I'm an American living in Japan and I don't qualify for the bona fide resident test or the physical-presence test to claim the $74,000 foreign-earned income exclusion. Since I'm just a few days shy of meeting the physical-presence test, can I extend past June 15 somehow? Is it OK to file an extension so that I can meet a time-period requirement like the 330 days in a 12-month period under the physical-presence test?
-- Peter Sengenberger
Yes, you can ask for an extension of time to file if you think you'll satisfy one of the two foreign-resident tests. "It's very common for U.S. citizens living abroad to make this request," says Nick Morrow, foreign-tax specialist at
, a New York accounting firm
The bona fide-resident test requires that you spend an entire year -- Jan. 1 through Dec. 31 -- in a foreign country. The physical-presence test requires you to be physically present in a foreign country for 330 days during a consecutive 12-month period. It does not have to be a calendar year. If you meet either of these tests, you may be able to exclude up to $74,000 from your 1999 worldwide income. (This amount jumps to $76,000 for 2000.)
This exclusion helps to prevent your income from being taxed by both the U.S and your foreign locale. For more details on these tests and the exclusion, check out this previous
If you haven't been in the foreign locale long enough to meet the requirements of either test but want to take the income exclusion, you may ask the
Internal Revenue Service
for additional time to file your 1999 tax return by using
-- Application for Extension of Time to File U.S. Income Tax Return
This form is for U.S. citizens living abroad and must be filed by midnight June 15. If your extension is granted, your 1999 U.S. tax return will be due 30 days after you expect to meet either test, says Morrow. If you don't get approval, your tax return still will be considered due on June 15. That means you will owe late filing fees calculated from June 15 until you file your tax return.
Remember, your tax balance is due when you file this extension. In addition, you'll owe interest on that amount, calculated from April 17, 2000, until you file your return. (April 15 fell on a Saturday this year, in case you forgot already.)
New Form W-8s On the Way
If you're a nonresident alien, here's a heads-up: A new
-- Certificate of Foreign Status
is on its way.
Nonresident aliens -- people who are not U.S. citizens and who don't spend more than 183 days in the U.S. -- must submit Form W-8 to brokers as confirmation that they are residents of another country.
Generally, a flat 30% is withheld on divided income earned by nonresident aliens. But the U.S. has
income tax treaties with many foreign countries that allow for a lower withholding rate. Form W-8 helps brokers determine how much to withhold. (For more on foreign withholding, see this previous
Tax Forum .)
But recently, new tax-reporting regulations were issued to help the IRS keep track of where nonresident aliens are investing. As a result, Form W-8, the once-catchall form, will be phased out by Jan. 1, 2001. Instead, the following four new forms will be issued to make reporting more specific, says Janice Johnson, a partner at
American Express Tax & Business Services
in New York. Of the four forms, only two will directly affect individual investors.
Nonresident aliens who just trade securities in the U.S. markets can expect to see
-- Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
in their mailboxes soon. Aside from a few more treaty-related questions, there are no substantive changes from the old Form W-8.
-- Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States
will be required for NRAs who have partnership interests or other income that's connected with the U.S.
If you already have filed a W-8 with your broker, you should be getting a new form, says Johnson. The old one will not be valid after Dec. 31, 2000.
The remaining two new forms --
-- Certificate of Foreign Intermediary, Foreign Partnership, or Certain U.S. Branches for United States Tax Withholding
-- Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding
affect foreign intermediaries, like foreign financial institutions or foreign partnerships, and foreign governments or foreign tax-exempt organizations.
Check out the new
-- Withholding of Tax on Nonresident Aliens and Foreign Corporations
for more details.
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TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.