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Form 2555:  The maximum foreign earned income exclusion is adjusted annually for inflation. For 2014, the maximum exclusion has increased to $99,200.  You need to file an income tax return to claim the exclusion.

Currency Exchange Rates:

Average.  The 2014 average annual exchange rate published by the IRS is USD 1 = EUR 0.784.

Year-End.  The Treasury Department's 2014 year-end exchange rate for Form 8938 and the FBAR  is USD 1 = EUR 0.822.

Update for Tax Year 2013:

Form 2555:  The maximum foreign earned income exclusion is adjusted annually for inflation. For 2013, the maximum exclusion has increased to $97,600.  You need to file an income tax return to claim the exclusion.

FBAR E-Filing now Mandatory.  Since July 1, 2013, FBAR filers must set up an account with the Treasury Department's BSA website after which they can download the customized FBAR Form 114 to prepare, upload and e-file.  According to the Treasury Department, paper FBARs no longer are accepted.  For joint filers, the non-signing spouse will need to complete and sign a Form 114a authorization before the signing spouse e-files the joint FBAR.

Currency Exchange Rates:

Average.  The average annual exchange rate published by the IRS is USD 1 = EUR 0.783.

Year-End.  The Treasury Department's year-end exchange rate for Form 8938 and the FBAR  is USD 1 = EUR 0.7260.

Net Investment Income Tax or "Double Taxation Rears its Ugly Head".  Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). The NIIT is 3.8% of the smaller of (a) your net investment income or (b) the excess of your modified adjusted gross income over:  $125,000 if married filing separately, $250,000 if married filing jointly or qualifying widow(er), or $200,000 if any other filing status.  As of this posting, foreign tax credits cannot be used to offset this tax!  Time to contact your representatives in Washington to get this fixed.

Tax rate on net capital gain and qualified dividends.
The maximum tax rate of 15% on net capital gain and qualified dividends has in-creased to 20% for some taxpayers.

Samesex marriages. If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage.  This change also can have negative consequences for expats who are married to nonresident alien spouses, forcing them into the generally-unfavorable category of "married filing separately" -- unless the alien spouse wishes to be taxed as an American.

"OBAMACARE" Exchanges Open.  People may be wondering whether expats are required to obtain health coverage under the Affordable Care Act.  Currently, it does not appear that this is the case IF you do not reside in the United States.  

Code Section 5000A sets forth the requirement for all "applicable individuals" to maintain "minimum essential coverage" after 2013.  Subsection 500A(f)(4) applies to individuals residing outside the US and provides that:  Any applicable individual shall be treated as having minimum essential coverage for any month--

(A) if such month occurs during any period described in subparagraph (A) or (B) of section 911(d)(1) which is applicable to the individual, or

(B) if such individual is a bona fide resident of any possession of the United States (as determined under section 937(a)) for such month.

So, the Code links the exception for coverage to meeting either the physical presence test or the bona fide residence test required to claim the foreign earned income exclusion (Form 2555) for the relevant period.  For most long-term expats, this should not be a problem, but some issues may arise with respect to persons on temporary assignment abroad.  Even green card holders living abroad may have to think about the effects on their LPR status of claiming that they satisfy the physical presence test. 

TAX UPDATE FOR TAX YEAR 2012

Form 2555:  The maximum foreign earned income exclusion is adjusted annually for inflation. For 2012, the maximum exclusion has increased to $95,100.  You need to file an income tax return to claim the exclusion.

Currency Exchange Rates: 

Average.  The average annual exchange rate published by the IRS is USD 1 = EUR 0.809. 

Year-End.  The Treasury Department's year-end exchange rate for Form 8938 and the FBAR is USD 1 = EUR 0.7590. 

 SELECTIVE SERVICE REGISTRATION

Even though no one currently is being drafted in the United States, men are required to register with the Selective Service as soon as they reach age 18.  Failure to register, or otherwise comply with the Military Selective Service Act is, upon conviction, punishable by a fine of up to USD 250,000, imprisonment for up to five years or both.  All male United States citizens, regardless of where they live, must register during the thirty days before and after their 18th birthday.  It is possible to register online by visiting the Selective Service Website and clicking on their online registration form.  With few exceptions, male green card holders and aliens residing in the United States must also register.  The registrant will receive an acknowledgment of registration that may need to be produced to receive certain benefits.  The registrant also is required to notify the Selective Service if he moves or changes his nam

THE EXIT TAX TRAP FOR GREEN CARD HOLDERS

The new exit tax under IRC Sections 877 and 877A also applies to long-term permanent residents ("LTRs"). Often, green card holders decide to return to their native countries after they retire, or get stuck there because of health insurance or family reasons. If they do not return to the US within one year, they most likely will have their green cards confiscated at the border. This triggers an involuntary "expatriation" under the tax code. For wealthier taxpayers, this can include having to pay US tax on unrealized gains, or worse, having to pay US taxes on the present value of pension rights, i.e. on pensions that have yet to be paid out and that may never be paid out depending on how long the taxpayer actually lives. Such taxpayers also lose certain treaty benefits. This trap for long-term green card holders cries out for a legislative solution. If we are going to impose an exit tax on long-term permanent residents, then we should adjust the abandonment of status rules under our immigration laws to remove long-term LPRs from involuntary loss of status based on time spent abroad -- as long as they continue to file their US tax returns. Better yet, remove LPRs from the purview of the Exit Tax.


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