certainly then carry that forward that amount, and you’re in current. I well, I encourage you to do so and we certainly will do that. So definitely, as we look at the many wonderful issues here, why wonderful issues but the issues that many taxpayers can have working abroad. There’s all these tests and you’re self-employed, but yet some individuals. This kind of touches on another little area here, sometimes you can have foreign income that you didn’t even know you had.

How many, perhaps listeners that we have here perhaps have investments. Like in stocks, bonds, mutual funds, maybe publicly owned partnerships, these kinds of investments where you can actually end up having to owe some, some foreign tax and actually pay some tax to another country. This actually kind of takes it back the other way instead of double paying tax to the US and into the country you’re not actually working abroad. But what you are doing is you’re like passively investing maybe in some of these other countries.

Now, you have various Mutual Fund Companies and Equity Traded Funds that do business in foreign countries or buy bonds or buy stocks in other countries. And just because of how these countries work. What we see happen is that you sometimes on a 1099 form or a 1099 dividend forms in particular. You’ll get you’ve received X amount of dividends and you have X amount of capital gains, all of these little areas that hit on in there. But then there’s a little line on there that says, foreign tax paid.

And you’re like, wait a minute. I didn’t do anything in another country, I don’t even go to another country. Well, what is very interesting about that is that it could be 50 bucks, it could be $5,000. It just really depends on the circumstances and how much you perhaps you have invested. But yet, what is nice is that the within the US tax code. There is the ability to basically get a tax credit so that on these, on these dividends that you are capital gains that you pay taxes on to another country.

You can get a tax credit on your tax return. Depending on the amount I mean, this gets this can get quite deep, but depending on the amount you may have to file. It’s a foreign tax credit form that you may need to file which basically, if you need to file it you get a tax credit back on it, so that you don’t have to. Basically, once again, avoid double taxation. And I was just trying to remember what that phone number just kind of escaped me up there we go, taxpayer taxes pay non-refundable credit. It’s form 1-1-1-6. Well, 1116 is what it is.

That allows you to do that and see that allows you to claim a tax credit on some of those and this is available of course to US citizens, and living abroad. Now we keep in mind that the advantage of the credit, is that it reduces your tax liability so you’re not paying tax also in the United States and to another country. You can take it in the year that you paid it as a cash basis taxpayer, and this is another. This is another credit is that, if by chance you don’t use it all up. You can take it all into the next year, or what’s left into the next year. So yes, that can dig a little bit deeper. That’s a very nice credit that’s available for you to use. If you have some passive income, and didn’t necessarily work abroad. We’ll come back for our final segment in just a couple moments here. This is Marcelino Dodge on The Tax Answers Advisor on the Voice America Business Channel.

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Today’s tax and financial environment is constantly changing. Tax laws change rapidly, the traditional reactive approach to tax preparation and taxes, no longer works. To deliver the best possible outcomes in today’s world, you need a year-round approach to take advantage of tax law changes, and to pay as little tax as possible. Marcelino Dodge of Cash Tracks Financial helps his clients to implement proactive tax strategies throughout the year to limit his client’s tax liability. Plus, with this year round approach clients can increase their cash flow and be as prepared for the future as they can be. Email Marcelino at success@cashtracksfinancial.com or call 844-394-4287.

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This is The Tax Answers Advisor with host, Marcelino Dodge. To reach our program today, please call in the number is 1-866-472-5790. That’s 1-866-472-5790. You may also send an email to success@cashtracksfinancial.com. Now, back to The Tax Answers Advisor.

Marcelino: Welcome back to The Tax Answers Advisor, I’m Marcelino Dodge and as we go into this final segment we’ve been talking today about “Working Abroad Foreign Income”, meeting the challenge. Yes, even in this time we’re in with the global pandemic, some may have the challenge of foreign earned income. And that it can definitely bring up a challenge and as we look to come out of the pandemic and get more of a back to normal kind of situation going there could be more work abroad.

And maybe some have been working abroad and haven’t been able to come back to the United States. These are all areas that need to be taken into consideration here and so as we think about this and discuss this in this last portion of the program today. I just want to remind all that if you are working abroad, if you do have tax filing requirements in the United States. You do have an April 15th automatically extended to June but yet, just file by April 15th and get an extension all the way to October, if you need it.

And as we keep in mind too, good records are necessary if you’re working abroad because if you’re getting paid and in a foreign currency we need to make sure that is converted to American US dollar at the time that you received it, so that these wages, can be properly calculated for purposes for tax purposes. And even when we work to calculate an exclusion later on. Keep in mind that as well that if you have tax withholding and whatever country you’re working income tax withholding.

You may not be subject to US Income Tax Withholding and certainly we can help, help you with filing the proper form to qualify for that exclusion. And even in some countries that there’s at least 30 countries where there’s an agreement where you wouldn’t have to pay Social Security tax like we do in US. There’s another tax system that they use in those countries, those 30 which the US has an agreement, and you would be able to not have that withholding.

But it would just go to whatever the appropriate system is in the country where you are working. Just to touch here briefly again, the Foreign Earned Income Exclusion here for those who are employees, you can get up to 107,000 excluded from your United States income for tax purposes by filing this. The electors by simply filing the form 2555. It can be a kind of a complicated form. And so, definitely recommend having us help you in completing that form as a part of completing your tax return.

Now, we would definitely recommend using the Physical Presence Test to help you to qualify for that particular exclusion because that can oftentimes be the easiest to qualify for as compared to the Bona fide Residence Test. So, kind of just want to keep it simple at least that’s what I have found in individuals I have worked with it’s been a lot easier. And it’s usually good, be able to substantiate or easier to substantiate the fact that you have been living, domiciled having your home in another country for at least 330 days.

Which once again because of the COVID pandemic there’s been some exceptions allowed, there’ll be some exceptions allowed to this yet. Just keep that in mind, that is the basic rule that where we are right now and not be in the United States for more than 30 days there are a few countries where time limits are waived if forced to leave those areas due to war. So keep that in mind as well if you were in one of those countries you can always email us, success@cashtracksfinancial.com and be happy to open up those discussions with you.

Also we include in that, of course you can have an amount for housing, and for your housing. And that’s housing, whether it’s paid by you directly, or even paid by your foreign employer. That can definitely as well help you and that includes things like rent repairs, there’s a whole list of items that go on there. As well as once again you provide you’re expected or it’s presumed that. That’s what you’re using your wages for in other countries to pay for housing, and certainly those items can definitely be used there.

You’re allowed now, this is once again I mentioned this number before but I really do appreciate this number myself. The fact that not only do you have the 107,600 earned income. But you can actually take up to another 15,000 and some change to get a combined exclusion between foreign earned income, and housing exclusion. You can get them both for 122,000 little over $600 in combined exclusion between federal earned income.

And also, housing exclusion. So, those are two very nice deductions in there, so that you avoid which is important to file this. So, you avoid double taxation on income because once again, you’re probably getting taxed in the whatever country where you’re working. And so no use paying double tax and then turn around paying double tax at that country and then tax also to the United States.

And then also, one last area the foreign housing deduction, which is a deduction for those who are working as self-employed individuals. That’s a very, very good deduction to take which can follow into one year if you don’t. Not if you’re not able to take it all in one year you can definitely transfer it into the next year. Now, I’ve kind of just touched the surface and all of these areas in regards to foreign earned income.

These are areas that we can discuss definitely more deeply, as we discuss with our clients and all meetings as part of our whole strategy and goals session, planning session as we work with individuals, to help them to maximize these things and right now with the internet. Whether you’re working in the United States, or working in Ireland, Italy, Germany, you’re working in one of those countries and you need a tax professional that can help you to do this and I appreciate those listening in those countries.

We can certainly help you and we can set up a meeting through zoom online so that these matters can be discussed and we can see if we can work together, have an initial exploration process to really help to understand you, and see what your priorities are. And then also be able to share a little bit more about how our processes work. In not only establishing your goals, but looking at what can help you to be successful in a financial way so our whole program is based on looking at you, the individual and personalized to you as our client.

The one whom we want to work with and we keep all of this, within an affordable monthly payment so that it’s not just taxes that we’re doing. But it’s looking at you and your whole financial picture to help you to be able to reach financial goals that you have, and then have your compliance as just a part of it. So yes. We certainly appreciate you all listening today, to The Tax Answers Advisor. Next week, get to discuss a very important topic, which has to deal with the importance of accurate tax records.

Yes. And I’m not talking the shoe box. There’s a lot of ways you can keep tax records, there’s a lot of reasons why you need to keep tax records, and that actually fits in very nicely with today’s topic on foreign earned income. How having these records is essential? And so record keeping, whether you’re working abroad, or you’re working here in the US. Gonna keep, keep it. Just keep it there because you just never know granted the IRS is not doing currently, as many in-person audits, as they have done in the past.

But they do what they call correspondence audits, and it is just as important to have those records available for these correspondent audits which the IRS is doing quite a bit of. So yes, I look forward to talking to you again next week as we look more closely at having accurate tax records. I certainly appreciate you listening today, and I thank you for your time. I’m Marcelino Dodge, on The Tax Answers Advisor on the Voice America Business Channel.

Thank you for listening to The Tax Answers Advisor with host, Marcelino Dodge. We’ll be back again next Wednesday at 6pm Eastern Time, and 3pm Pacific time, on The Voice America Business Channel, we’ll have more to share next week.

Cash Tracks Financial Inc.
117 W Beech St
Lamar, CO 81052
Office:(719) 336-8739
Toll Free: (844) 394-4287
Fax: (719) 336-8799
Email: success@cashtracksfinancial.com

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When you need a financial or tax advisor, tax prep, insurance, or business guidance contact Cash Tracks Financial Inc., serving Lamar Colorado.

success@cashtracksfinancial.com

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117 W Beech St, Lamar, CO 81052, USA


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