[Ladyhawk]

I just found this on a website from a tax lawyer: "If you are a US Citizen you must file a US tax return every year unless your income is less than
$ 9,500 (for 2011 and lower for earlier years) or have self employment-independent contractor net income of more than $ 400 US per year. You are taxable on your world wide income and required to report it regardless of whether you filed a tax return in your country of residence."

But recently Bev said something about the limit being $3700 - sorry I can't find her post because she moved my query to another thread, so I lost it.

So what is the maximum income you might have that would exempt you from having to file a US tax return?

Actually this same lawyer recommends filing anyway: "File tax returns for all tax years even if you earning are below the minimum required for filing. This not only causes the 3 year statute of limitations to run out but avoids IRS inquiries in later years about unfiled US tax returns."

My income for 2011 was prettyy much all income from investments, eg dividends, interest, and sales of stock and mutual funds ( I am never buying another mutual fund - the PFIC stuff is too compliacted)

 

[Bevdeforges]

$3700 is the threshold for someone filing as "married, filing separately" - Your threshold for filing varies according to your filing status and your age. (Filing status is single, married, head of household or qualifying widow(er) with a dependent child; the age question relates to whether you have reached age 65 or not.)

The $400 threshold is for those who are considered "self-employed" and who report their income as a function of their business (i.e. as a sole proprietor) on Schedule C and yes, it trumps all the other threshold amounts.

This is all explained in chart form on pages 8 and 9 of the form 1040 instructions: http://www.irs.gov/pub/irs-pdf/i1040gi.pdf
Cheers,
Bev

 

[Ladyhawk]

$3700 is the threshold for someone filing as "married, filing separately" - Your threshold for filing varies according to your filing status and your age. (Filing status is single, married, head of household or qualifying widow(er) with a dependent child; the age question relates to whether you have reached age 65 or not.)

The $400 threshold is for those who are considered "self-employed" and who report their income as a function of their business (i.e. as a sole proprietor) on Schedule C and yes, it trumps all the other threshold amounts.

This is all explained in chart form on pages 8 and 9 of the form 1040 instructions: http://www.irs.gov/pub/irs-pdf/i1040gi.pdf
Cheers,
Bev

Thanks Bev, I just found this out on Publication 501 - sorry to waste your time, sometimes it's hard to know where to find this info, although the IRS seems to have a publication about everything. It wasn't hard to find the info.
Cheers,
Bonnie

 

[maz57]

Now I'm really confused! The IRS can't even agree with itself. Several IRS publications say $3700 is the threshold for MFS. But the information sheet last December for overseas filers explicitly says "must file if gross income is equal to or greater than the applicable exemption amount and standard deduction". For me, that adds up to $14350 ($3700 for me, plus $3700 for my NRA wife, plus S.D. of $6950-(over 65).

I'm leaning towards going with the information sheet as it is the most recent figure I can find. In my case since the lions share of my income is Canadian government pension which is exempt from US tax, my gross is well below this threshold. I'll file anyway so I can keep my 8891's current and demonstrate that I don't have to file.

Because I'm below the threshold and don't actually have to file I won't bother with the new invasive 8938 FATCA form even though my assets exceed the $200,000 threshold for that form. They get all that on the FBAR anyway.

Have I got this right? I'd love to hear discussion pro and con.

 

[Bevdeforges]

Now I'm really confused! The IRS can't even agree with itself. Several IRS publications say $3700 is the threshold for MFS. But the information sheet last December for overseas filers explicitly says "must file if gross income is equal to or greater than the applicable exemption amount and standard deduction". For me, that adds up to $14350 ($3700 for me, plus $3700 for my NRA wife, plus S.D. of $6950-(over 65).

You're off in your maths. You can't normally take an exemption for an NRA spouse on a MFS return. It's sometimes possible to take the NRA spouse as a dependent, but for that they must meet all the other requirements for taking a dependent deduction, which includes being a US citizen and/or having a social security number or ITIN. The filing status of MFS is the one exception to the rule about the exemption amount plus the standard deduction - the threshold is $3700 (this year) no matter your age.

I'm leaning towards going with the information sheet as it is the most recent figure I can find. In my case since the lions share of my income is Canadian government pension which is exempt from US tax, my gross is well below this threshold. I'll file anyway so I can keep my 8891's current and demonstrate that I don't have to file.

Check on the Canadian government pension. Some government pensions need to be included in the gross income used to determine whether or not you file. Others don't. (It depends on the tax treaty.)

Because I'm below the threshold and don't actually have to file I won't bother with the new invasive 8938 FATCA form even though my assets exceed the $200,000 threshold for that form. They get all that on the FBAR anyway.

Have I got this right? I'd love to hear discussion pro and con.

I recently did a return for a lady whose income was not sufficient for her to have to file. Digging through the instructions, it turns out that if you don't have to file, you don't need to bother with the FATCA 8938, no matter how much you have in foreign assets. The FBAR (Treasury form) does need to be filed if you meet the requirements for that one. For that reason alone, if my income fell below the threshold amount, I'd forget about filing any income tax returns. If you file one, you have to file everything. Send in the FBAR and be done with it.
Cheers,
Bev

 

[maz57]

Thanks for your reply, Bev.

Re: Taking your NRA spouse as an exemption. I got that from Pub. 54, page 30. Also Pub. 501, page 10.

"You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U.S.tax purposes and is not the dependent of another U.S. taxpayer."

Perhaps there is something else that countermands this that I haven't found yet?

Re: FS 2011-13. If indeed $3700 is the filing threshold for MFS, what was IRS talking about in this information sheet which was supposed to clarify things for USC's living abroad? There was no reference to filing status that I saw. Is it possible they wanted to give non-residents a higher threshold to reduce the number of useless nil balance returns flooding into Austin, TX?

Re: Filing only an FBAR. My concern is that an FBAR without a matching return might raise a red flag.

 

[Bevdeforges]

Re: Taking your NRA spouse as an exemption. I got that from Pub. 54, page 30. Also Pub. 501, page 10.

"You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U.S.tax purposes and is not the dependent of another U.S. taxpayer."

Perhaps there is something else that countermands this that I haven't found yet?

I think you'll find in practice that you need to have either a SS number or an ITIN to claim a NRA spouse as an exemption. Check this page on the IRS website under the caption "Who needs an ITIN?" General ITIN Information

Re: FS 2011-13. If indeed $3700 is the filing threshold for MFS, what was IRS talking about in this information sheet which was supposed to clarify things for USC's living abroad? There was no reference to filing status that I saw. Is it possible they wanted to give non-residents a higher threshold to reduce the number of useless nil balance returns flooding into Austin, TX?

For all filing statuses except MFS, the threshold is, indeed, the sum of the exemptions plus the standard deduction. Pub 54 under the heading "Filing requirements" (p.3) clearly lists $3700 as the threshold for Married filing separately.

Re: Filing only an FBAR. My concern is that an FBAR without a matching return might raise a red flag.

If it makes you feel better, feel free to file. But the FBARs are not filed with the IRS, but with the Treasury Department. (Yeah, I know the IRS is part of the Treasury Department.) But the rules clearly state that you have to file an FBAR if you meet the requirements, even if you don't have to file a tax return. Technically speaking, the IRS is not supposed to match up tax returns to FBARs. Whether they actually do or not is anyone's guess - but if they come back to you to ask why you didn't file, you're within your rights to say that you didn't have income over the threshold amount. As long as you're not hiding anything, it's perfectly legit. But hey, whatever lets you sleep at night.
Cheers,
Bev

 

[maz57]

Re: Claiming exemption for NRA spouse.

The backfiled returns I did for 2008, 2009, and 2010 I did just that. I wrote NRA in the space for spouse's SS# just below my own. After ticking box 3 for married filing separately, I wrote NRA-no US income. I then ticked boxes 6a and 6b. My returns apparently were accepted as filed; I received that check last October. So either they missed it or they were OK with it.

Interestingly, the ITIN information page you linked (thank you) says "Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception." But there is no discussion of exceptions. She's obviously negative on both counts. Beats me. By the way, I think I got the NRA idea from one of your informative posts. Must be one of those magic phrases that bureaucrats just seem to love. Oh well, I'm assuming no news is good news!

 

[Bevdeforges]

Re: Claiming exemption for NRA spouse.

The backfiled returns I did for 2008, 2009, and 2010 I did just that. I wrote NRA in the space for spouse's SS# just below my own. After ticking box 3 for married filing separately, I wrote NRA-no US income. I then ticked boxes 6a and 6b. My returns apparently were accepted as filed; I received that check last October. So either they missed it or they were OK with it.

Interestingly, the ITIN information page you linked (thank you) says "Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception." But there is no discussion of exceptions. She's obviously negative on both counts. Beats me. By the way, I think I got the NRA idea from one of your informative posts. Must be one of those magic phrases that bureaucrats just seem to love. Oh well, I'm assuming no news is good news!

Generally you'll find that the IRS will accept almost anything that makes no difference in the amount of tax owed. They've seen all the variations - but in the end it comes down to whether or not doing something "out of the ordinary" allows someone to get out of paying some tax that is due.

To audit a return, they need to be assured of a certain return (in the form of $x of additional payments). Obviously, in your case, it really didn't make a difference - though they have something like 4 years after filing to change their minds.
Cheers,
Bev

 

[maz57]

Thank you once again Bev for your practical, experienced expertise with overseas filers. Slowly but surely I think I'm getting the hang of it. Being retired, at least I've got the time to educate myself and bring myself into compliance. I've got another question but I think I'll start another thread just to keep things orderly.