Time for Taxes

CPS Family Office, offering services in US tax compliance and international taxes, shares need-to-know information on US taxes ahead of the 2022 filing season.

The New Year is upon us, and while most of us welcome and look forward to the year ahead, a new year also means that we need to start thinking about filing our US taxes. This year the filing and payment due dates for individuals are as follows:

April 18th – Initial due date (for those residing in the US)

June 15th – Due date for individuals who reside overseas on April 18th

October 15th – Extension due date for those filing a request for extension

Interest for any taxes due begins to accrue from April 18th, while penalties for late filing and late payment apply from June 15th (for expats). Technically, all tax due should have been paid in advance via quarterly estimated payments.

Foreign Earned Income and Housing Exclusion

One of our favorite tax breaks for living overseas is the foreign earned income and housing exclusion. You qualify for this if you have foreign earned income and meet either a residency or presence test. If you qualify for the full exclusion, each taxpayer will be able to exclude from tax up to $108,700 of their earned income.

This includes self-employment income as well, but self-employment taxes still apply on the full amount of any net earnings from self-employment.

An additional housing exclusion is allowed for housing expenses which includes rent and other reasonable expenses. This amount is adjusted each year, and specifically for certain major cities such as Singapore where the cost of living is generally high. The amount of housing expenses cannot exceed an annually prescribed amount ($84,100 for Singapore).

It is important to note that claiming the foreign earned income and/or housing exclusions requires an adjustment to any associated foreign tax credits that you claim on your return.

Charitable Deductions

Taxpayers who don’t itemize deductions may qualify to take a charitable deduction of up to $300 (or $600 for married taxpayers filing jointly) for cash contributions made in 2021 to qualifying organizations (it is important to note that these are generally never foreign charities).

Advanced Child Tax Credits

Among other changes, the child tax credit for 2021 was increased from $2,000 per child to as much as $3,600 per child for some taxpayers.

Part of these tax credits have already been paid out in advance to those who qualified for advanced payments. If you did receive any advance payments, you will need to determine if some portion should be repaid or if you are entitled to additional credits.

Virtual / Crypto Currencies

Investment in the virtual currencies (and crypto assets in general) is becoming increasingly popular. Like any other property, buying and selling virtual currencies has tax implications. The IRS now requires that each taxpayer indicate if they have purchased or sold any virtual currencies during the year, highlighting their attention on this emerging market.

Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency, which can be purchased for, or exchanged into, US dollars, Euros, and other real or virtual currencies.

Realizing gains, whether by buying or selling these assets themselves or using them to pay for items or services, creates a taxable event. Receipt of virtual currencies for compensation, bonuses, consulting fees, or in exchange for payment, is also taxable.

Reporting Foreign Assets

Many of us are familiar with FinCen Form 114 (commonly known as the “FBAR”) which requires you to disclose all non-US bank and financial accounts if the combined value of those accounts is over US$10,000 at any time during the year. This filing requirement also includes any account which you have signature authority over, such as a company account, even if you do not have a financial interest in this account. This form is due at the same time as your individual return, including extensions.

If you have significant balances in your foreign bank or financial accounts, there is also a similar Form 8938 which requires you to report the financial accounts you own as well as other assets, such as stocks or bonds issued by a foreign companies and CPF.

For a more in-depth look at US taxes and updates for the 2022 filing season, join us for a virtual session on February 8, 2022. Sign up here.