Table of contents:
Q: I own a rental property in a state with no income tax. Do I still need to declare it?
A: Federal tax return
There is no minimum income threshold for American rental properties to be reported on a Federal tax return. To report rental income, you can select Yes for the I rent out property statement during the creation of your Tax Questionnaire (TQ) or by navigating to Income > Passive Income and selecting Yes for the I rent out property statement.
State tax return
In states with income tax: A personal state tax return (resident or nonresident) is also required. Filing requirements depend on the particular state.
In states with no income tax:
If you own a rental home in a tax-free state outright, you don't need to file a personal state tax return.
If a single-member LLC owns the property, some states (i.e., TX) require a franchise tax return.
Franchise tax returns may also be required by states that levy personal income tax (i.e., MD) in addition to an individual state tax return.
Q: My sole source of income is a rental property. Do I have to file?
A: If your sole source of income is a rental property, whether you need to file will depend on your gross rental income (before expenses) and whether or not you receive a Form 1099-MISC.
You must file if your gross rental income is above the filing threshold.
Additionally, if you receive a Form 1099-MISC (usually from a management company handling the rental), you must file even if your gross income is below the filing threshold.
This rule applies to both federal and state returns.
Q: Is the house sale/house purchase reportable?
A: Only the sale is reportable. The home purchase is not reportable on your U.S. tax return, but you should keep records. These will come in handy when you sell the home (because selling a house is reportable). Please see the following articles for additional information:
We will handle this during tax preparation for you. We can prepare a Tax projection of potential tax due from the sale. If you would like to move forward with this service, please fill out a "dummy" Tax Questionnaire for 2005 with the anticipated information.
Q: I'm a non-U.S. person who owns rental properties in the U.S. What are my tax obligations?
A: If you own a rental property in the U.S., you must file an annual nonresident tax return (Form 1040NR) to report gains or losses from rental activity.
You must also file an annual nonresident state return unless the property is in a tax-free state such as Texas.
Annual reporting is required even if you generate a loss. This is because when you sell your property, all accumulated losses (if any) are deducted from the sales proceeds. If you don’t report annually, these losses cannot be recovered. If the property is idle (no rental activity), you are not required to report it.
Q: I run a gym and own yoga mats. Are they considered inventory?
A: No, inventory is defined as the stock of goods collected for future sale. If you buy fitness drinks wholesale and then sell them to customers, they would be considered inventory. Yoga mats are considered supplies.
Q: I’m starting a new job. How should I complete Form W-4?
A: If you and your spouse live abroad, you check to use the "Exempt" option on your Form W-4. Complete and submit the Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion (Form 673) to your employer. This will prevent your employer from withholding tax on income that will be excluded.
If you file jointly and one spouse does not live abroad, then you can take a conservative approach and complete Form W-4 with the regular number of allowances you would include if you were both in the U.S.
Alternatively, if you file jointly, we can prepare a Tax Projection to predict better what you might owe and what may be excluded. If the tax projection shows little or no tax due, you can use the first option and file as if you and your spouse live abroad.
Q: I work for NATO. Will I owe U.S. taxes?
A: It depends. Refer to NATO Personnel & US Tax.
Q: I'm a civilian DoD employee. Do I need to file a state return?
A: All DoD (Department of Defense) employees must have a U.S. address and file state tax returns. Overseas government contractors are also required to have a U.S. address on record.
Q: Civilians working overseas support U.S. armed forces: Are you eligible to exclude income? For a filing extension?
A: While civilians working overseas do not qualify for the military pay exclusion for combat zone service (this exclusion only applies to members of the U.S. Armed Forces), they do qualify for an extension of time to file their income tax returns and pay any taxes owed. This extension is valid for 180 days after your last day in a combat zone. During this period, no interest or penalties will be accrued.
Q: I work for a U.S. company but have not received a W-2. What should I do?
A: U.S. employers are required to send their employees a Form W-2, Statement of Earnings, by January 31. Employees should allow enough time for the form to be mailed to their address. If a Form W-2 is not received by the end of February, the taxpayer should first contact their employer to ensure that their address is correct and current.
After exhausting all options with the employer, the employee should contact the IRS directly, who will send a letter to the employer on our client’s behalf. We advise clients to wait until the end of February to make their call to avoid long wait times on the telephone.
Q: I’m self-employed & owe taxes. Can’t my income be excluded via FEIE?
A: Let's say you're a sole proprietor of a business, and you receive only $1,000 in the net income you deduct business expenses. Do you still owe taxes? Or can all of your income be excluded via the Foreign Earned Income Exclusion?
You do not owe income tax; that's 100% correct.
However, you do owe Self-Employment tax on any income above $400. If you were employed, your employer would have paid half of the tax and withheld another half from your paycheck--that's known as Payroll Tax. As a self-employed individual, you are responsible for the entire amount of Social Security and Medicare tax. This tax cannot be reduced by the Foreign Earned Income Exclusion or other credits or deductions.
Q: I live and work abroad, but my U.S. company is withholding tax. How can I stop this?
A: You can submit a statement to your employer indicating that you qualify for the foreign earned income exclusion under either the bona fide residence test or the physical presence test, indicating your estimated housing cost exclusion.
If you are a U.S. citizen, you can submit this statement via Form 673. If you are not a U.S. citizen, you can prepare your statement, including information similar to what is reported on Form 673.
Your employer may stop withholding tax once you submit a statement that states that the information is made under penalty of perjury. However, suppose your employer has reason to believe you will not qualify for either the foreign-earned income or the foreign housing exclusion. In that case, your employer may continue to withhold tax.