>>>Frequently Asked Questions & Answers for 2013 tax year

The most concerned questions asked by our clients living in China this year is:

"Whether my 2013 US tax will be much increased due to higher tax rate of 39.6% and Medicare Surtax?"; "Am I required to enroll in a health insurance by the end of 2013?"

Here are the answers:
- The tax law changes will affect taxpayers with high income above certain thresholds. It will increase your tax liability if you meet the thresholds. The tax increase proportion depends on your income level, your employment and investment income amount and your foreign tax payment. Please refer to our 2013 US tax update for details of the income limits to determine wheterh your US tax will be increased or contact us to discuss if your 2013 tax will be much increased and need to file and pay tax earlier this year.

-Taxpayers living overseas are exempt from health insurance enrollment requirement.

Other basic questions and answers asked each year for your reference:

Question 1:
Do I have to file a U.S. income tax return when I am living in China?
Answer 1:
Yes, if your gross income from worldwide sources is over a certain amount. The filing requirements are generally the same whether you are in the U.S. or abroad. For 2013, you must generally file a U.S. income tax return if your gross income was at least the amount show below:
Filing Status                    Gross Income
Single                              $10,000
MFJ                                  20,000
MFS                                  3,900
HOH                                12,850
Q.W.with child                 16,100

* taxpayers are 65 and older, dependants,self-employment persons, alien taxpayers and other special individuals are not covered here.

Question 2:
When is my tax 2013 return due while I am in China?
Answer 2:
- April 15: Regular due date.
- June 16: Automatic 2-month extension is allowed for taxpayers living and
  working outside of the U.S. and Puerto Rico.
- October 15: Extension of time to file the U.S. tax return until October 15th by
  filing form 4868 before due date.
- December 15: Extension may be allowed for taxpayers abroad who have
  special reasons and can not file their returns by Oct.15 by sending IRS a
  letter in regards to specific reasons for additional time required.
- Jan 30th following the year of the regular due date: Extension of the time to
  file until this date will be granted for taxpayers claiming benefits under IRS
  Code Sec.911. An extension Form 2350 must be filed by the due date of the

Please note that extension of time to file does not extend time to pay taxes. Interest will be charged from April 15 if you owe any taxes and have not fully paid by April 15. Late payment penalty will be assessed from June 16.

Question 3:
I have paid Chinese taxes on my salary income, will this help on my U.S. taxes?
Answer 3:
Yes. If your China earned income is not fully exclued from the U.S.tax, you can take either a credit or a deduction for Chinese tax you paid to reduce your U.S. tax. In most cases, it is to your advantage to take foreign tax payments as tax credits.

Question 4:
What tax benefits can I get from living and working abroad?
Answer 4:
You may elect to claim Foreign Earned Income Exclusion (FEIE) and Foreign Housing Exclusion (FHE).
You will be able to exclude up to $97,600 from your foreign earned income for 2013, and you may exclude your foreign housing expense (except base amount and varied based on the city you live) in addition to your foreign earned income exclusion. You have to meet Bona Fide Resident (BFR) test or Phisical Present (PPT) test under IRS Code Sec. 911 to qualify for the above exclusions.

Question 5:
My entire income qualifies for the foreign earned income exclusion. Must I file an income tax return?
Answer 5:
Every U.S. citizen or resident must file a U.S. income tax return unless your gross income is below the income threshold required in Answer 1..

Question 6:
Can a resident alien of the United States qualify for an exclusion or deduction under the bona fide residence test or the physical presence test?
Answer 6:
Resident aliens of the United States can qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction if they meet the requirements of the physical presence test. Resident aliens who are citizens or nationals of a country with which the United States has an income tax treaty in effect can also qualify under the bona fide residence test. Statement or tax form to disclose the treaty position has to be attached to the tax return.

Question 7:
My company pays my foreign income tax and some living expenses. Are these payments taxable in US tax?.
Answer 7:
Yes. The foreign tax reimbursement and living allowances should be included in your gross foreign earned income. Non-cash benefits include but not limit to education allowances, housing allowances, home leave etc., which will be considered as part of your wage income.

Question 8:
I am a U.S. citizen. I have lived abroad for a number of years and recently realized that I should have been filing U.S. income tax returns. How do I correct this oversight?
Answer 8:
File the late returns as soon as possible. You may also consider making an Offshore Voluntary Disclosure. For more information, please check the IRS website: http://www.irs.gov/uac/How-to-Make-an-Offshore-Voluntary-Disclosure Please consult a specialized tax lawyer before you proceed with the complex process.

Question 9:
I am a U.S. citizen and married to a Chinese girl who does not have a U.S. Green Card. Can I file U.S tax jointly with my wife?
Answer 9:
Yes. You can make an election and file jointly by attaching a statement to your joint tax return. More issues should be addressed before making the election. Please contact us for more details

More tax guidance for taxpayers living abroad in IRS Publication 54 and IRS website:http://www.irs.gov/faqs/content/0,,id=199953,00.html.

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