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Decoding Form 1040 – U.S. Expat Taxes

Last Update Date : October 03, 2018

form 1040

Reporting your Income on your U.S. expat taxes when you are living abroad is similar to the way people living in U.S. report their income. If you are confused about reporting your income that you are earning while living abroad on your U.S. expat taxes, this guide by H&R Block will prepare you to know how to report the income to the IRS.

Reporting Income on U.S. Expat Taxes

It is very important to have an efficient recordkeeping for the whole financial year for accurately preparing your U.S. expat taxes. This is usually very important when you have to report all the foreign income that you have earned as it will not be overlooked by the IRS. You are required to report your income, no matter where you have earned it, what taxes you have paid over it and what currency was it earned in.

You will be required to have documents to explain how the income was earned and that the amount that is reported on your U.S. expat taxes is the real amount in the event of the IRS audit.

You will be required to file Form 1040 if you have earned the following types of income:

  • Salaries and wages
  • Ordinary dividends
  • Alimony received
  • Taxable interest (Schedule B)
  • Returns, credits or other offsets as well as local income tax
  • Business income (Schedule C or C-EZ)
  • Capital gains or losses (Schedule D)
  • Other gains or losses (Form 4797)
  • Farm income
  • IRA distributions
  • Unemployment compensation
  • Pensions and annuities
  • Social security benefits
  • Rental real estate, partnerships, royalties, trusts and S-corps (Schedule E)
  • Other income

Along with the types of income, you will also have to round up the information about the deductions that are applicable and needs to be reported on your U.S. expat taxes. These are:

  • Alimony paid
  • Educator expenses
  • Deductions on health savings accounts (Form 8889)
  • Some specified business expenses (Form 2106)
  • Moving expenses (Form 3903)
  • IRA deductions
  • Penalty on early withdrawal of savings
  • Tuition fees paid
  • Student loan interest
  • Other deductions

You will receive the relevant documents from their respective distributors throughout the year, and you will have to store it in an organised manner so that you have the information in hand when you are filling out your Form 1040 for U.S. expat taxes.

Now the real question is, what exactly Form 1040 is and how to file it? Let’s read on to find out about it.

What is Form 1040?

Form 1040 is a U.S. Individual Income Tax Return form that is used to report an individual’s gross income. Form 1040 is known as the “long form” because it is very extensive as compared to Form 1040A and Form 1040EZ return forms. Moreover, IRS Form 1040 lets the taxpayers claim various tax credits and expenses, adjust income and itemise deductions. Although the form is long and will take a longer time to complete, the tax benefits of saving tax bills make it worth for the taxpayers.

Form 1040 is a two full page form, where the first page is for collecting information about the taxpayer, income items, dependents and adjustments to the income. To be very specific, a taxpayer will be required to mention his filing status as well as personal exemptions on the first page. The second page consists of the calculation of the deductions and credits allowed, tax due on the income figure and the applicability on funds withheld from the wages of payments estimated and made towards tax liability. You will find the presidential election campaign fund checkoff on first page, at the top, which means that the federal government will give $3 to the Presidential election campaign fund from the tax it receives.

Eligibility to file Form 1040

You will be considered a resident or a resident alien of the U.S. for tax purposes if you are a citizen of the United States. You will be considered a resident alien of the United States if you pass either the Green Card Test or the Substantial Presence Test. If you have taxable income in the U.S. but fail the criteria of being the resident aliens, you will have to file your tax returns as a non-resident alien. Since you are the resident of U.S., you will be required to file Forms 1040, Form 1040A or Form 1040EZ.

If you are a resident alien of the U.S., you should generally file if your income crosses a threshold where your taxable income is likely to be positive. However, there are many different cases where it will be legally bound to file.

Modes of Filing

There are two ways of filing Form 1040, through paper and the electronic mode.

Offline Mode (Paper Filing)

Paper filing method is the universally accepted form of filing taxes. Along with its variants, instructions and schedules, Form 1040 can be downloaded as a PDF file from the IRS website. The finalised versions of the form for the calendar year/ tax year are released by the end of January of the following year.
You can fill the paper form and save it electronically by using a compatible PDF reader and then print it out. This will make it easier for you to keep the electronic copies of your filled forms even if you have filed a physical form. You can, otherwise, print it out and then fill it by hand. You can also use a combination of different approaches with some content filled electronically while the other contents written by hand. In a physical form, the only parts which you can’t fill electronically are the signature lines.

The physical Form 1040 along with the relevant schedules as well as additional forms must be sent in a single package by courier or mail to an IRS address that is determined by the U.S. state from which you are filing from. Also, the addresses for the three forms (1040, 1040A and 1040EZ) are same whether or not the payment is enclosed.

IRS will accept the returns which are either paperclipped or stapled together. However, since the payments are processed separately, any payment voucher or check and Form 1040-V should not be stapled or paperclipped with the rest of the return.

Online Mode

You, as a U.S. resident, can file the returns electronically, for tax purposes, in three ways given below:

  • People having an income of $66,000 or less can file their return electronically using the IRS Free File, a free e-filing tool.
  • It is possible for you to prepare your tax return using a tax compliance software which is approved by the IRS and can let the software file your return electronically.
  • You can use a tax professional accepted by the IRS for filing the return electronically.

A lot of tax filers and preparers, as well as most of the tax compliance software, are required to file their tax returns electronically on behalf of the taxpayers. Even the taxpayers who have chosen to file a physical return and are not so required, need to file Form 8948, explaining why they are not filing their returns electronically.

Signature Requirement

If you want the IRS to consider your Form 1040 as valid, it should be duly signed and dated. If you are filing the form jointly with your spouse, both of your signatures and the date should be present. In case you are submitting a return electronically, you must use either a Practitioner PIN or a Self-Select PIN.

Substitute Return

In case you decide not to file a tax return, the IRS will file a substitute return on your behalf, after having sent several reminders to you.

Accompanying Payments

Form 1040-V (Payment Voucher for Form 1040) can be used as an optional payment voucher which should be sent along with the payment for the balance due on the ‘Amount you owe’ line of the Form 1040.

Though this form is optional, and IRS will accept the payment without this form, including Form 1040-V will help the IRS to process your payments more efficiently.

Though you should include Form 1040-V and any other payment in the same packet as your tax return, you should not staple or use a paperclip with the return as they are processed separately.

Schedules

Form 1040 includes 12 attachments, known as ‘Schedules’ which may be required to be filed depending on the taxpayer.

Type Description Lines where they are referenced in Form 1040
Schedule A It is used for itemising the deductions that are allowed against the income 40
Schedule B It is used for enumerating the interest and/ or the dividend income and is required if the interest or dividends that is received in a tax year is more than $1,500 from all the sources or if the filer had foreign accounts in a tax year 8a, 9a
Schedule C It is used to list down the income and expenses that are related to self-employment and which is used by sole proprietors 12
Schedule D It is used for computing capital gains and losses incurred during a tax year 13
Schedule E It is used for reporting the income and expenses that are arising from renting a real property, royalties or from passing through entities 17
Schedule EIC It is used for documenting the eligibility of a taxpayer for Earned Income Credit 66a
Schedule F It is used for reporting income and expenses that are related to farming 18
Schedule H It is used for reporting taxes owed for employing household help 60a
Schedule J It is used for calculating the average of farm income over a period of 3 years 44
Schedule R It is used for calculating Credit for Elderly or Disabled people 54
Schedule SE It is used for calculating self-employment tax which is owed by a taxpayer on income earned on self-employment 57
Schedule 8812 It is used for calculating Child Tax Credit 52,67

Withholding and Estimated Payments

Withholding payments are the main method through which the taxes are to be paid for most individuals. However, your income which is not subject to withholding must be estimated by using Form 1040-ES. Estimated payments can be made using the Electronic Federal Tax Payment System.

Refunds and Penalties

A three-year limit has been set for an individual to claim his tax refund, but the payments that he owes must be made immediately. Additionally, you can apply for refunds to next year’s taxes and also change your mind later.

If you file Form 4868, you will be given an automatic extension till October 15 for filing Form 1040. However, if you haven’t received an extension and have unpaid taxes, you will be penalised for not filing your tax return by April 15. But, since the penalty is 25% of the taxes which are unpaid, you will not be penalised if you have paid your taxes but not filed your return.

It is very important to make sure that you have paid your partial taxes throughout the tax year in the form of estimated tax payments of the employer tax withholding, apart from making sure that you have paid your taxes due for the year before or by April 15. If you fail to do so, a penalty will be assessed.

The penalty for failing to make the payment for estimated taxes must be included on the form on line number 79, and the total should be included on line number 78 when filing Form 1040. You are not required to compute any other interest and penalties. However, if you do choose to compute these, you can list these computed penalties on the bottom margin of page 2 but should not be included in the amount due on line number 78.

How can H&R Block Help you?

Saving taxes and filing income tax return accurately becomes very easy when you have professional help. This is where we come into the picture. We have a team of in-house tax experts who can file your tax return accurately while giving you maximum tax benefits.

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