Preparations of U.S. Income taxes

PJT

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Jan 8, 2002
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I?m wondering how my wife and I may be able to file our U.S. and State Income taxes from the D.R. We are maintaining two residences, here and in the states. Because we are rookies in this practice, having recently gone into (semi?) retirement. This past filing season we went back to the states to prepare and file but found it a nuisance and costly to travel in order to meet the April 15 filing deadline, when we prefer to travel in the summer. Yet, it is more of a nuisance not to go on time because all the necessary documents and records we need for tax purposes are mailed to the U.S. residence, we cannot trust them being forwarded to us in the D.R.

Does anyone have any suggestions? How do fellow expats do it? Is there a person or company that specializes in U.S. tax filing from the D.R.? Thanks in advance and Regards, PJT
 

PJT

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Jan 8, 2002
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Taxes

Thanks folks for your replys. GringoCarlos, regarding the June 15 filing, how do you prove to the IRS for the automatic extension.

Regards, PJT
 

GringoCArlos

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Jan 9, 2002
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You only need to prove it if you are audited = don't worry , they already KNOW if you were out of the country.
 
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rafael

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Jan 2, 2002
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A friend of mine has told me that if you are outside the US for more than six months of the year, you do not have to pay Federal Income Tax? He had a business in the DR, and one year was very close to six months and toyed with the idea of staying the entire month of december to qualify.

This sounds incredibly far fetched to me, but if it is true, I am definitely moving down there!I would love to get a nice big fat refund check!
 

Ken

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Jan 1, 2002
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Yes, it is incredibly far fetched. Also untrue. Try it and you will likely be "vacationing" as a guest of the US government.
 

Keith R

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Jan 1, 2002
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Actually...

Rafael,
Your friend was probably refering to the old "181 Rule," whereby in order to be considered as resident outside the US you had to demonstrate that you had been outside the country for at least six months plus one day (181 days) continuously. But that was/is not the only determinant. You must demonstrate, if asked to by IRS, that you actually resided outside the US for that period, vs. were on extended vacation. And it doesn't mean that you are exempted from all tax liability -- no way IRS lets you off that easily! It only entitles you to a US$70,000 exemption for "foreign source" earned income (salary, wages, etc). It does not exempt you from tax on passive income, such as rent collected, interest on savings, dividends, inheretence, trust income, lotto winnings, etc. You may not have to pay tax on these items, but the IRS still requires you to fully document these income streams just to prove that you don't!!! [Take it from someone who had to sweat over such returns for four years.]
Also, keep in mind that if you claim the "foreign source" income exemption, you cannot participate in IRA's, SEP's, SEP-IRA's, Keogh's or 401k's unless you earn more than the $70,000 -- because your contribution to these are based on "earned" income.
Regards,
Keith
 

billshar

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Jan 15, 2002
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I am close to completing my third foreign assignment for a large US corporation. I suggest that anyone who has questions abouts US citizens working abroad should speak to a tax professional.

For general information go to the IRS website at www.irs.gov and search on "International Taxpayer".

A US citizen can qualify for a "911 Exclusion", section 1.911-7(a)(2)(i)(D), in two ways. Bona-fide Residence or Physical Presence.

Bonafide Residence requires you to be out of the US for an entire tax year. Physical Presence requires you to be out for 330 consecutive days of any 365 consecutive.

Physical Presence can be accomplished even if you are on extended vacation. One day back in the US for ANY reason can screw up these determinations. You can also lose a day if you fly over any US territory, such as Virgin Islands or Guam.
 

rafael

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Thanks for the info! I will have to call a tax attorney. If I understand the 181 rule correctly, I think I can qualify for that next year. That is if connecting through MIA to the rest of Latin America doesn't count as entering the states.

I will establish a residence there and it will be my only residence. I could put off traveling to the states for six months to exempt 70k!

Does that mean I can only contribute to 401k after the 70k?
 

billshar

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The "181" rule was changed over 15 tears ago, it is now 330/365 or bonafide residence. Check the IRS web site.

A "911" exclusion does not affect your ability to continue your 401k.
 

Keith R

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Clarification

Hmm, seems I've been guilty of imprecise or poor choice of wording. (1) Yes, the 181 rule was changed long ago -- that's why I refered to it as "the old rule." It seemed to me the only explanation as to why Rafael's friend thought he could wait six months in order to gain tax advantage. (2) it is an exclusion, not an exemption; (3) you can "continue" your 401k or IRA of whatever -- indeed I did throughout my 4 yrs living in the DR -- but I could not "contribute" to them unless I showed "earned" income above the excluded "foreign source" income. As I understood it, if I showed earned income of, say, $80,000, $70,000 of which qualified for the 911 exclusion, I could still contribute $10,000 to my 401k or Keogh.
But really the main point, Rafael, is that you should heed Billshar's advice about consulting a tax professional. I'm not a tax pro, CPA, tax lawyer, etc. My wife is a CPA and a darn good one, but even she insisted that we consult a tax pro with experience in filing returns with 911 exclusions because she was not entirely comfortable doing so based solely on her reading of the IRS literature on the subject.
Best Regards,
Keith
P.S. I may be wrong, but I think that passing through MIA "in transit" (no stop overnight) would not disqualify you. But check with a tax pro to be sure.
 

billshar

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The Inertnal Revenue website gives many easy to understand examples of travel which could cause you to "lose" days. For example, if you left England by boat for Greece and had no stops on the way you would spend 4 days in "no country". That would mean you needed 334 days to qualify for the exclusion.

My 401k contributions are unchanged regardless of what I earn.

Also, the correct term is foreign "earned" income. The source of the income can be in the US. My employer even separates the vacation I earn while on foreign assignment. Any foreign earned vacation remaining at the end of my assignment is paid out.