Tax Tips for the American Abroad

International Living Postcards--your daily escape

Wednesday, March 1, 2006
Paris, France

Dear International Living Reader,

Richard Leonard retired from the U.S. government after serving as an IRS agent for 28 years. He served overseas as an IRS agent for eight years (in France, Canada, and Senegal) and was in private practice in Ireland for six months. He currently lives and works in Bangkok, Thailand…and in the March print issue of International Living, he gives you his top tax tips for the American abroad:

"Maintain a U.S. bank account. More often than not, it is wise to maintain a checking account in the U.S. if for no other reason than convenience. Unless you are severing all ties with the U.S., you will have some need to write U.S. dollar checks or make on-line electronic bank transfers while overseas. The funds would also be available to you either through wire transfers to a foreign bank account or an ATM card.

"If you expect money back from the IRS or a U.S. state, you need a U.S. bank account for the direct deposit of the refunds. Nowadays, refunds are deposited more quickly in a bank account than by means of paper checks. And if you electronically file your returns, your refunds are often deposited into your bank account within a few weeks.

"In limited circumstances, foreign countries do not tax certain kinds of income unless the funds are actually transferred to that country. Maintaining one or more accounts elsewhere would, therefore, work as a tax savings device as well as a convenience.

"Keep track of foreign exchange rates on the dates you receive your income and pay bills that may be tax deductible. You are required to report all income and expenses on your U.S. tax returns using a reasonable exchange rate for the income and expenses paid in a foreign currency. At year end, you should have access to the average annual exchange rate for your country of residence. If you can, you should do the math to see whether the daily exchange rates or the average annual exchange rate will result in lower U.S. taxes. Remember to be consistent--use one method for all income and expenses for the year. The exchange rates are equally important if you claim a foreign tax credit either in lieu of the foreign earned income exclusion or in combination with the exclusion.

"File an extension request. As a precaution, send the new IRS Form 4868 request in (before April 17, 2006), for the automatic six-month filing extension to Oct. 16, 2006. Better if you or your tax advisor can file your details electronically, especially if you live in an area with postal services subject to long delivery delays to the U.S. A paper filing of the form is sufficient as long as you mail it in plenty of time. Early filing of a state tax return extension request, if applicable, is equally advisable. (Note: For 2006, because April 15 and Oct. 15 fall on a weekend, the above slightly extended deadlines apply.)"

Whether you are just toying with the idea of moving abroad or you're already there and feeling the breath of the next filing deadline on your neck, the rest of this article (available right now to International Living subscribers) will prove invaluable--just in time to save you a few headaches this coming tax season.

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Publisher, International Living

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