Frequently Asked Questions...
Although I am a U.S. citizen (see about Green Card Holders below), I have lived most of my life outside the United States. I work outside the United States and have no income from U.S. sources. Do I really have to file a U.S. tax return?
As a U.S. citizen, you are taxed by the United States on a world-wide basis. It doesn't matter that you never even set foot in the United States or have no income from U.S. sources. The United States is one of only two countries in the world that imposes income tax based on citizenship and residency. U.S. income tax filing is triggered by income level and marital status. In general, if you earned more than around U.S. $12,000 from any source around the world in a year, you can expect to have a federal filing obligation (state returns are in general not required unless one has income from the state, e.g. from a rental property in a State). In determining what counts towards income for determining whether one has to file a federal income tax return, you need to factor in 'gross income', e.g. gross rents, gross wages, gross amounts of interest, dividends and capital gains, before applying deductible expenses. You should assume that any and all income is taxable, including foreign government benefits such as unemployment pay, maternity pay, and German Elterngeld. For self-employment income, the filing requirement starts at around US$400 of income, for taxpayers filing separately from their spouses, the filing requirement starts from US$5 of gross income. Children are not exempt from the worldwide filing requirement and children typically have a lower filing threshold, in most cases starting with US$1,100 of 'gross' investment income. They are also subject to the Kiddie Tax Regime which applies the parents' U.S. tax rate to a portion of the child's income.
Green Card Holders (or long-term Permanent Residents) living outside the United States have the same income tax and information filing requirements as U.S. citizens living abroad.
I have never filed a U.S. tax return before and now understand that I should have been filing every year. How do I get in compliance and what are the implications?
To get into compliance, what you need to do is file your missing tax returns, in most cases, for three years back. The IRS has currently a program to facilitate compliance for previous non-filers, called the Streamlined Offshore Foreign Procedure. It requires taxpayers to certify 'non-willfulness' of their past non-filing (one other program was closed in September 2018). Under this procedure, the IRS will accept tax returns for the three most recent prior years for which the filing deadline is past, and all required information forms for the same 3 years, and 6 years of FBARs. They will also waive the usual penalties. This provides relief in that it requires only 3 prior years filings as opposed to the traditional 6 back years of tax returns, and late filing and late payment penalties are waived. As with the Overseas Voluntary Disclosure Procedure (OVDP), the Streamlined Procedure is not a permanent one and is expected to be closed at some point. Therefore, non-compliant U.S. persons are encouraged to take advantage of the Streamlined Offshore Procedure while it is still available.
Does filing a U.S. income tax return mean that I will be paying tax twice, if I live in a foreign country and pay taxes there?
In most cases, the answer is: NO. You will likely not pay tax twice on the same income. This is because of the various double-tax avoidance mechanisms available under the U.S. tax code and Tax Treaties between the United States and foreign countries. To ensure that you receive the most beneficial method of double-tax avoidance, it is important to have your tax return prepare by someone who has the right training and experience. Many tax preparers incorrectly use the foreign earned income exclusion (Form 2555) to exclude foreign income from U.S. taxation but this method is in a lot of cases, not the most beneficial as it limits or prevents the accumulation of foreign tax credits that can be used in the future to offset U.S. tax when income rises. This is especially important for high income taxpayers and those with investments. Using the foreign earned income exclusion also prevents certain taxpayers from claiming certain credits which can generate actual refunds for them.
What are your service fees?
Our fees typically range between Euro 350 and 700 per federal tax return, plus German value added tax (Mehrwertsteuer) if applicable). The fees are based on time spent to complete a return or deliver technical advice, thus the more complex a return is and the more forms required, the higher the fee will be. To have an idea of what our fee for your return or consulting request will be, contact us and provide us some details so that we may give you a more precise quote.
How long will it take for my tax return to be completed by U.S. Tax Solutions?
Our normal turn-around time is 4-5 weeks for a single tax return, from the time we receive complete data. For multiple returns, please allow another one to two weeks, and for complex returns, we may need a few more weeks, depending on how much data needs to be processed. The reason we need this amount of time is that we pay attention to details, and we make sure everything has been considered that needs to be. This way, you will have your peace of mind, and we, another high quality delivery... In general, we prepare returns on a first-come, first-served basis but will expedite returns with balances due, or if a client needs it very quickly due to travel or other reasons. So if you need urgent services, ensure to let us know from the beginning.
Will I receive a confirmation of my tax return from the IRS, such as the German Steuerbescheid?
No. The IRS does not send any confirmations of tax returns to taxpayers. They will only contact you, in writing, if they require further information in order to process your return, if you are due a refund, or if they make changes to your tax return and there is additional tax due. You may request 'transcripts' of your return or account, which will be mailed to your address. Go to the 'taxpayers tools' section of this website to request transcripts if you wish. It will take about 4 weeks for these to arrive by regular mail.
Does U.S. Tax Solutions offer E-filing of tax returns?
Yes, we e-file most U.S. income tax returns, most of the year. Note that the IRS closes its e-file system between November and late January every year, for annual maintenance and updates. During this time, generally tax returns cannot be e-filed, and also certain returns/forms such as prior year amended returns, returns filed under the Streamlined Foreign Offshore Procedure, gift returns, etc., cannot be E-filed.
Does U.S. Tax Solutions Prepare Special IRS Forms?
We prepare most IRS forms. Please enquire about the particular form you need to file and we will assist you accordingly.
How will I receive my refund?
The quickest way to receive your refund is by direct deposit to a checking or savings account, including an individual retirement arrangement. However, you need a U.S. bank account to request direct deposit. If you do not have a U.S. bank account, or do not choose to receive your refund via direct deposit, a check will be mailed to the address you provided on your tax return.
I received a letter from the IRS, what should I do?
Do not panic. It is very rare for our clients to receive a letter from the IRS other than for a refund. When a client receives a letter that is not about a refund, it is usually due to an error on the IRS part or because the taxpayer did not provide us with all their income information. Send us a copy of the letter so that we may check what the issue is and respond to the IRS if necessary.
Do I have rights as a taxpayer?
Yes. Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. Below, you can explore your rights and our obligations to protect them:
Taxpayer Bill of Rights
The Right to Be Informed
The Right to Quality Service
The Right to Pay No More than the Correct Amount of Tax
The Right to Challenge the IRS’s Position and Be Heard
The Right to Appeal an IRS Decision in an Independent Forum
The Right to Finality
The Right to Privacy
The Right to Confidentiality
The Right to Retain Representation
The Right to a Fair and Just Tax System
How long should I keep my tax records for?
Generally, for six years. This includes invoices, receipts, income and bank account statements, contracts and agreements. You can find out specific details by clicking here...
What are the differences between an Enrolled Agent, a CPA, an Attorney, bookkeeper?
An Enrolled Agent is a U.S. Tax Specialist. A CPA does general accounting and auditing and most do not specialize in taxation. A book keeper is someone who keeps track of income and expenses and prepares basic accounting statements, and a Tax Attorney is a lawyer who specializes in tax law.