China Teachers Program

Agenda Disclaimer General Rules Power of Attorney Reporting Income Foreign Taxes Social Security Charitable Contributions Foreign Bank Account Reporting Frequently Asked Questions Other Questions

Disclaimer This presentation provides limited and general tax information regarding U. S. residents working outside the United States for less than one year. Because individual circumstances vary, a competent tax advisor should be consulted to determine the specific personal income tax consequences. The University and it’s employees are prohibited from providing tax advice or assistance in preparing your return. This presentation does not constitute tax advice cannot be used to avoid penalties that may be imposed under the Internal Revenue Code.

General Rules “If you are a U.S. citizen or resident alien, your worldwide income generally is subject to U.S. income tax, regardless of where you are living.” “[Y]ou are subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States.” “You must express the amounts you report on your U.S. tax return in U.S. dollars.” IRS Publication 54 (2013) pages 2, 5

Tax Due Dates Original due date if living in U. S.: “[T]he due date for filing your return is April 15 of the following year.” June 15 if living outside U.S.: “You are allowed an automatic 2-month extension to file your return and pay federal income tax if you are a U.S. citizen… and on the regular due date of your return You are living outside the United States…” “To use this automatic 2-month extension, you must attach a statement to your return…” IRS Publication 54 pages 2-4

Tax Due Dates “[Y]ou generally can get an automatic 6-month extension of time to file (but not of time to pay). To get this automatic extension, you must file a paper Form 4868…” For Utah: “You automatically get an extension of up to six months to file.” “There is NO extension of time to pay your taxes – only to file your tax return.” IRS Publication 54 page 4, Utah TC-40 General Instructions page 2

Extension Example Leave Sept 1, 2015, return June 30, 2016 Receive 4 months of income in 2015 Receive 6 months of income in 2016 2015 return due: April 15, 2016 without extension June 15, 2016 with automatic 2 month extension October 15, 2016 with 6 month extension + Can prepare once home! 2016 return due April 15, 2017/Oct 15, 2017

Power of Attorney “Use Form 2848 to authorize an individual to represent you before the IRS.” “Joint filers must now complete and submit separate Forms 2848.” Some states accept the IRS’ form, some have their own version. Utah has TC-737 Instructions Form 2848 page 1, Utah TC-737

Reporting Income “Use Schedule C… to report income or loss from a business you operated or a profession you practiced” “[Y]ou can use the standard meal allowance [per diem] for your daily meals and incidental expenses.” “Enter your [actual] expenses for lodging and transportation…” Instructions Schedule C, pages 1, 8, 9

2015 Per Diem Rates

Schedule C Example Husband & wife each paid $500/month In first year, paid $4,000 total Meal per diem is $85/day $2,550/month $10,200 for first year (4 months) Income of $4,000 is offset by meal per diem of $4,000

IRS Audits Aware of one program participant under audit Audit didn’t originate from reporting, but became second audit issue University does not provide tax advice and cannot provide audit support Participants should consult competent tax advisor in preparation of returns

Foreign Taxes “Income derived by an individual who is a resident of [the U.S.] in respect of professional services or other activities of an independent character shall be taxable only in [the U.S.].” The Chinese university may ask you to complete paperwork to claim the U.S.-China treaty; University General Counsel has suggested participants not complete such paperwork. http://www.irs.gov/pub/irs-trty/china.pdf, see Article 13

Foreign Taxes “File Form 1116 to claim the foreign tax credit…” “Instead of claiming a credit for eligible foreign taxes, you can choose to deduct foreign income taxes.” Instructions IRS Form 116, pages 1-2

Social Security / Medicare “Earnings count for earnings test purposes: “All net earnings from self-employment” “If you are self employed, we count… your net earnings from self-employment.” “In most situations, Medicare won’t pay for health care or supplies you get outside the United States.” Social Security Handbook 1811, SSA Publication No. 05-10069 page 5, Medicare Publication 11037

Social Security / Medicare Your premiums will continue to be deducted from your monthly benefits unless you stop them. You may not want to stop the premium deductions

Charitable Contributions to Chinese University “You can deduct your contributions only if you make them to a qualified organization. Most organizations… must apply to the IRS to become a qualified organization...” “Verify an organization's charitable status” Have organization provide verification www.irs.gov/charities, EO Select Check search Call 1-877-829-5500 IRS Pub 526 pg. 2; Instructions IRS Form 1040 Schedule A, page 9

Charitable Contributions on behalf of University “Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization.” “The amounts must be unreimbursed, directly connected with the services, expenses you had only because of the service you gave, and not personal, living, or family expenses.” You can’t deduct same expenses claimed on Schedule C. IRS Pub 526 pg. 5

Foreign Bank Accounts Form 1040 Schedule B: “Line 7a–Question 1. Check the ‘Yes’ box if at any time during 2015 [or other year being filed] you had a financial interest in or signature authority over a financial account located in a foreign country.” Maximum value exceeds $10,000 at any time during the year. If “yes” you are required to file FinCEN Form 114. Filed electronically by April 15th

FAQs Do I have to file a tax return? Instructions IRS Form 1040, page 7

FAQs Can I take a loss if per diem is greater than income? “If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income.” Can I use the foreign earned income exclusion? “[Y]our tax home must be in a foreign country, or countries (see Foreign country, earlier), throughout your period of bona fide residence or physical presence, whichever applies. For this purpose, your period of physical presence is the 330 full days during which you were present in a foreign country…” IRS Publication 535, page 5, Instructions Form 2555 page 1

FAQs Do I report my earnings in one year or over two? “[Y]ou generally report income in the tax year you receive it, and deduct expenses in the tax year in which you pay them.” What do I need to deduct per diem? “[Y]ou must still keep records to prove the time, place, and business purpose of your travel.” IRS Publication 538, page 1, Instructions Form 1040, page C-9

Other Questions?

Resources Publication 54 - Tax Guide for US Citizens and Resident Aliens Abroad Form 2848 Power of Attorney Utah Form TC-737 Power of Attorney Form 1040 Schedule C Form 1040 Schedule C Instructions Form 1116 Foreign Tax Credit Form 1116 Foreign Tax Credit Instructions