All Posts in "US tax"

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We used to do our own taxes on paper. But when the children were born, we found that we might have extra deductions and were confused about them. That’s when we decided to buy TurboTax to help with our tax preparation. However, after a couple years, we switched to H&R Block’s TaxCut because it was cheaper. We found no difference in the quality of the software. After many years of doing our taxes via software, and filing electronically in the last couple years, it seems we have forgotten many basics about tax preparation. And what we have just realised is that using tax software was completely unnecessary.

We’ve made our mistake and I worry that we will have some difficulty in rectifying it. It was easy to go along with all the hype that TurboTax and TaxCut want you to believe – that you might be doing your taxes wrong, you might be missing out on deductions, etc. They will help you through all the new legislation, blah, blah, blah. All you have to do is punch in the numbers and data they ask for and they do all the work. In later years, you can import data from the last return. They made it so easy. But then I realise I had done our taxes by hand previously. Yet, when I look back at the paper files we had, I find that I cannot understand how we did it back then. This year, we may have to go back to paper filing and I find the task almost daunting as we have been pampered in the last several years.

Yes, there may be many advantages to using tax software. For example, it is true that they update their software (even while you’re using it) to encompass any new tax legislation that come out during the tax year. And, some even offer tax help or advice via phone or email. Both TurboTax and TaxCut have different versions, with different levels of service from Basic to Premium. We were fooled into getting Premium one year, but found it was unnecessary and have stuck with Basic since. All that nonsense about getting the DeductionPro as an added benefit to either program is a waste for most people. We recently found TaxCut also has a Standard, which is cheaper than Basic. I do not have all the details but I believe it may be because the DeductionPro is not included. Do you need DeductionPro? As I said, for most people, no. To determine if you do, find out what your standard deduction is for the tax year. If you think that your gifts, donations and contributions to charities, etc., for the tax year exceeds the standard deduction, then you will want DeductionPro. This program allows you to itemise all your deductions to maximise on your refund.

In preparing for the tax season this year, we also found some free online software. One is available through H&R Block. However, in order to use it, you must answer all questions in sequential order according to what they want. Although they claim they can use your international address, the software did not accept our responses. We had to put in fake details in order to get through the program and see what our refund would be. It’s a nice way to get a preliminary. There may be others like this out there but we have not explored all of them yet. We also came onto the IRS website and found that they have two free online options. One is free software, which you need to download from one of several companies. This option is only available to those who made less than $56,000. The other option is essentially a blank IRS form which you can go through and fill in, then file electronically. This is sort of a ‘help-yourself’ option as it only offers help by having you scroll through the instructions. If we are unable to find a software that can support our international address, we will be forced to use this option. We would rather file electronically as the refund gets deposited into our account directly and quickly. Paper filing would mean they would have to cut us a check, mail it to our international address, then we’d have to mail it back to our bank.

Of course, to even complete the task of filing, I will need to dig into our boxes and find our last year’s return. That will be a task unto itself.

Yank by — February 27, 2009 in Money 0

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Tax time again. Just got my W-2s, so I’ll have to get down to filing that return. Unfortunately, I’ve already run into some obstacles. The first is that we now have an international address and that may cause problems. And until we resolve those issues, we cannot file.

Yes, even though we’ve moved out of the country, we still have to file taxes. Our reason is obvious, though. We are expecting a refund. However, even if we weren’t, they recommend that we do. This is to ensure that we will be able to claim deductions in the future. Apparently, expatriates are not aware of that. However, their website does state that those expatriates who want to make up for the past should download the last 3 years of tax forms and start filing. There are no deadlines and they will not be fined. In addition, the filing deadline each year for those living abroad is automatically extended until June 16th. Nevertheless, if you owe money, it needs to be sent by April 15th. If you cannot file by June 16th, you must submit a request for extension by that date, in order to extend the deadline until October 15th. They will accept whatever date is postmarked on the envelope as the filing date.

Expatriates need to also be aware that if they live and work outside the US, their income may be liable to taxation from both the US and the foreign country. The current level of income that is excluded from US taxation is now at $85,700. Anything above that would be liable for US taxes. However, when you file, you may be able to claim foreign tax credit – that is, you may be able to deduct the taxes that you paid towards the foreign government. For more information, you should contact a tax advisor at the US embassy.

I think the real killer in this taxing business is the exchange rate. It is not based on the current exchange at all, but on the rate in 2007. For example, the UK exchange rate is currently at $2.0018 per pound sterling. That means, if I earned 40K in the UK it equals a little over 80K in the US, rather than closer to 60K, at the current exchange rate. Only a few more grand and I would be liable to double taxation. Fortunately, or unfortunately, I am currently unemployed.

Some people may be confused about which forms to fill out for filing their taxes. The simple rule is to assume your status in the US prior to living abroad. That is, if you are a US citizen or if you had been a resident alien, you should file Form 1040. If you were and are a US nonresident alien, then you use Form 1040NR. Nonresident status only applies to those who were not given full residential rights, such as temporary students.[ad#ad-1]

Finally, if you choose to file your taxes on paper (we have not done this in years), you may either turn it into the US Embassy in London, Paris, or Frankfurt (depending on where you live), or you may send it to Austin, Texas. And, if you have any questions, the US Embassy may be able to answer them. Or, if you were as lucky as I was, you will get a message stating they are understaffed and you may not have your call answered. They will instead direct you to call their Philadelphia office. I wonder what their walk-in service would be like.

Yank by — February 25, 2009 in Money 1