This presentation is for illustrative and general educational purposes only and is not intended to substitute for the advice of a licensed tax professional.
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This presentation is for illustrative and general educational purposes only and is not intended to substitute for the advice of a licensed tax professional.
Disclaimer
20 Must-Knows: US Expats in Colombia
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US EXPATS IN COLOMBIA
WHEN AM I REQUIRED TO FILE US TAXES?
The responsibility of reporting worldwide income is printed in
all U.S. passports. In some cases of delinquent tax debt, a
taxpayer’s passport can be revoked, denied, or limited.
UNITED STATESOF AMERICA
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WHAT’S A U.S CITIZEN?
Both U.S. citizens and U.S. resident aliens (green card holder) are required
to file income taxes.
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2018 x ___ x 1 = ___
2017 x ___ x 1/3 = ___
2016 x ___ x 1/6 = ___
More than 183 days
SUBSTANTIALPRESENCE TEST
The substantial presence test impacts those who are not a citizen or a lawful
permanent resident of the U.S. but meet the 183 day rule.
Considered a Resident Alien in the U.S.A.
31 days in 2018 183 days in 2018 or sum 2018 = Total days2017 = 1/3 of days 2016 = 1/6 of days
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GROSS INCOME
*Not all limits included above.
FILING STATUS AMOUNTS
$400
Single
Head of Household (HOH) $18,000
Married Filing Jointly (MFI) $24,000
Self-employment
$12,000Gross income filing
requirements are extensive and many
change annually.
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Generally, the IRS will only audit tax returns filed within the last 3 years. For unfiled tax returns, there is no statute of limitations. A protective return is a tool used by taxpayers who are not required to file taxes.
This tool prevents audits outside of the last 3 years.
PROTECTIVERETURN
Starts the clock – 3 yearsProtects from future audits or IRS disputesShow no liability
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US EXPATS IN COLOMBIA
WHAT IS MY FILING DEADLINE AND CAN I EXTEND THAT DEADLINE?
In general, April 15th is the filing deadline for anyone required to file a U.S. Individual Income Tax Return.
FILING DEADLINE
April 15th
3 months + 15 days (Fiscal Yr.)Total estimated tax is dueInterest due on unpaid taxExtensions available
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TYPES OF EXTENSIONSThere are four ways to extend the April 15th deadline for U.S. taxpayers living abroad. Three of the four extensions must be requested.
Automatic 2-month (June 15th)Live and work abroad
Out of country (Oct. 15th)File Form 4868 before 2-month deadline
Automatic 6-month (Oct. 15th)File Form 4868
Discretionary 2-month (Dec. 15th)Written request
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If a U.S. taxpayer lives or works abroad, they are granted an automatic extension. A statement explaining this must be included when the tax return is filed.
2-Month Extension Automatic
US citizen or resident alien
Live and work outside USA
What’s required:
Attach statement to returnExplain situation
1.
2.
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Filing IRS Form 4868 is the method we recommend to extend your filing deadline (October 15th). We can file this form electronically on your behalf. We provide this service at no charge for existing clients.
6-Month Extension Automatic
Option 1File form
Option 1File form
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RequestExtension
If you qualify for 2-month Automatic
Request 4 additional months (Oct 15th)
Before new 2-month due date (Jun 15th)
File Form 4868
If you do no request a 6-month extension before the filing deadline
(April 15th), you may request an additional 4-month extension before
June 15th.
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Discretionary 2-month
For taxpayers who are unable to meet the automatic extension deadline, a letter requesting 2 additional months may be sent to the IRS. An explanation must be provided. This method should only be used for unique circumstances.
Out of the countryUnable to meet Oct. 15th deadlineMust send an explanation letterRequest before Oct. 15th Extends deadline to Dec. 15th.
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US EXPATS IN COLOMBIA
HOW DO I AVOID DOUBLE TAXATION?
Foreign Earned Income Exclusion
Earned income only
Services performed in Colombia
Does not exclude SE tax
Residency test
Wages
Self-employment
2018 FEIE is $104,100
FEIE applies to only earned income from wages and self-employment. Generally, the FEIE is the preferred method of avoiding being double taxed. You must meet one of the 2 residency tests discussed on the next slide. However, the FEIE is not automatic. A tax return must be filed in order to exclude the income.
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Residency Test
Bona Fide Residence Test
No calculations involved
Specific facts considered
Resident of Colombia
1 year; uninterrupted
Generally not used in year 1
Preferred method; no travel restrictions
Physical Presence Test
# of days present in Colombia
More than 329 days
12-month period
Calendar year not required
Int’l waters & airspace do notcount
VS
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Housing Exclusion & Deduction
Housing amount exclusion/deduction from gross income
Tax home in a foreign country
Paid for with employer-provided amounts or SE earnings
Meet test – bona fide residence or physi-cal presence
Housing amount = total housing expenses – base housing amount
In addition to the Foreign Earned Income Exclusion, you may also be able to exclude or deduct the expenses related to your housing in Colombia. Calculating the base and limit amounts can be a little tricky.
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Housing Expenses - Allowed
Reasonable expenses for housing
Paid or incurred in a foreign country
For you, your spouse, and your dependents
Rent
Utilities
Insurance
Nonrefundable fees to secure a lease
Parking
Rental of furniture and accessories
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Lavish or extravagant under circumstances
Buying property
Domestic labor (e.g. maids)
Television subscriptions
Value increasing improvements to property (add-ons)
Purchased furniture
No double benefit
Housing Expenses Not Allowed
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Base Housing Amount Calculations
Equation(FEIE) x (16%) ÷ (# of days) = Base Housing Amount
Annual$104,100 x 16% = $16,656
Per day$104,100 x 16% ÷ 365 = $45.63
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(FEIE) x (16%) ÷ (# of days) = Base Housing Amount
Equation
Annual$104,100 x 16% = $16,656
Per day$104,100 x 16% ÷ 365 = $45.63
2017 Limit on Housing Expense
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Foreign Tax Credit
2 separate income categories
Or Carryforward 10 years
Paid or accrued during yearPassive (i.e. dividends)
For taxes paid in Colombia, you may be able to reduce your US tax liability dollar-for-dollar. This credit can be taken when you don’t qualify for the FEIE, if you earn income in excess of the exclusion amount, or on those income types not eligible to be excluded.
Dollar-for-Dollar
Can be used with FEIE
Paid or accrued during year
Carryback one year
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CAUTION! Revoke FEIE Election
If you use FEIE election
Then switch to FTC
Revoke FEIE
Required to wait 5 years to switch back to FEIE.
In some cases, claiming the FTC on all your income may reduce your US taxes morethan FEIE. However, if you used the FEIE in previous years, this choice is generally notallowed without a formal request. The IRS doesn’t want you to ‘flip-flop’ between thetwo elections.
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CONTACT US
Navigating US Income Taxes as an American Expat living in Colombia is never easy. Fortunately, we specialize in just that.
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Carrera 37 #8 - 43 Edificio Rose Street - Oficina 603Medellín - Antioquia, Co.
www.USAtax.co
Contact us today and see how we can make expat life ever better.
