Between all the different acronyms and form numbers, taxes as an expat can be confusing—that’s why we’re here to guide you through the process! Taxes are tricky and filing the wrong form can lead to all sorts of trouble. Start with H&R Block today and we’ll make sure your taxes are done right. No matter where in the world you are, we’ve got a tax solution for you — whether you want to DIY your expat taxes or file with help from an advisor.

What is Form 2555 used for?

Form 2555 is the form you file to claim the Foreign Earned Income Exclusion, which allows you to exclude up to $120,000 of foreign earned income for the 2023/2024 tax year.

The Foreign Earned Income Exclusion exists the help prevent double-taxation. Most countries implement some sort of tax on income earned within their borders. The U.S. is the same way. What’s different about the U.S., though, is that the U.S. taxes income based on citizenship and residency — meaning you still have to pay taxes on foreign income you earned abroad.

To help protect Americans earning income abroad from being double-taxed (once by the U.S. and once by the country in which they earned the income), the U.S. government created foreign tax credits, deductions, and exclusions qualifying expats can claim. Tax form 2555 is the form you use to figure out and claim the foreign earned income exclusion and housing exclusion or deduction.

If you’re unsure if you should file Form 2555 to claim the foreign income exclusion or Form 1116 to claim the Foreign Tax Credit, let us help. No matter where in the world you are, we’ve got a tax solution for you — whether you want to DIY your expat taxes or file with help from an advisor.

Form 2555 vs. Form 1116

Many expats have a choice between using Form 2555 to claim the Foreign Earned Income Exclusion and using form 1116 to claim the Foreign Tax Credit. Big factors U.S. expats should consider when choosing between the FEIE or the FTC include:

• Your income type and source
• Your housing expenses
• Your future plans for life and work abroad
• Your dependents and their U.S. citizen status
• Whether you pass the Bona Fide Residency test or the Physical Presence Test
• Your current country of residence and its local tax laws
• Your foreign tax liability to your country of residence

It is possible to use the credit and the exclusion together to get the best outcome. Leave it to one of our Tax Advisors to do a deep dive into your information and figure out which option would be best for you.

Who needs to file Form 2555?

You need to file IRS form 2555 if you want to claim the Foreign Earned Income Exclusion. The FEIE is available to expats who either:

• Work outside the U.S. as employees, whether for a U.S. or non-U.S. employer
• Work outside the U.S in a self-employed or partner capacity
• Pass either the Bona Fide Residency Test or the Physical Presence Test

You should note that employees of the U.S. government can’t claim the foreign income exclusion. However, an employee of a private company under contract with the U.S. government might still be eligible.

Form 2555 and the Bona Fide Residency Test

If you choose to claim the FEIE over the FTC and want to qualify for the FEIE using the Bona Fide Residence Test you must:

• Prove you have more ties to the foreign country than the U.S.
• Prove you have been a resident of that country for an uninterrupted tax year
• Be a U.S. citizen or be a resident alien of a foreign country with which the U.S. has an income tax treaty.
• Earn active income. Unearned, or inactive, income like pension payouts, interest, and dividends cannot be included.
• Be overseas for work for a period longer than a year.
• Have a permanent place of work in a foreign country.

It is possible to be a Bona Fide Resident for part of the year if you spent at least a full tax year outside the U.S. in a prior year. As a result, you can file Form 2555 for part of the year.

Form 2555 and the Physical Presence Test

If you want to qualify using Physical Presence Test, you must prove you’ve been living outside the U.S. for 330 full days out of the year. You should note that a “full day” counts as 24 hours starting at midnight, and you need to be in-country for every minute of those 24 hours.

For example, if you lived in Baja California, popped over the border to San Diego Friday night and came back Saturday evening, you wouldn’t be able to count that time towards your 330 full days.

Form 2555 instructions

Your Form 2555 instructions can be found on the IRS’ website, but because making a mistake can cost you (literally), we recommend you leave it to a seasoned tax pro to do all this work for you.

Need help with Form 2555, the Foreign Earned Income Exclusion? Trust the tax experts at H&R Block

Taxes aren’t simple, and that’s why we at H&R Block work round the clock to do them for you. Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, H&R Block is here to help. Start your expat taxes today!

The post Form 2555: Excluding Foreign Income appeared first on H&R Block®.

Below we’ll run through the basics of what you should know about the FBAR, including:

• What an FBAR is
• Who files an FBAR
• FBAR deadlines
• Filing instructions
• Penalties for not filing

Need to submit an FBAR? H&R Block Expat Tax Services makes it simple to file your expat taxes and FBAR together using H&R Block’s online expat tax services, designed for U.S. expats abroad.

What is an FBAR?

What is “FBAR” and what does it mean? FBAR is another name for FinCEN Form 114 (formerly called the Report of Foreign Bank and Financial Accounts), and is used to report foreign financial accounts that held a combined amount of $10,000 or more at any point during the calendar year.

The FBAR exists to combat tax evasion, specifically by having U.S. citizens report money and assets in non-U.S. banks. Rather than filing with the IRS, you submit an FBAR to FinCEN, the U.S. Treasury Department’s Financial Crimes and Enforcement Network. Failing to file means facing heavy penalties, so it’s always in your best interest to stay up to date.

Most expat tax filers will just report the balance in their foreign bank accounts, but you may also have to report:

• Foreign assets like stock that’s held by foreign financial institutions
• Assets in a foreign branch of a U.S. financial institution
• Foreign mutual funds, life insurance or annuity contract
• Foreign retirement accounts
• Accounts that you don’t own but are able to control

Who files an FBAR?

Who files an FBAR? U.S. persons (U.S. citizens, Green Card holders, resident aliens, and dual citizens) are required to file an FBAR if the combined balance of all the foreign accounts you own or have a financial interest or signature authority is more than $10,000 at any point during the calendar year. This is true regardless of whether you live in the U.S. or abroad.

Financial interest is determined based upon who is the owner of record or legal title. Signature authority means that you have some level of control over the disposition of assets through direct communication with the institution.

For example, if you’re a signatory on an employer’s foreign bank account, you have signature authority and should report the account on your FBAR.

Foreign financial accounts include bank accounts, securities accounts, and certain foreign retirement arrangements. Accounts located outside of the 50 states, D.C., the U.S. possessions, and tribal territory are considered “foreign” accounts.

For example, suppose you are a U.S. citizen living in Brazil. You have two Deutsche Bank checking accounts and a poupança account at a Brazilian bank that all together held $15,000 during the tax year. In this case, you must file an FBAR even if each account only held $5,000.

Your foreign retirement accounts may also have to be included. For example, Canadian Registered Retirement Savings Plans (RRSP), Canadian Tax-Free Savings Accounts (TFSA), Australian Superannuation funds, and Hong Kong Mandatory Provident funds are all foreign financial accounts reportable on the FBAR.

Ready to file FinCEN Form 114? Get started and either file an FBAR only or go the traditional route and file your U.S. taxes and FBAR together.

FBAR deadlines 2023

The FBAR is an annual filing and if you want to avoid penalties, make sure to file FinCEN Form 114 by the due date.

The FBAR 2023 deadline is the same as your income tax return due date, usually April 15 (with an automatic extension to October). Check our expat tax deadline page for up to date FBAR deadlines for tax year 2022 and 2023.

Ready to file FinCEN Form 114? Get started and file your U.S. taxes and FBAR together.

How to file FBAR filing instructions

Wondering how to file an FBAR online? It’s not as daunting as it may seem. Your FBAR must be filed electronically online. You can do this either through FinCEN’s BSA e-filing system or you can file your FBAR alongside your taxes with a tax preparation service that offers FBAR submissions, such as H&R Block Expat Tax Services.

Married taxpayers should take note: In very few situations are you able to submit a joint FBAR. If you own accounts jointly with your spouse, and either none or only one of you own a separate account, you are able file a single report. Otherwise, each spouse must file their own. If you are filing prior year or an amended form, you must still use FinCEN’s website to do so and you must file separate accounts.

How to File an FBAR and U.S. Taxes Together

1. Head over to our Ways to File page, choose to file taxes yourself or with an advisor, register online and complete your tax organizer.
   
2. We’ll assign you the right advisor for your situation (if you choose to file with an advisor)
   
3. We prepare your U.S. tax return and FBAR
   
4. You review and pay for your FBAR and return.
   
5. We file your return with the IRS and FBAR with FinCEN.
   

File Your FBAR Now!

Penalties for not filing an FBAR

What happens if you don’t file an FBAR when you’re supposed to? In short, the answer here is penalties. Unless you’re trying to evade taxes there really aren’t any disadvantages of filing the FBAR. Not filing, however, costs you — under the current rules, if you’re required to file but either you do not file on time or if you do not correctly report your foreign accounts, you can be subject to FBAR penalties of up to $10,000 per violation even if you didn’t know you had to file.

The penalties are much steeper if you knowingly fail to file. If you’re aware of your requirement and do not file accurately, or if you don’t file it on time, you could get hit with a $100,000 penalty per violation or an even higher penalty, depending on your account balances at the time of the violation. In the end, it makes financial sense to stay in compliance.

Ready to file FinCEN Form 114? Get started and file your U.S. taxes and FBAR together.

What if I’ve never filed an FBAR but I should have?

If you’ve never filed an FBAR and you were supposed to, don’t panic — there’s a process called IRS Streamlined Filing Compliance Procedures that can help you get caught up on your FBAR filing without penalties.

Streamlined compliance procedures allow Americans to get caught up on past FBARs without penalties. If you can qualify for Streamlined Filing, we recommend you take advantage of the proceedings — penalties for delinquent FBARs range anywhere from a few hundred dollars up to a few hundred thousand for serious offenders. If you need to catch up on multiple years of FBAR filings, choose to file your taxes and FBAR with an advisor, and our international tax advisors can help you decide on the best course of action for your unique situation.

What else should I know about reporting foreign bank and financial accounts?

What else should you know about reporting foreign bank accounts? If you’re a U.S. expat, you may need to file more forms than just FinCEN Form 114.

Generally, U.S. citizens and resident aliens must report all worldwide income, including income from foreign trusts and foreign bank and securities accounts, such as interest income. To do this you’ll need to complete and attach Schedule B (Form 1040) to your tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and also requires U.S. citizens to report the country in which each account is located. If that describes you, you’ll answer “yes.”

In addition, you may also have to complete and attach FATCA Form 8938 to your return. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds.

Note that filing Form 8938 does not replace or otherwise affect your requirement to file FinCEN Form 114.

Get FBAR help with H&R Block Expat Tax Services

Have questions about filing? Ready to file FinCEN Form 114? No matter how complicated your U.S. tax return is, there’s an expat tax expert ready to help.

Ready to file FinCEN Form 114? Get started and file your U.S. taxes and FBAR together.

You may be interested in:

• Filing an FBAR from the UK
• Filing an FBAR from Canada
• Filing an FBAR from Australia
• Filing an FBAR from France
• Filing an FBAR from Germany
• Filing an FBAR from Japan

The post The FBAR: When (and How) to Report Money in Foreign Bank Accounts appeared first on H&R Block®.

Also known as the Report of Foreign Bank and Financial Accounts, or FBAR, Form 114 is one of the more common documents we file here at H&R Block Expat Tax Services, and it can be a little tricky to understand. Don’t worry though — below we’ll break down the basics of filing Form 114 so you can stay in compliance and avoid penalties.

Ready to file FinCEN Form 114? H&R Block Expat Tax Services makes it simple to file your FBAR online. Get started and file your U.S. taxes and FBAR together now.

What is FinCEN Form 114 (also known as the FBAR) and why does it matter to you?

The full name of FinCEN Form 114 is the Financial Crimes Enforcement Network Form 114, Report of Bank and Financial Accounts. It’s commonly known as an FBAR. In a nutshell, Form 114 is used by U.S. citizens, residents, and entities to report foreign financial accounts. The FinCEN Report 114 documents a taxpayer’s foreign financial accounts when the aggregate value in those accounts exceeds $10,000. The Financial Crimes and Enforcement Network (FinCEN) requires you provide this information as part of your reporting obligations as an expat.

Unlike Form 8938, which is a related financial assets reporting form, FBAR is a filing requirement even if a taxpayer is not required to file a 1040.

FinCEN 114 filing requirements

It’s important to include information about all your relevant financial accounts. For the purposes of Form 114, the following types of accounts are reportable. If you have a financial interest in or signature authority over accounts such as:

• Foreign bank accounts
• Foreign brokerage accounts
• Foreign retirement accounts or
• other types of foreign financial accounts

If the total amount of all the taxpayer’s accounts is more than $10,000 at any time during the tax year, then the FBAR is required to be filed. For example, if you held $3,000 in an Australian account, $3,000 in a New Zealand account, and $6,000 in a U.K. account, the total sum of all three accounts would be over $10,000, and you’d therefore have to file an FBAR.

It gets trickier if you have bank accounts with foreign currency. You’ll have to convert all currency to U.S. dollars before calculating your total amount in overseas financial accounts. If you’re off in your currency conversion and mistakenly don’t file, you may be penalized.

FinCEN Form 114 instructions: How to file the FBAR

Unlike your tax return, the Form 114 is not reported to the IRS. Rather, the FinCEN Form 114 instructions dictate it be filed separately from the tax return with FinCEN. Or, you can go the convenient route and file Form 114 with a preparation service that has the capabilities to do it, such as H&R Block Expat Tax Services.

Married taxpayers should take note: In some situations, you may be able to submit a joint Form 114. If you own accounts jointly with your spouse, and either neither or only one of you own separate accounts, you are able file jointly. Otherwise, each spouse must file their own.

Here’s how to file an FBAR online with H&R Block Expat Tax Services:

1. Sign up to file your U.S. expat taxes (either on your own or with the help of an advisor) and select Form 114 as an add-on
2. Answer questions about your tax situation and financial accounts, then upload your documents
3. We’ll file your tax return with the IRS and FBAR with FinCEN so you can be on your way

Need help filing FinCEN Form 114? H&R Block Expat Tax Services makes it simple.

Our tax advisors have helped thousands of expats file Form 114. We can help you determine what accounts to report and how to complete the documentation. Ready to file FinCEN Form 114 (FBAR)? H&R Block makes it simple to file your U.S. taxes and FBAR together. Get started now!”

The post FinCEN Form 114: Report of Foreign Bank Accounts appeared first on H&R Block®.

Tax Form 3520 is an informational form you use to report certain transactions with foreign trusts, ownerships of foreign trusts, or if you receive certain large gifts from certain foreign persons. It’s an important one to file correctly because it falls in the category of forms that increase your risk of being audited. File it incorrectly or forget and you risk more than being audited — you may be penalized or fined a hefty chunk of change.

Below we’ll break down what this form is for, who files it, what happens if you don’t, and other information that will be handy to know this tax season. Already know you need to file but aren’t sure how? Leave it to us. Start with H&R Block today and we’ll make sure your taxes are done right. No matter where in the world you are, we’ve got a tax solution for you — whether you want to DIY your expat taxes or file with help from an advisor.

What is Form 3520?

Form 3520 is an informational return in which U.S. taxpayers report transactions with certain foreign trusts, ownership of foreign trusts, and receipts of large gifts from foreign entities. That word “certain” is key here — there are different reporting triggers depending on the nature of the foreign asset.

Who files Form 3520?

There are generally three reasons you might file Form 3520 as an expat:

• You’re a U.S. owner of a foreign trust (includes the grantor, but could include other people)
• You make certain transactions with a foreign trust
• You receive a large gift or inheritance from certain overseas persons

Form 3520 for U.S. owners of a foreign trust

If you own any part of a foreign trust, you will probably have to file this form. If the answer is “yes,” then you need to file form 3520.

Form 3520 for U.S. taxpayer transactions with a foreign trust

There are three main types of transactions with a foreign trust you need to report on:

• If you transfer any assets (money and property, for example) to a foreign trust
• You receive direct or indirect distributions from a foreign trust
• You have a qualified obligation as the responsible party to report a reportable event during your current tax year

Just because neither of the above apply to you doesn’t mean you’re in the clear — there are other rare cases that have to do with foreign trusts that you may have to report on. Because the reporting triggers are different for different kinds of transactions, it’s best to leave the filing to an expert tax advisor that specializes in U.S. expat taxes.

Form 3520 for U.S. recipients of foreign gifts

A common question our Tax Advisors get is “How much money can you receive as a gift from overseas?”

In reality, there isn’t a maximum amount of money you can receive as a gift from overseas, but there is a threshold which — if you cross it — you need to report that gift to the IRS. In the case of foreign gifts, the IRS generally only cares about extremely large amounts — so you don’t need to worry about the $500 your French aunt sent you for your birthday.

You’re only required to file this form if you received:

• A gift of more than $100,000 from a foreign person or estate
• A gift of more than $15,601 from a foreign partnership or corporation

So, for example, if that same French Aunt gifted you the deed to her swanky vacation home in Aspen, you’d have to report it.

What’s the difference between Form 3520 and Form 3520-A?

The main difference between Form 3520 and 3520-A is who actually files it and why. The only people that fill out Form 3520-A are those that manage foreign trusts with U.S. beneficiaries.

Form 3520 penalties and instructions

Form 3520 instructions can be hard to understand, even for seasoned accountants. Because there are so many factors that go into what’s included and who must file, we recommend you leave it to the pros. If you’re interested in seeing the instructions for yourself, you can find them on the IRS website.

If you’re supposed to file and you don’t (or you do file and you don’t follow the instructions correctly), you could be subjected to some hefty penalties or fines. The typical fine is whichever is greater — $10,000 or 5% – 35% of the gross value of all the property, assets, and distributions that weren’t reported.

Dealing with a penalty from the IRS can be time-consuming and stressful — which is why we recommend you leave it to the experts. When you file your expat taxes with H&R Block, you can rest assured you’re taxes are done the right way, saving you the most money and giving you peace of mind.

File with confidence with Expat Tax Preparation from H&R Block

Confused about which forms you need to file? Stumped with the instructions? Leave it to us. Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, H&R Block is here to help. Start your expat taxes today!

The post Form 3520: Reporting Foreign Trusts, Inheritances, and Gifts for Americans Abroad appeared first on H&R Block®.

It’s easier than ever to build your own business, and along with the rewards of entrepreneurship come additional tax obligations. You’d have to file IRS Form 5472 (formally known as the Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business) if:

• Your U.S.-based company has a non-U.S. person (which can include either individuals OR businesses) that owns at least 25% of company stock, or
• The company is foreign and is engaged in a U.S. trade or business
• Your U.S. LLCs is owned by a foreign entity and is treated as a disregarded entity

The IRS wants to keep tabs on U.S. businesses that have foreign ownership or foreign businesses that do significant business within the U.S., and this form is one way to do that. It’s used to disclose information about certain reportable transactions that occur with a foreign or domestic related party.

Who files Form 5472?

Who has to file?

A U.S. corporation with 25% or more foreign ownership, or foreign corporations that do business or trade in the U.S. are required to file IRS Form 5472. You must report the existence of all related parties in Form 5472 as well, and fill out a separate form for each foreign owner. If you’re filing on behalf of a foreign owned U.S. company, you may also have to file Form 1120.

Here are a few examples of when you’d file this form:

• Company A is equally owned by three people: two U.S. citizens and one Australian national. Company A would have to file one Form 5472.
• Company B is owned by a U.S. person, but that person gave one foreign national 26% of stock options as a reward for helping brainstorm the company’s inaugural product. Company B would file one Form 5472.
• Company C is a U.S. LLC owned by a foreign national and treated as a disregarded entity for U.S. tax purposes. Company D would have to file Form 5472.

There are a few exceptions to filing, examples of which include:

• If the company had no reportable transactions that year. You can find what counts as a reportable transaction on the IRS’ website.
• If the company is considered a foreign sales corporation for the tax year and files Form 1120-FSC. (Be careful—this exception does not apply to foreign-owned U.S. DEs)
• If you’re filing as a foreign corporation which doesn’t have a permanent establishment in the United States under an income tax treaty and you file the proper paperwork (Form 8833).
• If the foreign corporation has a gross income exemption under section 883 and has fully complied with the reporting requirements of sections 883 and 887.

Those aren’t the only exceptions — just a few common ones. Because of all the stipulations and nuances with international business taxes, you’ll definitely get the best results if you leave filing this form to a professional and let us handle your expat taxes for you.

How to file Form 5472

For your tax Form 5472 filing, you’d fill it out like normal and then include it on your corporation’s yearly tax return. You can make this process easier by having one of our seasoned tax advisors handle it for you.

Need help filing Form 5472? H&R Block is here for you

Ready to file your expat taxes? Start with H&R Block today and we’ll make sure your taxes are done right. No matter where in the world you are, we’ve got a tax solution for you — whether you want to DIY your expat taxes or file with help from an advisor.

The post Form 5472 for Foreign-Owned U.S. Corporations appeared first on H&R Block®.

Already know you need some help with this form? We’ve got a tax solution for you — whether you want to DIY your expat taxes or leave it to one of our experienced Tax Advisors. Head on over to our Ways to File page to choose your journey and get started.

What is Form 8938?

Officially called your Statement of Specified Foreign Financial Assets, Form 8938 one of the forms expats use to tell the IRS about financial assets they hold abroad.

When living and working abroad, it’s common for Americans to acquire different types of foreign financial assets — having a foreign pension plan or shares of a foreign company, for example. Well, as a U.S. taxpayer, you’re required to report those foreign assets in your yearly taxes and filing Form 8938 is one way for you to do it.

The biggest things you should know about Form 8938 are:

1. Not every expat needs to fill it out—it depends on the types of assets you have and how much they’re valued as
2. There’s a hefty fine if you’re supposed to file one and you don’t
3. There is a difference between Form 8938 and the FBAR/FinCEN Form 114

Who needs to file?

To get into the nitty gritty of it, if you’re a U.S. taxpayer who lives outside of the U.S. and holds a total combined value of foreign assets worth more than $300,000 at any time during the year (or $200,000 on the last day of the year) you need to report it on Form 8938. If you’re filing a joint return, the thresholds are $600,000 at any time during the year or $400,000 on the last day of the year.

If you live in the U.S. and have qualifying assets (including any bank, investment, and retirement accounts) maintained outside of the U.S., pay attention to when the tax year starts and stops – because it can be different. Of course, in the U.S. it’s 1/1 to 12/31, but that’s not the case everywhere U.S. as well as foreign stock, interest in a foreign entity and any foreign financial instrument) the thresholds are lower.

What happens if you forget to file?

If you’re supposed to file Form 8938 and you don’t you may be slapped with a fine of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). On top of that, the IRS says that “underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial underpayment penalty of 40%.”

Moral of the story: When it comes to taxes, it’s better to be safe than sorry. If you’re unsure about which forms to file, enlist the guidance of an expert tax advisor (like the ones here at H&R Block).

What’s the difference between Form 8938 and FBAR/FinCEN 114?

While similar, Form 8938 is different than an FBAR, and you may have to file both. See the chart below to learn the main differences, or dive a little deeper with the IRS.

What gets reported on Form 8938?

It can be confusing to understand what actually gets reported. Here’s what does and doesn’t need to be reported on Form 8938 :

Get help with Form 8938 instructions from the experts at H&R Block

Confused? We don’t blame you, and the Form 8938 instructions are a bit tough to understand. But relax, we live for this stuff, and we’re here to help. Ready to file? Get started with H&R Block’s Expat Tax Services today.

The post IRS Form 8938 appeared first on H&R Block®.

Who should file Form 1040-NR?

If you’re a nonresident alien, you will need to file tax form 1040-NR if you work in the United States or have U.S. sourced income, such as income from a rental property.

Additionally, you may need to file Form 1040-NR if you received wages that are subject to income tax. This includes a taxable scholarship or fellowship grant.

It’s important for nonresident aliens to comply with U.S. tax laws due to visa requirements. However, there’s another reason to file annually — getting a refund. As a nonresident alien, filing your return with Form 1040-NR is the only way to receive a refund if you’ve overpaid your U.S. taxes.

What goes on tax Form 1040-NR?

Like other tax forms, IRS Form 1040NR will record your personal information, such as your name and address. It will also require an identifying number. If you qualify, you should enter your Social Security number (SSN). If you don’t qualify for a SSN, you should use an Individual Taxpayer Identification Number (ITIN).

As mentioned above, you’ll use the 1040-NR to report your U.S.-sourced income if you’re a nonresident alien. Along with wages, salaries or tips, you may also use Form 1040-NR to report the following types of income:

• Ordinary and qualified dividends
• Scholarship and fellowship grants
• Capital gains or losses
• IRA, pension or annuity income
• Real estate or farm income

As a nonresident alien, if you have income earned outside of the U.S, you won’t need to report it to the IRS on Form 1040-NR.

Tax help with Form 1040-NR

Filing IRS Form 1040-NR and navigating U.S. tax matters as a nonresident alien can be complex, especially for individuals unfamiliar with IRS rules and requirements.

Fortunately, H&R Block can help. No matter where in the world you are, we’ve got a tax solution for you—whether you want to DIY your expat taxes or file with help from an advisor.

The post What is Form 1040-NR? appeared first on H&R Block®.

The Foreign Account Tax Compliance Act is an effort by the U.S. government to ensure U.S. taxpayers are declaring all of their worldwide income. Unlike most nations, U.S. taxes are based on citizenship and U.S. tax residency (green card holders), even if a person is living outside the U.S. Form 8938 was created through FATCA and requires reporting of all non-U.S. accounts and assets. This list is all encompassing and includes foreign bank, deposit, investment, retirement accounts, interests in foreign entities, and so on. The FATCA reporting form also requires foreign financial institutions to report their U.S. account holders’ information to the U.S. government.

The post FATCA Form appeared first on H&R Block®.

Worried about double taxation as a U.S. expat? Tax Form 8833 is here to save the day. Paying taxes twice on the same income is a concern most U.S. citizens have if they earn income abroad.

Luckily, the U.S. has entered into tax treaties with many countries to help alleviate that concern. Tax Form 8833 is how you’d claim and report certain U.S. income tax treaty benefits, which can include anything from lower tax rates to full tax exemptions on certain types of income and pensions.

Read on to learn more about this form and how to claim these benefits in your yearly tax filing. Ready to file Form 8833? No matter where in the world you are, we’ve got a tax solution for you. Get started with our made-for-expats online expat tax services today!

What is the purpose tax Form 8833?

Each country has its own tax system, laws, and income categories, which can create a headache for U.S. citizens trying to file U.S. expat taxes. Tax treaties between countries serve to clarify or erase any confusion over benefits. Most U.S. tax treaties have specific provisions for Americans who live and work within that country’s borders.

Take the U.K., for example. The U.S./U.K. Tax Treaty has special provisions for U.S. citizens living in the U.K., including double-taxation prevention for capital gains and income taxes, a provision for pensions, and a provision that the two countries can share tax information about their residents. There is a similar treaty in place between the U.S. and Canada, and many other countries.

Form 8833, the Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) is the form you’d file if you wanted to claim certain tax treaty benefits specific to your country of residence. It provides an explanation to the IRS as to why certain income is receiving beneficial treatment because of the treaty.

There are consequences to not filing this form when you’re supposed to—you can be fined up to $1,000 for each year you failed to report your treaty position.

How do I claim tax treaty benefits using IRS Form 8833?

How do you fill out Form 8833? Before you file this form, make sure you need to—the majority of treaty benefits in fact do not require the filing of form 8833. For example, you don’t have to file if the treaty reduces or modifies the taxation of employment income, pensions, annuities, social security, and other public pensions, as well as income derived by artists, athletes, students, trainees, or teachers. Form 8833 is used in other situations, such as declaring tax treaty-based residency which allows a U.S. tax resident to file a U.S. nonresident tax return.

If you do need to file it, you also need to include a statement summarizing your situation. This summary trips up many expats as you must be extremely detailed in this summary and include the following information on the form:

1. Your country of tax residence
2. When you first entered that country
3. Your current residency status
4. The purpose of your visit (for example; contractor, spouse, student)
5. The article of the treaty you are using
6. The type and amount of income that is exempt from taxes, based on the tax treaty

Here’s a Form 8833 example statement:

I am a citizen of the United States and a resident of the United Kingdom. I temporarily performed services for my UK employer for 10 days in the United States and was taxed on this portion of income by the United Kingdom.

Under IRS Code 862, income received for services performed in the U.S. is considered U.S. source income and thus taxable to U.S. citizens. However, Article 24 of the United States-United Kingdom treaty allows such income to be resourced as U.K. source income which deems the U.K. income tax paid on the income as eligible for the foreign tax credit as necessary to alleviate double taxation.

You’ll likely have to consult with an advisor on if you need to file Form 8833. That’s why it’s in your best interest to let a professional handle the details for you. If you work with H&R Block’s Expat Tax Services you can simplify your process by letting our experts take care of the finer details.

Need help filing Tax Form 8833? Trust the experts at H&R Block

Confused about whether you need to file Form 8833 or not? Let our experts help you out. No matter where in the world you are, we’ve got a tax solution for you. Get started with our made-for-expats online expat tax services today!

The post Form 8833 appeared first on H&R Block®.

Because this form is so important to expats, we broke it down to help you understand what it’s for, how to file it, and considerations you should think about before filing.

Want to skip ahead to filing? Start with H&R Block today and we’ll make sure your taxes are done right. No matter where in the world you are, we’ve got a tax solution for you — whether you want to DIY your expat taxes or file with help from an advisor.

What is IRS Form 1116?

What’s the purpose of Form 1116? The IRS states you should file Form 1116 to claim the foreign tax credit if you are an individual, estate or trust, and you paid or accrued certain foreign taxes to a foreign country or U.S. possession.

Basically, many Americans living and working abroad have found themselves in the same dilemma: They’re required to pay taxes not only to the U.S., but also their new host country. To lower the tax burden and avoid double-taxation, the U.S. government gives these citizens a few credits, exclusions, and deductions they can use:

Options Americans overseas have for avoiding double taxation

To avoid double taxation as an American living abroad, you have a few tax-reducing or offsetting choices when filing:

• Deduct your foreign taxes on Schedule A, like other common deductions.
• Use Form 1116 to claim the Foreign Tax Credit (FTC) and deduct the taxes you paid to another country from what you owe to the IRS.
• Use Form 2555 to claim the Foreign Earned-Income Exclusion (FEIE), which, if you qualify, lets you exclude some or all of your foreign-earned income from your U.S. taxes.

Big factors U.S. expats should consider when choosing between the FEIE or the FTC include:

• Your income type and source
• Your housing expenses
• Your future plans for life and work abroad
• Your dependents and their U.S. citizen status
• Whether you pass the Bona Fide Residency test or the Physical Presence Test
• Your current country of residence and its local tax laws
• Your foreign tax liability to your country of residence

It is possible to use the credit and the exclusion together to get the best outcome. Leave it to one of our Tax Advisors to do a deep dive into your information and figure out which option would be best for you.

Who files tax form 1116? Requirements to qualify for the Foreign Tax Credit

Common questions we get are “do I need to file Form 1116?” and “what are the requirements to file Form 1116?”

Firstly, no, you don’t need to file Form 1116 every year — not doing so doesn’t lead to penalties, you just miss out on the benefit of getting a tax credit. Whether you should file depends on your situation.

Secondly, the IRS sets limitations on who qualifies for the FTC. You’re eligible if you are an individual, estate, or trust, and you paid or accrued certain foreign taxes to a foreign country or U.S. possession.

Before completing Form 1116 on your taxes, you must meet the four following criteria:

• The tax must have been imposed on you.
• You must have paid or accrued the tax.
• The tax must be a legal and actual foreign tax liability.
• The tax must be an income tax (or a tax in lieu of an income tax).

You can’t choose to pay foreign taxes and then claim the FTC — you must have been legally obligated to pay.

How the Foreign Tax Credit is calculated on tax form 1116

Each case is different, but in general, to calculate your foreign tax credit for individuals, you’ll take your foreign sourced taxable income divided by your total taxable income before exemptions. Then you’ll take that number, multiply it by your total U.S. tax obligation, and you’ll generally get your available foreign tax credit.

As an added perk, you can use the difference between foreign taxes paid and your FTC as a carryover credit to apply to the next year’s taxes.

Form 1116 Foreign Tax Credit examples (including the Foreign Tax Credit carryover and Income Thresholds)

Calculating your allowable amount can be difficult, so let’s go through two Form 1116 examples:

Let’s say you’re an American who moved to Japan for a teaching job. You have a Japanese income of $50,000 and paid $20,500 in taxes to the Japanese government. You also have $10,000 of ordinary U.S. trust income. In the end, you have a U.S. tax liability of $13,200.

To calculate your Foreign Tax Credit amount, you’d take:

$50,000 (Foreign sourced taxable income)

Divided by

$60,000 (your total taxable income)

= .83

You’d then take that result (.83) and multiply it by your U.S. tax liability ($13,200) = $11,000

So, in this example, you could receive up to an $11,000 credit on your U.S. taxes.

What if you don’t use your entire credit? The good news is you can carry over the difference between $20,500 (Japanese taxes paid) and $11,000 (your allowable foreign tax credit), and you can carry that over for up to 10 years. In this case, your carryover amount would be $9,500.

Here’s an example of how the tax credit carryover would work in practice:

Say you’ve left Japan, and now have teaching job in UAE. In UAE there’s no income tax. So, say you earned the same income of $50,000, and another $10,000 in trust. At the end of the tax year, you still owe $13,200 in U.S. taxes. This time you wouldn’t even have to recalculate—your allowable FTC would be $11,000 and you can use that $9,500 carryover credit to lower your U.S. tax obligation to $3,700.

Not fond of heavy math or computation worksheets? It may be best for you to file with a Tax Advisor and let them do the hard work for you.

Form 1116 vs Form 2555

Many expats ask us if they should file Form 1116 or if they should file Form 2555 to claim the Foreign Earned Income Exclusion instead. They both work to prevent double-taxation on income earned abroad, but the FEIE deducts your foreign income from your yearly tax filing and the FTC lets you claim a dollar-for-dollar credit on taxes already paid to a host country. While we wish we could give you a black and white answer of which is best for you, it’s not as simple as that—it will depend on a variety of factors, including (but not limited to) your:

• Income
• Housing situation
• Dependents and current life status
• Country of residence’s tax laws
• Qualifications
• Future plans

It’s possible to use the credit and the exclusion together to get the best outcome, and our Tax Advisors always do a deep dive into your information to figure out which option would be best for you.

What to know about filing Form 1116

First, you need to make sure you qualify. If you do, then you’ll need to make sure you’ve converted the amount of tax you paid into U.S. dollars. Then, you’ll classify your income into categories:

• General: For earned income such as wages and salaries.
• Passive: For investment income such as interest, capital gains, and dividends.

General and passive tax credits are calculated separately, as are the credits from the other categories. Any unused credits first carry back to the prior year and then carry forward for ten years to offset U.S. taxes on that category of foreign sourced income. You should note that you cannot apply carryover credits from one category to another. For example, you can’t use carryover credits from wages on capital gains.

Foreign Tax Credit rules put limitations to what foreign taxes can be included. The following taxes can’t be offset with the FTC:

• Taxes paid to a country designated as supporting international terrorism
• Taxes on excluded income (such as the foreign earned income exclusion)
• Taxes for which you can only take an itemized deduction
• Taxes on foreign mineral, oil, and gas income
• Taxes from international boycott operations
• Taxes related to a foreign tax splitting event
• Social security taxes paid or accrued to a foreign country with which the United States has a social security agreement

You can see detailed IRS Form 1116 instructions and IRS Publication 514 on the IRS’ website, or you can just leave it to the experts at H&R Block and let us handle the heavy lifting.

How to file Form 1116

Form 1116 includes four sections:

• Part 1 calculates taxable foreign income
• Part 2 lists taxes paid in both the foreign currency and their equivalent in U.S. dollars
• Part 3 calculates the FTC for the income category
• Part 4 totals all credits from all income categories

H&R Block Expat Tax Services makes it simple to claim the Foreign Tax Credit online. You have the option to file yourself with our made-for-expats DIY tool or get assistance from one of our experienced Expat Tax Advisors.

1. Head over to our Ways to File page and choose to either File with an Advisor or File Yourself.
2. Register online and complete your Tax Organizer. Once you’ve chosen your tax filing method, you will get your estimated price and complete your personal Tax Interview. After you have provided your information, you’ll be provided a checklist of documents to upload for your specific situation, including Form 1116.
3. If you chose to file with an Advisor, we’ll match you with the right one for your specific situation. Once you’ve completed a brief questionnaire and, we will match you with your Advisor. Your personal Tax Advisor will review your documents, prepare your return, and provide a personal consultation if needed.
4. Review, approve, and pay for your tax return. When your tax return is completed, you’ll be asked to review and pay for your return via your secure client account.
5. We file your return with the IRS. Finally, we’ll file your completed return with the IRS. In the rare case of an audit or if the IRS has questions about your return, we’ll help provide answers and support. After filing, your tax return will be stored in your secure online account, where it will be safe and easy to access, whenever you need.

Need help filing Form 1116 for the Foreign Tax Credit? Trust the experts at H&R Block

No matter where in the world you are, we’ve got a tax solution for you — whether you want to be in the driver’s seat with our DIY online expat tax service designed for U.S. citizens abroad or want to let one of our experienced Tax Advisors take the wheel. Head on over to our Ways to File page to choose your journey and get started. Want to learn more? Check out the top 20 things you should know about taxes for expats.

The post Form 1116: Claiming the Foreign Tax Credit appeared first on H&R Block®.