2018 Tax Information for Americans in China

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    Avatar photoCharlie

    The information below is courtesy of Olivier Wagner, founder of 1040abroad, who is a highly credentialed (CPA, MBA) tax professional who deals specifically with Americans abroad. If you’re an American in Chengdu, be sure to file your taxes! If you are seeking tax preparation services, I do not hesitate to recommend 1040abroad.com. This post will remained stickied on the forum for the duration of the American tax season.

    Info from 1040Abroad:

    I wanted to take this chance to introduce Olivier Wagner’s book “U.S. Taxes for Worldly Americans”.

    In it, Olivier doesn’t just introduce us to the workings of the U.S. Tax system. He introduces us to international living and ways to be a worldly American. Olivier has travelled to 30 countries in 2016.

    Many American living outside the United States do not realize that they are required by law to submit an annual tax return along with forms covering such things as foreign bank accounts (Schedule B, form 8938), ownership of a foreign corporation (form 5471) and foreign trusts, which may be considered a typical financial produce in the foreign country. In addition to the tax return, they would also have to file a report called FBAR if having more than $10,000 in non-US bank accounts at any time during the year, penalties for failing to report them could lead to draconian penalties of $10,000 to 50% of account balance per account per year.

    The book not only discusses those who moved abroad and worked as adults, but also “Accidental Americans”, for example, someone born of foreign parents in the United States, who might never have come back to the United States after the age of 3 y/o, but is still a US citizen and is required to file. Many Canadians fall into this category.

    Olivier goes into detail on how to complete your tax return, FBAR and other forms. He focuses on ways for expatriates and understanding of some complex rules that can allow you to legally minimize or eliminate their US taxes.

    1040 Abroad is there for all your US tax compliance needs. By and for expatriates. Serving US citizens living outside the United States since 2012.

    What has the IRS prepared for us this season?

    As the IRS is starting to process 2016 tax returns, let’s look at the new provisions, tax rates, tax rate schedules and tax tables with adjustments to the annual inflation it published for this coming tax season.

    So, what’s new?

    Tax brackets. The tax rates will remain the same, but the thresholds for each rate will increase. Here are the new tax brackets for single filers:

    Rate Single Filer
    10% $0 to $9,275
    15% $9,275 to $37,650
    25% $37,650 to $91,150
    28% $91,150 to $190,150
    33% $190,150 to $413,350
    35% $413,350 to $415,050
    39.6% More than $415,050


    Foreign Earned Income Exclusion. This is a big one for all the US expatriates around the world and it’s the biggest tax relief eligible for you all. Americans living abroad can deduct up to $101,300 in 2016 from their foreign earned income. Bear in mind, it applies only to the foreign earned income. To qualify for the FEIE you need to meet one of the two test: physical presence test or the Bona Fide residence test. You can read more about these in my previous posts. Also, if you meet the physical presence test, you can use this free physical presence test tool to calculate the amount you can exclude from your taxable income.

    Standard deduction. The standard deduction has increased and the new numbers are:

    Filing Status Standard Deduction
    Single $6,350
    Married Filing Jointly $12,700
    Married Filing Separately $6,350
    Head of Household $9,350


    The additional standard deduction for the aged and blind has increased to $1,250.

    Personal Exemption. The personal exemption increased from $4,000 to $4,050.

    Obamacare aka the Affordable Care Act affects the US expatriates that do not have qualifying health insurance coverage and might have to pay a penalty because of it. If you qualify for FEIE, you also qualify to be exempt from this tax and can forget about this burden.

    However, those who have to pay the penalty can use two methods to calculate the amount. One is the value of 2% of your income above the tax-filing threshold (See the thresholds above). The other method assigns the penalty based on the number of family members assessing $695 per adult and $347.50 per child. The IRS charges the greater of these two.

    Alternative Minimum Tax (AMT) has raised the exemption amount for single filers to $53,900 and $83,800 for married filing jointly. It’s an alternative way to calculate tax owing to Uncle Sam designed especially for those who try to evade paying taxes. This method disallows many exemptions and add adjustments that increase your taxable income. Then taxed at a flat rate, gives you an alternative amount of your tax owing. Guess which method should you use? The one that leaves you with the higher tax owing of course.

    Earned Income Credit. It is also known as the additional child credit and it is only eligible to those who fall under the low-income earners category and do not claim the Foreign Earned Income Exclusion. The maximum amount of the earned income credit raises to $6,269 for taxpayers that have 3 or more qualifying children.

    Avatar photoPaulo Garcon

    I’m a few months late but this is very helpful info for me. I didn’t realize I had to file. Thank you.

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