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2011 US TAX UPDATE:
As we know that the tax cut bill has been extended for 2 more years at the end of 2010, there are not many major tax law changes this year from prior year. I would like to bring to your attention the following tax update that will affect overseas taxpayers and some self-employed taxpayers:

1) Foreign Financial Assets Reporting ĘC Form 8938 to be filed with your annual income tax return
Most individuals with specified foreign financial assets will start to file Form 8938, Statement of Specified Foreign Financial Assets, with filing 2011 income tax return. The assets value threshold required for making disclosure is varied for the taxpayers living in the US or abroad and filing separately or jointly.

For taxpayers living abroad, you must file if:

  • You are filing separately (or as a single or HOH) and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
  • You are filing jointly and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

Do you need to file Form 8938?

Here is more information on the IRS website: http://www.irs.gov/businesses/corporations/article/0,,id=251217,00.html

Please review the new Form 8938 and filing instructions: http://www.irs.gov/pub/irs-pdf/i8938.pdf.

2) Foreign Earned Income Exclusion and Foreign Housing Exclusion:

Maximum Foreign Earned Income Exclusion (FEIE) has been increased
from $91,500 to $92,900.

  • Foreign Housing expense-base amount has also been increased from $14,640 to $14,864..
  • 2011 maximum foreign housing expenses can be claimed for living in most cities in China has been increased from $27,450 to $27,870.
  • 2011 limits on foreign housing expenses for living in high-cost localities, Shanghai, Hong Kong and Beijing remain the same as 2010 and set as following:

Location             Daily limitation        Annual limitation       Maximum Exclusion
                           US$                        US$                          US$
Beijing:               195.07                    71,200                      56,560
Shanghai:          156.17                     57,001                     42,361
Hong Kong:        313.15                   114,300                     99,660

Use Form 2555 to report your foreign earned income and foreign housing exclusion. You can download a blank from the IRS website: http://www.irs.gov/pub/irs-pdf/f2555.pdf, and refer to the filing instructions: http://www.irs.gov/pub/irs-pdf/i2555.pdf.

3) Taxpayers with self-employment income:
For tax year 2011 only, the social security tax (OASDI portion) of self-employment tax is reduced by 2%, therefore, self-employment income will be taxed at 13.3% instead of 15.3%. The maximum amount of self-employment income subject to social security tax is $106,800. Therefore, self-employment income of $106,800 or less received by the end of 2011 will save 2% tax.

What's new for tax year 2011 - All other important changes:

Please find out more 2011 US federal income tax update in IRS Publication 17 ( http://www.irs.gov/pub/irs-pdf/p17.pdf ).

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.

For 2011 tax rate and quick facts, please check out http://1040-cn.com/forms_publications.html.

For 2011 tax questions and answers, please check out http://1040-cn.com/questions_answers.html.


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