If you worked abroad at all in the last year, or received income from any foreign source, then you are required under federal law to report your foreign income. The process of doing so differs slightly from reporting your standard domestic income, but is fortunately not extremely complicated.
Here is some information from a CPA in Woodbridge, NJ about what you should know about foreign income and how to report it:
- Making these reports is required: Under federal law, all citizens and residents of the United States must report any income made internationally, including income from foreign trusts and foreign securities or bank accounts.
- Complete the required forms: Forms you will most likely need to file include Schedule B, Interest and Ordinary Dividends (which you send in along with your standard tax return) as well as Form 8938, Statement of Specified Foreign Financial Assets. In some other cases, you might also be required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts.
- Determine your exclusion eligibility: If you work and live abroad, you might be eligible for the foreign earned income exclusion. This means up to $99,200 of your wages and income earned would be tax free.
- Investigate various credits and deductions: In addition to exclusion eligibility, there are other opportunities to save money on taxes on your foreign income. You might be able to benefit from certain tax credits or deductions on income taxes paid to a foreign country, especially if both countries levy taxes on the same income.
- Use IRS tools to file online for free: IRS Free File is an online tool that allows people to prepare and file their federal tax returns for free. This tool is available on the IRS website, www.irs.gov.
- Obtain extensions for filing taxes if needed: If you live outside of the United States and are going to be unable to file your tax return before April 15, you might be able to get an automatic two-month extension, giving you until June 15. This extension applies to people doing business outside of the United States, as well as anyone serving in the armed forces outside of the country. You will be required to add a statement to your tax return explaining how you qualify for this extension.
- Do not delay: While there are extensions available, you must be prompt in seeking them. If you do not intend to use the extensions, you must be prompt in making your reports. Just because there are special circumstances surrounding your reports of foreign income does not mean you are exempt from the rules governing all American taxpayers.
These are just a few tips to help you better understand and prepare for filing your overseas income. For more information about how to proceed, contact a trusted CPA in Woodbridge, NJ. We look forward to answering any questions you have about your taxes or finances, and are happy to speak with you more about the services we provide to our clients from all different backgrounds. Call Lata Kirpalani, CPA P.C. DBA Tax Tuesday for more information!
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