Questions about expat status, taxes and self-employment

[Winston]

Hi all,
I never got an answer to this question:

How do you tell the US government that you are an expat? If you don't, they consider you to be living in the US right?

What if you get a notice for jury duty and you don't show up? Don't you get in trouble? What if you get drafted for the war?

How does the US government know who is an expat overseas and who isn't?

Also, if you are self-employed with low income, do you even need to bother filing tax returns? I read that if you make under a certain amount, you don't need to file taxes. Right? If so, is it better not to?

Anyone know?

Thanks,
Winston

[Rock]

Hi all,
I never got an answer to this question:

How do you tell the US government that you are an expat? If you don't, they consider you to be living in the US right?

What if you get a notice for jury duty and you don't show up? Don't you get in trouble? What if you get drafted for the war?

How does the US government know who is an expat overseas and who isn't?

Also, if you are self-employed with low income, do you even need to bother filing tax returns? I read that if you make under a certain amount, you don't need to file taxes. Right? If so, is it better not to?

Anyone know?

Thanks,
Winston

I think you are required to file if your gross income reaches $3000. But here is my recommendation. File federal tax returns every year whether or not you are required to do so. Your tax returns will establish you as an expatriate with the US government as you will provide your residency address as part of the return. If you have not been filing tax returns in the past, I believe you are allowed to file delinquent returns for up to 7 years in the past. If you never owed tax for any of those years, you will not be penalized in any way. Also, register with the US embassy or de-facto embassy in your country of residence as another step to establish your expatriate status. Perhaps for you, as a Taiwan (formally ROC) Passport holder, it might be easier to use your parents address and register with the American Institute in Taiwan.

Regarding taxes and money, keep a couple things in mind.

1. There is a generous earned income exclusion (around US$91,500 per year now) and a housing expense allowance. But if you earn any income via investments (rental income, dividend income, and/or capital gains) they are not included in the scope of these exclusions.

2. If the aggregate market value of your financial holdings (bank accounts and brokerage accounts) reaches $10,000 at anytime during the year, you must file FBAR forms for these accounts with the Treasury by June 30 of the following year.

I've lived abroad my adult life, filed taxes every year, and have never faced any of the issues you mention above (call for jury duty, draft, etc.). Your tax returns backed-up by your passport stamps are solid proof of your expatriate status.

[Winston]

Thanks. But what is an earned income exclusion? And what is a FBAR form? Is that part of the tax return?

[Rock]

Thanks. But what is an earned income exclusion? And what is a FBAR form? Is that part of the tax return?

Earned income is what you get paid for working at a job or company. I think it includes self-employed earnings but I'm not sure. Basically, you don't have to pay any tax to the US government on income you earn overseas up to the exclusion amount. So if you have a job in Taiwan or Phils and your salary is $85,000 per year, you can exclude it all on your tax return and not be liable for any tax to the States on it. But if you earned US$100,000 per year, you would be liable for tax on US$8,500 (100,000 - 91,500 = 8,500). However, all tax you pay to a foreign government (Taiwan in this case) will be credited by the US so you avoid any double taxation. You would need to include your Taiwan tax office receipt if you wanted to get credit for this in the US.

FBAR is separate from taxes but the IRS website provides these forms (TD F 90-22.1). Your dad probably files them for his account (unless he keeps his money in US) so you could also ask him about this. If your account values reach $10,000, you should really submit the forms. Don't give the US any excuse to harass you in the future.

[ladislav]

I file the 1040 along with 2555 form. You can google it- it is a Foreign Earned Income form. If you are on overseas filer, you have until June 15 to file, not April 15. I file in January to get the whole thing off my back. My foreign bank holdings only once went up beyond the 10K mark and I filed a form with the Department of Treasury. You also have to watch for your state taxes. Once I came back from Thailand and found a nasty letter asking me for 8K in back taxes because I did not file CA income tax. I sent them copies of my passport with visa pages in them saying that I had been overseas. They never contacted me again.
I send them ( CA Franchise Tax Board) a letter every year ( probably an overkill) but I do not want to take any chances- these letters come from Saudi Arabia and Philippines and Kuwait and wherever else I happen to be at the time and I tell them that I am overseas. They did not bother me since then ( Thank God).
What I want to know now is if you are overseas as a tourist moving around and you work through paypal.com and teach by Skype. Your students are in Russia and China. How does that work? You do not really have employment per se and no tax home.

[Think Different]

"What I want to know now is if you are overseas as a tourist moving around and you work through paypal.com and teach by Skype. Your students are in Russia and China. How does that work? You do not really have employment per se and no tax home."

That's a great question, and one I'd like to have an answer too, as well. As you call it "quilting your world", or in this case "diversifying your life and finances abroad", such as to hedge against a falling dollar/Euro/etc., it makes a lot of sense.

If your residence is in one country, your bank account in another, your business registered in another (or none), etc. either your taxes can become insanely difficult, or radically easier. Not sure which.

[momopi]

Perhaps for you, as a Taiwan (formally ROC) Passport holder, it might be easier to use your parents address and register with the American Institute in Taiwan.

The irony. TW passports read "Republic of China" on the cover, versus Taiwan Compatriot Permit issued by China (for ROC citizens) reads "Taiwan Resident" on the cover.

[Winston]

Thanks. But what is an earned income exclusion? And what is a FBAR form? Is that part of the tax return?

Earned income is what you get paid for working at a job or company. I think it includes self-employed earnings but I'm not sure. Basically, you don't have to pay any tax to the US government on income you earn overseas up to the exclusion amount. So if you have a job in Taiwan or Phils and your salary is $85,000 per year, you can exclude it all on your tax return and not be liable for any tax to the States on it. But if you earned US$100,000 per year, you would be liable for tax on US$8,500 (100,000 - 91,500 = 8,500). However, all tax you pay to a foreign government (Taiwan in this case) will be credited by the US so you avoid any double taxation. You would need to include your Taiwan tax office receipt if you wanted to get credit for this in the US.

FBAR is separate from taxes but the IRS website provides these forms (TD F 90-22.1). Your dad probably files them for his account (unless he keeps his money in US) so you could also ask him about this. If your account values reach $10,000, you should really submit the forms. Don't give the US any excuse to harass you in the future.

What if my bank accounts are US bank accounts? Then I don't need to worry about FBAR right? Is FBAR only for foreign bank accounts?

Most of my income is through PayPal from US customers.

But below a certain amount, you don't need to file taxes right?

If I file them and have an expat status, will the US government start keeping a bigger watch on me?

[Winston]

Perhaps for you, as a Taiwan (formally ROC) Passport holder, it might be easier to use your parents address and register with the American Institute in Taiwan.

What do you mean? You mean file using my Taiwan address? What does a TW passport have to do with filing US taxes? If I mention that I have a TW passport, the US government looks down on dual citizenship I hear.

What is this American Institute and how does it fit into the equation? You mean Embassy?

[Rock]

Thanks. But what is an earned income exclusion? And what is a FBAR form? Is that part of the tax return?

Earned income is what you get paid for working at a job or company. I think it includes self-employed earnings but I'm not sure. Basically, you don't have to pay any tax to the US government on income you earn overseas up to the exclusion amount. So if you have a job in Taiwan or Phils and your salary is $85,000 per year, you can exclude it all on your tax return and not be liable for any tax to the States on it. But if you earned US$100,000 per year, you would be liable for tax on US$8,500 (100,000 - 91,500 = 8,500). However, all tax you pay to a foreign government (Taiwan in this case) will be credited by the US so you avoid any double taxation. You would need to include your Taiwan tax office receipt if you wanted to get credit for this in the US.

FBAR is separate from taxes but the IRS website provides these forms (TD F 90-22.1). Your dad probably files them for his account (unless he keeps his money in US) so you could also ask him about this. If your account values reach $10,000, you should really submit the forms. Don't give the US any excuse to harass you in the future.

What if my bank accounts are US bank accounts? Then I don't need to worry about FBAR right? Is FBAR only for foreign bank accounts?

Most of my income is through PayPal from US customers.

But below a certain amount, you don't need to file taxes right?

If I file them and have an expat status, will the US government start keeping a bigger watch on me?

US accounts do not need to be included in the FBAR. It only concerns accounts held outside the US. I already answered (gross income of $3,000 is the thresh hold). Your income levels will definitely NOT get their attention. They don't care about low income expats. However, your website, at some stage might get some attention if it gets too big. That's why you never wanna give them any excuse to harass you someday (like failing to file FBARS for overseas accounts totaling more than $10,000).

[Rock]

Perhaps for you, as a Taiwan (formally ROC) Passport holder, it might be easier to use your parents address and register with the American Institute in Taiwan.

What do you mean? You mean file using my Taiwan address? What does a TW passport have to do with filing US taxes? If I mention that I have a TW passport, the US government looks down on dual citizenship I hear.

What is this American Institute and how does it fit into the equation? You mean Embassy?

Don't you realize that Taiwan does not have an official embassy for the US or most other countries due the China issue? The American Institute is the name for the de-facto US embassy.

Taiwan Passport just a piece of evidence which suggests you might have good reason to live overseas. Dual nationality is fully legal in US and government minds if you are not affluent or above. After all, didn't you want to firmly establish expat status in order to avoid jury duty, etc.

[Contrarian Expatriate]

.

[Rock]

How does the US government know who is an expat overseas and who isn't?

The primary way is by registering with the local US Consulate in your country. If you are living abroad, the first thing you should do is register with the State Department. When they know you are in country and how to contact you, they can give you a heads-up on trouble in the country, security threats, and otherwise so you can get out before the crowd.

They also can serve to get help to you in a natural disaster when they know you are there.

Finally, registering with the State Department can get you faster service when you lose your passport or lose all your money or some other problem.

When war broke out in Lebanon a few years ago, guess who were flown out of harms way? The Americans who were registered and thus knew where to meet. Guess who got left behind to catch the incoming? The non-registered American citizens.

I actually never took this step in Taiwan. We don't have permanent IRS personnel stationed at American Institute, they only visit a few times a year from Hong Kong or Japan. But when they do visit, registered citizens may be more likely to get flagged for audit. I like to keep as low a profile as possible within the bounds of safety. Since Taiwan is a low risk location, I can accept this trade-off.

But in Winston's case, I did recommend he register with de-facto embassy here. As someone with no job on paper and living at home a lot of the time, his risk for audit is extremely low.

[Winston]

I think I already registered with the American Embassy in the Philippines. I get email updates from them. I think you can register online too, right?

I don't think I'd get audited. You have to make a lot of money to get audited.