Tax Preparer - How an Overseas Filer Beat the Odds of filing expat taxes

The day I left my suburban life in Kansas City and decided to spend the next 30 months in Rio de Janeiro is something that I don’t regret. I was carefree and loved having left behind my American ways and embracing their exciting culture. Little did I know that I still had to pay my taxes, nor that Foreign Earned Income was even a sentence that my life would revolve around!. The knowledge hit me like a ton of brick. Who haven’t heard of IRS nightmares that consist of every aspect of your life spiraling out of control? I had visions of the IRS levying my bank accounts and being subjected to audit reviews.

My initial thought was to do my research to get an idea of how deep a hole I’ve dug for myself. First thing I discovered was that all American citizens are taxed no matter where they are. Secondly, there is no statute of limitations on tax collections if you never file your return. The deadline for filing the forms is still on April 15 but the IRS allows for an automatic two-month filing extension. I read about this foreign earned income exclusion and this thing about foreign tax credits but I’m at a loss on how to decipher it, much less compute it. I don’t even want to get started on form 2555 or the bona fide residence test.

The Dilemma – Tax return preparation

To say that I was scared would be putting it mildly. I was downright terrified of being asked to pay IRS penalties and IRS interest charges that are far beyond what my savings could cover. If I’m found to have willfully violated the requirements to file, I could go to prison for a minimum of five years. I don’t take that lightly and I didn’t want to take the risk of being held accountable for my ignorance.

I placed calls to the IRS and attempted to negotiate with them myself. I soon discovered that unless I had an expertise in tax matters then I wouldn’t be able to get a word in. That’s when a friend of mine recommended that I get in touch with a CPA – of course first I had to understand: What is a CPA?. Working with him was the finest decision I’ve made over this whole fiasco.

The Solution to my tax return preparation woes

I hired a tax accountant. On our first online meeting, he instantly put all my fears to rest. I learned that if I meet the income threshold then I’m required to file a tax return – even if I live overseas. He gave me a rundown of the credits and exclusions I would qualify for. It turned out that after the deductions, I only owed the IRS a minimal amount. If I didn’t have the money to pay for my taxes, I would have had to make an offer in compromise and negotiated for a payment plan that suits me. Clearly, that would have placed a huge burden on my career and my current lifestyle, not to mention a trip back to the US.

Hiring a CPA to do my taxes is better, based primarily on the fact that they know more about the laws than I do. I found out when I was doing my research that tax laws are not static and that changes do occur quite often. CPAs are updated with the recent changes and the complexities, while daunting, are things that they’re exposed to on a regular basis.

Besides, it takes several hours to figure out my taxes and all the breaks that apply to me. The CPA got it done correctly at a fraction of the time it would take me. One mistake and I could be compelled to pay a penalty or not get my refund at all.
Of course, good luck finding a tax preparer CPA that will allow you to file taxes online…. My previous tax preparer (from when I was back home), literally told me he did not want to deal with e-mail or let alone Skype. I found many options for tax preparation services, but I did not want to do this alone, and the CPAs I found were unresponsive and did not seem in tune with the latest technology. I did find a good page to file income taxes online, ran by Certified Public Accountants that allows you to work through the internet and I’m sticking with it (They will prepare your tax return or help you prepare your own.)

Looking Forward

From now on, I intend to pay my taxes on time. In fact, my CPA has already given me tips on what I should do or avoid that would minimize my tax exposure – Little bit of tax planning has saved me tons, specially planning my trips around the physical presence test to meet the 330 days. Most of all, I get a sense of security from getting a professional do a task that’s very sensitive.

Everyone’s tax problem is unique and after admitting that I’m unable to brave the twists and turns of the tax laws, I asked for help -- which I got and which I’m very grateful for. You shouldn’t have to be under financial stress when the solution is really right under your nose, except that you didn’t recognize it for what it was. To get out of the mess and clear your head of any misgivings, let the professionals do what they do best.