Income from Foreign Sources -

Many U.S. citizens earn money from foreign sources. But unless it is exempt under federal law, taxpayers sometimes forget that they have to report all such income on their tax return.


As such, some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.


Effective September 1, 2012, taxpayers who are low compliance risks are able to get current with their tax requirements without facing penalties or additional enforcement action. These taxpayers generally have simple tax returns and owe $1,500 or less in tax for any of the covered years.


U.S. citizens are taxed on their income regardless of whether they live inside or outside the United States. The foreign income rule also applies regardless of whether the person receives a Form W-2, Wage and Tax Statement, or Form 1099.


Foreign source income includes earned and unearned income, such as:
• Wages and tips
• Interest
• Dividends
• Capital gains
• Pensions
• Rents
• Royalties
  
But there is some good news. Citizens living outside the United States may be able to exclude up to $95,100 of their 2012 foreign source income if they meet certain requirements. This will increase to $97,600 in 2013.


If you're married and you and your spouse both work abroad and meet either the bona fide residence test or the physical presence test, each of you can choose the foreign earned income exclusion. Together, you can exclude as much as $190,200 for the 2012 tax year.

Caution: The exclusion does not apply to payments made to U.S. government employees or folks in the military living outside the United States.


If you earn income from outside the country, please be sure to meet with us about it. We can advise you on how to address all of the tax implications of this situation. We are your financial partners, and we are here to help. Give us a call today.





Security Tax Services LLC


North Sound                                       South Sound
2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102
Everett, WA 98201                             Federal Way, WA 98003
425.339.2400                                     253.237.0751
fax 425.259.1099                               fax 253.237.0701


www.securitytaxservices.com