[Kaia]

Hi!
My resolution for the New Year was to get my tax situation with the US straightened out (this year's taxes and back taxes, waaaay back).
The deadline for filing German taxes is May 31. I'm hoping my husband and I can get the paperwork in next weekend. There's no way we'll have an answer back from the German tax department as to what our final taxes for 2011 are by mid June - in time for the US returns from overseas. It may be possible to get an estimate out of the tax software - I'm not sure.
What do I do with my US taxes? Use the estimate if there is one? Make my own estimate based on previous years? Put off the whole business for another year?
Any help or advice would be appreciated.
Thanks,
Kaia

 

[Guest]

Hi!
My resolution for the New Year was to get my tax situation with the US straightened out (this year's taxes and back taxes, waaaay back).
The deadline for filing German taxes is May 31. I'm hoping my husband and I can get the paperwork in next weekend. There's no way we'll have an answer back from the German tax department as to what our final taxes for 2011 are by mid June - in time for the US returns from overseas. It may be possible to get an estimate out of the tax software - I'm not sure.
What do I do with my US taxes? Use the estimate if there is one? Make my own estimate based on previous years? Put off the whole business for another year?
Any help or advice would be appreciated.
Thanks,
Kaia

If you will owe money to the US, just make sure that the money is sent in time (15 June). Also, file form 4868 for a filing extension for the 2011 return which will give you until 15 August to file. No problem.

http://www.irs.gov/pub/irs-pdf/f4868.pdf

 

[expatdiane]

You can file for an extension on Form 4868 that will put you at October 15th to file for US Taxes. It is October, not August. If you have any other questions, just let me know

 

[Bevdeforges]

Why exactly do you need your German taxes in order to do your US taxes?

Don't forget that US taxes are done on a strictly cash basis for individuals. When it comes to any tax credits, you take the credits for taxes you paid in 2011 on your 2011 return. If you wind up getting a refund, then that refund has to be declared as income in the year it is received (that is, if you took a credit or deduction for it on a prior return).

But there's no real reason to wait on your German returns being resolved before filing your US returns.

Details on how to file, however, depend on your precise situation - i.e. are both you and your husband US citizens and thus subject to US filing?
Cheers,
Bev

 

[Kaia]

Thanks

Thanks for the info that the deadline can be extended.

Bev, as I understand it I can apply taxes paid in Germany to the amount owed to the IRS, thus reducing my tax burden (hopefully reducing it to 0). For that, I need to know how much the German government wants from me. Unlike in the US one doesn't know one's actual taxable income and the taxes required on it until the return is processed and notification is sent. (At least, it's always been a surprise to us. I'm sure tax professionals know what the result will be.)
My husband (a German citizen) and I file jointly in Germany. I was planning to file US taxes as "married, filing separately" (i.e. husband not filing at all).
I'm not expecting a refund from the IRS as no taxes have been withheld.

Am I completely off the mark here?
Kaia

 

[Bevdeforges]

Thanks for the info that the deadline can be extended.

Bev, as I understand it I can apply taxes paid in Germany to the amount owed to the IRS, thus reducing my tax burden (hopefully reducing it to 0). For that, I need to know how much the German government wants from me. Unlike in the US one doesn't know one's actual taxable income and the taxes required on it until the return is processed and notification is sent. (At least, it's always been a surprise to us. I'm sure tax professionals know what the result will be.)
My husband (a German citizen) and I file jointly in Germany. I was planning to file US taxes as "married, filing separately" (i.e. husband not filing at all).
I'm not expecting a refund from the IRS as no taxes have been withheld.

Am I completely off the mark here?
Kaia

Yes, but the tax credits are also on a cash basis. You apply the taxes you actually paid in 2011 (whether through withholding from your paycheck or those you paid - probably on your 2010 tax filing) against your tax liability calculated on your US returns for 2011.

Anything you are asked to pay this year (on your 2011 German taxes) then becomes your tax credit on your 2012 US returns - which you won't file until 2013. What matters for US taxes is when the money actually changes hands - even if it was just an estimate.

Assume for simplicity's sake that you take the FEIE for all salary income you earn in Germany in 2011. No tax credit on your US taxes for that, because you took the FEIE. Now, you file your German taxes and it turns out you owe them $500 (or rather the euro equivalent of $500), which you pay in, say, July, 2012.

That $500 is your tax credit against your US income taxes for 2012, which you won't file until early 2013. (And, you can only take it on your US tax return - form 1116 - if the tax paid to the German government was not related to your salaried income.)

In other words, it's the year in which you PAY the tax in Germany which determines when you can take it as a credit on your US tax forms. Pay it in 2012, and it's a tax credit on your 2012 IRS forms, no matter what year the payment concerns.

It's a little confusing, but once you get used to it, it makes more sense (certainly from the IRS point of view) than waiting until you get your German taxes for 2011 filed and paid.
Cheers,
Bev

 

[Kaia]

That means for 2011 I have income from my salary and interest income.
The FEIE covers my salary (which is below the limit).
Taxes I paid in Germany on my 2010 salary and 2010 interest income can be applied to my interest income from 2011? (As you assumed, taxes are paid and refunds are issued in the summer.) Or just taxes I paid on interest income?
This is such a mess. And I have several years to clear up!
So I work back year by year, applying the FEIE to my salary and the taxes paid to the rest?

Best,
Kaia

 

[barribr]

The important part to remember is when the income was received and when taxes were paid. The US considers you a cash bash taxpayer, unless you have elected otherwise, and you just need to get the income and taxes paid into the correct year in which it took place. You can probably do this fairly easily on your own.

******

 

[graubart]

The foreign tax credit form 1116 allows you to select whether you want to claim your foreign taxes when they were "paid" or when they were "accrued".

It is far easier to use the "accrued" method. That way it isn't necessary to keep track of all payments and refunds, you only need to know the final tax amount for the year. This final amount for the tax year should appear on an official statement or receipt which you should probably keep anyway. No need to bother with unofficial documents, calculations, dates or additional record-keeping.

Matching your tax credit claims to the tax year they were accrued helps to ensure your claims completely offset your US taxes and also simplifies the currency conversion.

If your US return is a little late and you owe little or no tax then your penalities should be small or none. You might also consider filing your local return before its deadline.

 

[barribr]

Paid is an easier method for record keeping especially with Germany because it is an assessment country. If a person takes the accrued method, then the prior year change in accrued taxes has to be adjusted on the 1116 to account for the adjusted taxes. This results from either the actual tax being different or the receipt of an assessment.

In my opinion, I think it is just easier to track when tax payments are actually made then tracking all the changes in tax returns, positions taken on the tax return, etc.

 

[graubart]

My earlier post was written from a Canadian perspective. I don't know anything about Europe.