FREQUENTLY ASKED QUESTIONS
Our team is available as a resource for all of your tax preparation challenges and concerns. We have compiled a list of frequently asked questions, but if you can’t find the answer you are looking for, feel free to get in touch and we will be happy to address your specific situation.
WHY DO I HAVE TO FILE? I DON'T LIVE IN THE US.
The United States employs a worldwide citizen-based tax system for maximum tax coverage. This applies even if you have never entered the US but (for example) rather became a citizen through your parents.
Fun fact: only Eritrea uses a similar worldwide tax system.
WHO SHOULD BOOK YOUR SERVICES?
We provide tax advice and annual filing services to American expatriates living in Germany. This tax advice and all annual filing services are limited to our American clients' US tax reporting / filing obligations.
WHEN DO I HAVE TO FILE?
The standard filing deadline for US taxpayers is April 15 each year. But as an expat you are automatically granted a two-month extension to June 15. Of course, if your situation requires it, you can file an extension to report your taxes later in the year.
Note: any taxes due on April 15 under normal circumstances may result in added interest (and penalties in case of an extension request) on balances originally then due.
WHAT IS FBAR REPORTING?
Taxpayers with foreign financial accounts (e.g. bank accounts) with an aggregate value of $10,000 at any time during the year are required to file a Report of Foreign Bank and Financial Accounts as part of their annual reporting.
Note that the threshold is based on any time during the year rather than at year-end only.
HOW DO I ACCOUNT FOR FOREIGN EXCHANGE DIFFERENCES?
The IRS publishes a guideline currency conversion rate each year. We can assist you with the conversion of your international activities (e.g. Euro-denominated) into USD using that rate for the current tax year reporting.
HOW LONG SHOULD I RETAIN MY TAX RECORDS?
Many sources quote a general seven year retention recommendation. In reality, as with many things, it depends on your exact situation. Basic employment documents should be retained for three years; property sale documents should be retained almost forever. And, of course, if you have substantially underreported or inaccurately reported your income, the timing may be longer.
We recommend setting up an online document storage option, which you can then organize by tax year. There's then no need to "make space" in a cluttered storage area, and you can be safe by retaining your documents semi-permanently.
I JUST MARRIED A NON-US CITIZEN; HOW DOES THIS IMPACT MY TAXES?
As an expat, you've come to understand that the US has requirements for worldwide reporting of income; those requirements will also apply to your spouse - if you select Married - Filing Jointly as your tax class. This allows you to take advantage of larger standard deductions, but it also adds the same requirement for worldwide income reporting to your spouse.
Another alternative is to select Married - Filing Separately. Under this tax class you will register your spouse as a "Nonresident Alien," and their income will not be subject to reporting to the IRS. One note: the first year of this selection you will need to apply for an Individual Tax Identification Number (ITIN) for your spouse - AND this will require that first year's return to be filed by paper.
WHAT IS A PFIC, AND HOW DO I KNOW WHETHER I HAVE ONE?
The term PFIC stands for Passive Foreign Income Corporation. More specifically defined, a PFIC is any entity owned fully or in part by an American taxpayer (individual or business) that earns its income through generally "passive" (i.e. not active business) means and has either or both of the following criteria:
Passive assets (e.g. investment assets) equal to 50% or more of total assets (cash is considered in this formula, if other investment assets are present)
Passive income sources equal to 75% or more of total gross income. For this purpose, passive income is generally defined as derived from investments or generated in any way other than via active business operations.
Some common examples of PFICs include: non-US based mutual funds, international investment companies, and employer pension funds with significant employee contributions.
The reporting for PFICs is very complex and requires review by a specialist in this area. At this time we are not able to provide this service but can provide a recommendation to another service provider, if necessary.
CAN YOU ALSO PREPARE MY GERMAN TAXES?
Our certification is US-based under the Certified Public Accountant (CPA) registration. The equivalent for filing taxes in Germany is a Steuerberater and is not part of our service offerings currently. The services of a German tax advisor can be costly, though, - typically calculated with a base rate + percentage success rate, depending on the size of the refund received. For most American taxpayers, filing in Germany can be easily handled via the use of WunderTax (check out germantaxes.de).