THE US Tax Code is more than 17 000 pages long and contains 700 forms, enough to make your American friends cross-eyed. If you add to that the "luxury" of living overseas, things just get blurrier.
Have no fear. The Internal Revenue Service comes to the rescue this year with a streamlined, updated website that is actually user-friendly. They also publish an "Overseas Taxpayer Guide" as well as a nice list of "Frequently Asked Questions" for overseas filers. Both resources are very helpful and include the latest updates from the Economic Growth and Tax Relief Reconciliation Act of 2001.
Some of the important new information for families living overseas includes:
- The Foreign Earned Income Exclusion has been raised to $80 000.
- Partial relief from the marriage penalty.
- The child tax credit has doubled and there have been increases to the adoption credit and exclusion, the dependent care tax credit and credit for employer-provided childcare.
- Individual Retirement Account restrictions have been overhauled. Changes include expansion of the number and types of plans available and increasing the amount that may be contributed to these plans.
If you have contributed to the expat baby boom in Sofia, remember you must first obtain a Social Security Number (SSN) for your baby before you can claim the child as your dependent. The American Citizen Services office at the US Consulate can help you obtain an SSN for your child.
It has been possible to file on line for several years, but now you can also pay your taxes electronically. You may transfer funds from your bank account (using a debit card) or use your credit card. The advantage of using a debit card is that the transfer will be free, while many credit card companies may charge a "convenience fee" for using your credit card. If possible, research how your credit card account will be marked because some companies will categorise this use as a "cash advance".
April 15 is also the deadline to declare Bulgarian income taxes. Their system is much simpler but has a severe penalty for ineptitude. After filing your declaration, you have one month to pay your taxes. If you've calculated correctly, you pay only the tax, but if you've miscalculated your declaration, your fine for fraud will be in proportion to your mistake!
All of this tax talk might seem rather odd to our international neighbours as they may not understand what all the fuss is about. Allow me to dispel a few popular myths about US taxes:
True or False? As an American businessperson living in Sofia, the first $80 000 of my income is automatically tax-free according to the foreign earned income exclusion. False. You must be a bona fide resident of a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
True or False? American diplomats serving in Sofia are exempt from US and Bulgarian federal taxes and the first $80 000 of income is tax free. False. American diplomats are employees of the US Federal Government, which means they earn no foreign income. They are fully taxed and are therefore ineligible for the $80 000 exclusion. Most US diplomats also pay state taxes in addition to their federal taxes.
According to the most recent federal budget, the US Government collected almost $2 trillion from taxpayers in 2001. I'm sure you are eager to add to the pot for tax year 20002, right? While the IRS instruction booklet says it takes the average taxpayer 13 hours to fill out a standard tax return, don't believe it. The earlier you start collecting documents and receipts, the less painful the process later. And if all else fails, here are a few helpful resources to guide you through the murky US tax code.
Additional Resources:
- www.irs.gov - main website for the US Internal Revenue Service.
IRS helpline for overseas callers +215 516 2000
- http://www.irs.gov/formspubs/page/0..id=12236.00.html - Frequently Asked Questions of overseas filers.
- http://www.irs.gov/individuals/overseas/topic/index.html - Overseas Taxpayers' Guide.
- Tax Preparer - Les Edelman. Offices in Belgrade and Budapest. Belgrade: Tel. +381 64 2222 579, Budapest: Tel. +36 70 215 9267. Email: Les@edelmantax.com. Website: http://www.edelmantax.com.
- Tax Preparer - James Maertin, CPA - International Tax Specialist.
110, West 40 Street, Suite 208, New York, NY 10018. Tel. +212 541 5523, fax: +212 937 3731. Email: james@jamesdance.com. Website: http://www.jamesdance.com.
- US Consulate in Sofia - American Citizen Services (ACS) has a variety of federal tax forms but has no state tax forms. Hours of ACS are 2pm - 4pm daily.
IRS Regional Officer located in Berlin, Germany. Tel. +49 30 8305 1140
Have no fear. The Internal Revenue Service comes to the rescue this year with a streamlined, updated website that is actually user-friendly. They also publish an "Overseas Taxpayer Guide" as well as a nice list of "Frequently Asked Questions" for overseas filers. Both resources are very helpful and include the latest updates from the Economic Growth and Tax Relief Reconciliation Act of 2001.
Some of the important new information for families living overseas includes:
- The Foreign Earned Income Exclusion has been raised to $80 000.
- Partial relief from the marriage penalty.
- The child tax credit has doubled and there have been increases to the adoption credit and exclusion, the dependent care tax credit and credit for employer-provided childcare.
- Individual Retirement Account restrictions have been overhauled. Changes include expansion of the number and types of plans available and increasing the amount that may be contributed to these plans.
If you have contributed to the expat baby boom in Sofia, remember you must first obtain a Social Security Number (SSN) for your baby before you can claim the child as your dependent. The American Citizen Services office at the US Consulate can help you obtain an SSN for your child.
It has been possible to file on line for several years, but now you can also pay your taxes electronically. You may transfer funds from your bank account (using a debit card) or use your credit card. The advantage of using a debit card is that the transfer will be free, while many credit card companies may charge a "convenience fee" for using your credit card. If possible, research how your credit card account will be marked because some companies will categorise this use as a "cash advance".
April 15 is also the deadline to declare Bulgarian income taxes. Their system is much simpler but has a severe penalty for ineptitude. After filing your declaration, you have one month to pay your taxes. If you've calculated correctly, you pay only the tax, but if you've miscalculated your declaration, your fine for fraud will be in proportion to your mistake!
All of this tax talk might seem rather odd to our international neighbours as they may not understand what all the fuss is about. Allow me to dispel a few popular myths about US taxes:
True or False? As an American businessperson living in Sofia, the first $80 000 of my income is automatically tax-free according to the foreign earned income exclusion. False. You must be a bona fide resident of a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
True or False? American diplomats serving in Sofia are exempt from US and Bulgarian federal taxes and the first $80 000 of income is tax free. False. American diplomats are employees of the US Federal Government, which means they earn no foreign income. They are fully taxed and are therefore ineligible for the $80 000 exclusion. Most US diplomats also pay state taxes in addition to their federal taxes.
According to the most recent federal budget, the US Government collected almost $2 trillion from taxpayers in 2001. I'm sure you are eager to add to the pot for tax year 20002, right? While the IRS instruction booklet says it takes the average taxpayer 13 hours to fill out a standard tax return, don't believe it. The earlier you start collecting documents and receipts, the less painful the process later. And if all else fails, here are a few helpful resources to guide you through the murky US tax code.
Additional Resources:
- www.irs.gov - main website for the US Internal Revenue Service.
IRS helpline for overseas callers +215 516 2000
- http://www.irs.gov/formspubs/page/0..id=12236.00.html - Frequently Asked Questions of overseas filers.
- http://www.irs.gov/individuals/overseas/topic/index.html - Overseas Taxpayers' Guide.
- Tax Preparer - Les Edelman. Offices in Belgrade and Budapest. Belgrade: Tel. +381 64 2222 579, Budapest: Tel. +36 70 215 9267. Email: Les@edelmantax.com. Website: http://www.edelmantax.com.
- Tax Preparer - James Maertin, CPA - International Tax Specialist.
110, West 40 Street, Suite 208, New York, NY 10018. Tel. +212 541 5523, fax: +212 937 3731. Email: james@jamesdance.com. Website: http://www.jamesdance.com.
- US Consulate in Sofia - American Citizen Services (ACS) has a variety of federal tax forms but has no state tax forms. Hours of ACS are 2pm - 4pm daily.
IRS Regional Officer located in Berlin, Germany. Tel. +49 30 8305 1140
