The 1040 form is the same for Individual US Expats living abroad as it is for US Citizens or Green Card Holders living in the United States. Every US citizen is bound to file US Tax Returns if they earn equal to or above a certain limit. Below the threshold, taxpayers are not required to report tax returns. Thresholds are based upon Filing Status for US Citizens.
United States of America is the only country in the entire world where it requires its citizens to report worldwide income. Incapable of doing so will account the taxpayers with hefty penalties.
Some additional forms are required for US citizens living abroad to be filed to determine the income and assets they hold abroad.
One of the forms is FinCEN Form 114, otherwise known as FBAR that requires Expats to disclose maximum balances of foreign bank and investment accounts including foreign branches of US financial firms that exceed $10,000 threshold at any time during the year.
The other is Form 8938 (FATCA), that requires foreign taxpayers to disclose foreign financial assets valued at more than a certain limit depending on filing status of the taxpayers.
Exemptions for Expats
The US has tax treaties with more than 65 countries that prevent expats from Dual Taxation. The IRS has introduced some tax exemptions that expats can claim when they file their US returns, such as the Foreign Earned Income Exclusion and Foreign Tax Credits. These exemptions can be taken upon eligibility that each requires. Few countries with United States Income Tax Treaties are Australia, Bangladesh, Belgium, Canada, China, France, Germany, India, Japan, Mexico, Pakistan, Spain, United Kingdom and many more.
One sort of exemption allows US Expats from being taxed at two different countries which is known to be Totalization Agreement. This agreement includes Social Security and Medicare Tax.
Who Uses Form 1040
All taxpayers in U.S. and abroad are required to file taxes using Form 1040 or one of its variants and any necessary schedules to report taxable income. To be precise, taxpayers who meet the following requirements must file form 1040:
An additional exclusion can be taken for individuals who are blind or at least aged 65 or both. The exemptions are as follows:
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- Married Individuals (Filing Jointly and Separately):
If the taxpayer at the end of the year 2021, 2022 or 2023 is a married individual and is at least aged 65 or blind can claim an additional $1,350, $1,400 or $1,500 in standard deductions or aged 65 and blind can claim twice of $1,350, $1,400 or $1,500, resulting to a whopping $2,700, $2,800 or $3,000 deduction or a refund.
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- Single and Head of Household:
If the taxpayer at the end of the year 2021, 2022 or 2023 is Single or Head of Household and is at least aged 65 or blind can claim an additional $1,700, $1,750 or $1,850 with standard deductions or aged at least aged 65 and blind can claim twice of $1,700, $1,750 or $1,850, resulting to a deduction or a refund of up to $3,400, $3,500 or $3,700.
Types of 1040 Forms
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- Form 1040:
This form is the standard version of the form the IRS provides for Individual Tax Return filing where taxpayers could report their income, assets, liabilities with standard deduction and other exemptions with additional Schedules for certain purposes.
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- Form 1040-SR:
This is the other variant of the form 1040 where taxpayers aged 65 and above choose to file but are not obligated to do so.
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- Form 1040-NR:
This form is designed for Non-Residents living in the U.S. where they are obligated to disclose worldwide income including assets.
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- Form 1040-V:
This form is a payment voucher used with Form 1040 if you have a balance due with IRS and you are opting for a payment with a check or money order though mail. This form can also be used on the IRS website and paid electronically via credit or debit card.
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- Form 1040-ES:
This form is for the income for which tax was not withheld from income. Individuals with self-employment or any other sort of income where taxes were not paid are required to file Form 1040 ES.
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- Form 1040-X:
This form is used essentially to amend any previous tax return filings that included unintentional misrepresented data or omitted data.
There are other Schedules and Forms (FATCA and FBAR aside) that are sometimes needed to be reported along with 1040 forms but are dependent upon certain circumstances. Form 1040-EZ and Form 1040-A have been fused with Form 1040 saving up time for taxpayers to file those forms separately.
How to file Form 1040 for expats:
If this is your first time or the one from many, its crucial to understand whether you fall under the requirement of filing your taxes. There are certain circumstances where you would qualify to report your income, deduct credits, and apply exclusions.
Following is the process for expats to file IRS Form 1040 on worldwide income:
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- See Table 1.1, if you fall under the threshold, you do not need to file, but above that requires you to file your tax return.
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- Visit the link About Form 1040 to download the Form 1040.
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- Follow 2022 Instruction 1040 to report the fields that apply to you and mail the returns to the Internal Revenue Service’s address that you can find in their official website.
If you are unsure of filing the returns by yourself, hire a professional to support you in your reporting of your tax filing.
Should you file your own taxes or Hire a Professional?
It depends upon the complexity of your foreign earned income and assets abroad. If your income is not as complicated with tremendous amount of data that is needed to be adjusted with additions to other sources of income, it is still better to hire a professional to do the work as they would know more about the tax breaks in the system to help you save money.
It is still advisable to file your Tax Returns for 2021 even if you are not required to do so to claim any refunds and the Recovery Rebate Credit the U.S. government has declared due to the Covid-19 pandemic.
Ultimately the decision is yours to make. But do keep in mind that misrepresentation of data duly reported with Form 1040 could result in hefty Penalties.
Frequently Asked Questions:
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- Do I need an accountant to file my Tax Return if I live outside of U.S.?
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- No. it is not required that an Accountant/CPA or an EA have to file your tax returns. if it is something you can do, you are free to do so.
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- Can I E-file my returns?
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- Yes and No. Yes, if you are living inside the U.S. and No, you cannot E-file if you are living outside the U.S.
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- Does London Consulting Ltd. provide Tax Return Filing services for Individuals?
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- Yes, we do! If your facing problems regarding your tax filing from outside the U.S., we are here to help you with easing your tax burden with Enrolled agents and CFA holders to assist in Tax Return filing complications.
