Taxes

[orriskitten]

DH and I are starting to talk filing taxes. We spent 6 months in the US and 6 months in iceland. I think it'll be slightly complicated because of that (but what do I know?)

Do any of you have a company/person you use that is good with recent ex-pats?

DH is thinking of doing it on his own. Is this crazy to attempt?

Help me out cause I don't know anything!

[elenetxu]

I have been happy with Greenback Tax Services. They are the reasonably priced people that I feel like they actually know what they are doing when dealing with expats.

Good luck!

[origami]

We use KPMG but DH's employer does our taxes so I don't know if they handle individual clients.

When you say "on his own" do you mean by hand? Because that gets a big fat no. If you mean using some kind of software like Turbo Tax, assuming that can handle foreign income, then yeah I'd probably try that before hiring an accountant. It's free online until you file so it can't hurt. But I'd only do that if your income is not way over the foreign exclusion or complicated in some other way. If you're getting a housing allowance and all that then nope go straight to an accountant. First question I would want to ask is if it's better for you to change your tax year so that you can get the foreign earned income exclusion. We moved in July of this year and KPMG is getting us off the calendar year basis b/c of this.

[orriskitten]

Jan 5, 2015 6:07:59 GMT -5 origami said:

We use KPMG but DH's employer does our taxes so I don't know if they handle individual clients.

When you say "on his own" do you mean by hand? Because that gets a big fat no. If you mean using some kind of software like Turbo Tax, assuming that can handle foreign income, then yeah I'd probably try that before hiring an accountant. It's free online until you file so it can't hurt. But I'd only do that if your income is not way over the foreign exclusion or complicated in some other way. If you're getting a housing allowance and all that then nope go straight to an accountant. First question I would want to ask is if it's better for you to change your tax year so that you can get the foreign earned income exclusion. We moved in July of this year and KPMG is getting us off the calendar year basis b/c of this.

It's confusing because DH is now an independent contractor for his old company. He is still paid in USD.

We have no income allowances and the move was on us.

Dumb question, what is a foreign exclusion? Again, I know nothing about any of this stuff.

[lolo]

Jan 5, 2015 8:22:32 GMT -5 orriskitten said:

Jan 5, 2015 6:07:59 GMT -5 origami said:

We use KPMG but DH's employer does our taxes so I don't know if they handle individual clients.

When you say "on his own" do you mean by hand? Because that gets a big fat no. If you mean using some kind of software like Turbo Tax, assuming that can handle foreign income, then yeah I'd probably try that before hiring an accountant. It's free online until you file so it can't hurt. But I'd only do that if your income is not way over the foreign exclusion or complicated in some other way. If you're getting a housing allowance and all that then nope go straight to an accountant. First question I would want to ask is if it's better for you to change your tax year so that you can get the foreign earned income exclusion. We moved in July of this year and KPMG is getting us off the calendar year basis b/c of this.

It's confusing because DH is now an independent contractor for his old company. He is still paid in USD.

We have no income allowances and the move was on us.

Dumb question, what is a foreign exclusion? Again, I know nothing about any of this stuff.

Foreign earned income up to a certain threshold is exempt from US taxes.

[rupertpenny]

Do you know any other US citizens living in Iceland? I'd ask them what they do. If you know any accountants/tax attorneys who are Americans living in Iceland or Icelanders living in America they could be helpful.

The foreign earned income exclusion means roughly means that you don't have to pay any US taxes on income earned outside of the US up to 90ish thousand per person. Since your H is paid in USD he might not count as foreign earned income though. Is his employer an American company? Is he a 1099 employee? If the answers are yes I would assume he could mostly do the same thing he would do in the US and be covered as far as US taxes go (I am not an expert though). In that situation I would be more worried about his compliance with Icelandic taxes.

[rupertpenny]

Wait, is your H even a US citizen? He is the Icelander in your relationship, right? If he is not a US citizen (or green card holder I think) that has completely different consequences I think.

[origami]

Jan 5, 2015 12:21:23 GMT -5 rupertpenny said:

Do you know any other US citizens living in Iceland? I'd ask them what they do. If you know any accountants/tax attorneys who are Americans living in Iceland or Icelanders living in America they could be helpful.

The foreign earned income exclusion means roughly means that you don't have to pay any US taxes on income earned outside of the US up to 90ish thousand per person. Since your H is paid in USD he might not count as foreign earned income though. Is his employer an American company? Is he a 1099 employee? If the answers are yes I would assume he could mostly do the same thing he would do in the US and be covered as far as US taxes go (I am not an expert though). In that situation I would be more worried about his compliance with Icelandic taxes.

that's a good question so I looked it up. Foreign income means income paid for foreign work. It doesn't matter where or how you're paid, the fact that your work is not in the US is what matters so it qualifies as foreign income.

www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---What-is-Foreign-Earned-Income

[origami]

ETA: I'm not an accountant so take what I say with a grain of salt. I don't think you're allowed to exclude your foreign income yet because you haven't lived abroad long enough.

www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion-Can-I-Claim-the-Exclusion-or-Deduction

www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion

I'm not sure this matters to you though because I'm not sure what your tax situation is in Iceland. If you're not at risk of being double taxed then it doesn't matter. If you are then maybe look into changing your tax year, although google says that's difficult and requires IRS approval. Yuck.

The other thing you need to know but may not be aware of is that if you have a foreign bank account with more than $10k (at any point during the year, and that's an aggregate total for all foreign accounts if you have more than one) you may need to file an FBAR form. I believe this is separate from all the income tax filing stuff.

[GilliC]

If you lived in the US for the first half of the year, it can make things a lot more complicated. You could still qualify for the foreign earned income exclusion based on the bonafide resident test, but it can be a little trickier since you have to pro-rate the exclusion. When I first moved overseas, it was in October, and the accountants the company paid didn't have us file until the next October (we filed an extension) because of the presence thing. Part of this I think was because H was a green card holder and not a U.S. citizen, I think?

Subsequent years become MUCH easier and can be done using tax software (I prefer H&R Block over TurboTax, because it was easier to follow along with what the tax people had done the previous years. There are still some hard-to-find features we need, so we keep a document reminding us what goes where.)

My H tried the online version this year, and it choked on his (fairly-straightforward) foreign taxes, and he ended up doing it over with the downloaded software.

I have a friend who uses an accountant who specializes in expats and does meetings by Skype. I'll try to look up the website.

[anna7602]

We just ironed out the tax nightmare that living abroad for six months of 2013 caused us. DH's employer hired E & Y, but it was still a big, freaking mess and required making various payments and then getting reimbursed when our real liability was determined and on and on. We received a letter last week listing the various payments and credits and showing how it all zeroes out now and neither DH nor I understood any of it.

Good luck to you!

[mrsukyankee]

I did it on my own my first year and every year since. It's honestly not THAT bad to do. I filled out the extension form, filled out the tax form, and the foreign exclusion form. It just took a bunch of reading and working through it. As long as you plan on living in Iceland for more than 1 year, it should be fine. If you are leaving soon, then perhaps it would be a good idea to hire someone.

[GilliC]

I asked my friend, and she uses Brass Taxes (based in Brooklyn) and has been happy with them.

For reference, here is a very basic description of how US expat taxes work:
For simplicity, let's make up some numbers. Say you earn $100K, you're in a 25% tax bracket in the US, and you're in a 30% tax bracket in your country of residence. Let's also say the foreign earned income exclusion is $90K (it changes every year).
$100K income * 30% foreign tax means you already owe (or have paid) $30K in foreign taxes.
Now for the US tax return...
$100K income - $90K excluded income (Form 2555) = $10K US-taxable income
$10K * 25% = $2500 US tax owed
Although you've paid $30K in foreign tax, you can't take a credit for the tax on the excluded income. Your taxable income is 10K/100K or 0.1, so you can take a foreign tax credit (Form 1116) for 0.1 * $30K = $3000
In the end, the result is:
$2500 tax - $3000 credit = $0 tax

If you earn less than the exclusion, you can skip the foreign tax credit part and it's even easier (there's even an EZ version of Form 2555 if you qualify).

However, there are some things that complicate it. Passive income (e.g. bank interest) and dividends can make things a bit more confusing. (We have both, and it means filing 4 copies of Form 1116, and - no joke - the instructions require us to write in the margin at the top of the form!)

Also, and super IMPORTANT: if you have more than a certain amount of money in your foreign bank account, you have to file a separate form online to report all your bank account information. This is due later (June, I think) and I don't think it can be extended.

[orriskitten]

Wow thank you all so much for the info! I'm going to send it to DH and we'll figure it out from there.

Good luck, if you need it.

[frlcb]

Jan 8, 2015 7:23:19 GMT -5 GilliC said:

Also, and super IMPORTANT: if you have more than a certain amount of money in your foreign bank account, you have to file a separate form online to report all your bank account information. This is due later (June, I think) and I don't think it can be extended.

This is very important - it is $10k and it is if you had, at ANY point during the year, $10k in any combo of foreign accounts. I don't think it can be extended either.

[GilliC]

neeps I've never bothered with the carry over, since I keep paying Norwegian taxes. What kind of restrictions are there on it? I assume it's still restricted to passive vs general income depending on where it came from? Is it only applicable to taxes owed on the same source (i.e. Foreign income). I couldn't carry over my Notwegian interest tax and take a credit on my US interest the next year, right?