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Important tax changes that will affect overseas taxpayers:

1) Foreign Financial Assets Reporting ¨C Form 8938 to be released by the IRS
For 2011, taxpayers with specified foreign financial assets will have to file a disclosure statement with their income tax return if the value of all such assets is greater than $50,000.

This disclosure is in addition to the Report of Foreign Bank and Financial Accounts (FBAR), which is filed with the Treasury Department separately by June 30 each year.

A ¡°specified foreign financial asset¡± is:

  1. any depository or custodial accounts maintained by a foreign financial institution:
  2. any stocks or securities issued by foreign persons;
  3. any other financial instrument or contract held for investment that is issued by or has a counterparty who is not a U.S. person;
  4. any interest in a foreign entity.

The minimum penalty for failing to submit the required disclosure with the income tax return is $10,000 per tax year. The penalty increases by $10,000 for each 30-day period following notification from the Treasury Department, with a maximum penalty of $50,000.

There also exists a new accuracy related penalty of forty percent on underpayment of tax attributable to a taxpayer¡¯s failure to disclose interest in foreign bank accounts. (Sec. 6662(j)).

New form 8938 to be released by the IRS. Here is a link to the draft Form 8938.

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.

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_answers11.html.

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