Tax Tips for U.S. Citizens Abroad

Good news and bad news if you are a U.S. citizen and you live and work outside the U.S. or Puerto Rico:

You get an automatic two-month extension of your tax-filing deadline until June 15. And you don't have to file a form to qualify for this extension. You just get it. The Internal Revenue Service understands it takes time to get mail overseas.

That's the good news.

Now the bad news: If you owe U.S. tax, you will owe interest on that amount from April 17, everyone else's filing deadline, until you file your return. But you won't be charged a late-filing fee if you file by June 15.

If you do owe U.S. tax, remember you have to pay in U.S. currency. "The IRS doesn't accept checks in foreign currency," notes Alicia Afalonis, an editor at the RIA, an information provider to tax professionals. So plan ahead and use the currency fluctuations to your advantage.

When you file your return, you should attach a homemade statement to the back of your tax return explaining that you're filing two months later because you live and work abroad, says Afalonis. Be sure to include your foreign address and the reason you are living there.

To avoid late-filing fees when June 15 rolls around, your tax return must be postmarked June 15, 2000. The IRS accepts foreign postmarks as evidence your return was filed on time, according to Revenue Ruling 80-218. So if you got your return postmarked at a Paris post office on June 15, even though it may take two weeks to get to IRS, you've still filed on time.

In the U.S., your bill of lading from a private service, like FedEx or DHL, will count as your proof of filing. "But there's nothing written to say that's true outside the U.S.," says Afalonis. So to be safe, go to the post office.

If you find you're still not ready to file by June 15, you can request an extension for another two months. But your tax bill is due when you file this extension. Expatriates should use Form 2350 -- Application for Extension of Time to File U.S. Income Tax Return.

Here are some answers to other common tax-filing questions from our compatriots abroad.

Where do I send my return?

Citizens who reside in the U.S. send their returns to a designated IRS service center - usually the closest center to their home. But expatriates must file tax returns to the special IRS service center that handles international filing. Here's the address:

Internal Revenue Service Center
Philadelphia, PA 19225-0215
USA

Can I get an extension on my estimated tax payments?

If you're an independent contractor -- meaning you're not a company employee -- don't forget to make estimated tax payments. It does not matter that you're a journalist freelancing in Sri Lanka. Your estimated payments are due, just as they are for freelancers living in the states. Unfortunately, that means your first estimated tax payment for 2000 is due April 17. You do not get an extension on these payments like you do with your tax return.

A reminder for 2000: If your adjusted gross income is below $150,000, your estimated tax payments must equal either 90% of your 2000 taxes or 100% of the tax your paid in 1999. If your income is above $150,000, you must pay in 108.6% of your 1999 tax. Check out his previous Tax Forum for more details.

How can I avoid double taxation?

The U.S. has tax treaties with a number of countries, and one of the purposes of these treaties is to prevent double taxation of your income. You should read the treaty that pertains to the country you're living in. We've written about these treaties before.

Some countries have programs like our Social Security and Medicare and will make you pay into their systems. In some instances you may be paying into both the U.S. and a foreign country's systems. But if you don't plan on retiring to that foreign country, you'll never see that money.

So the U.S. has established totalization agreements with many countries. These agreements are designed to alleviate this "dual coverage."

How do I get more tax information outside the U.S.?

The IRS has seven satellite offices in foreign capitals -- Berlin, London, Mexico City, Paris, Rome, Singapore and Tokyo -- that you can visit. Click here for the addresses.

Also, check out Publication 54 -- Tax Guide for U.S. Citizens and Resident Aliens Abroad.

And be sure to go through our Overseas Assignment Tax Checklist.

Nissenbaum's Back

Thanks to all who joined me and Martin Nissenbaum, national director of personal-income tax planning at Ernst & Young, for our tax chat on Tuesday. Here's the transcript, in case you missed it.

If you didn't get a chance to ask Nissenbaum your tax question, we're bringing him back. He will be on the tax message board this Wednesday, April 12, from 4 p.m. to 6 p.m. EDT to answer your questions and lend his expertise. Post early.

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Send your questions and comments to [e-mail], and please include your full name. Tax Forum appears daily through April 17.