Filing US taxes, how to show proof of income?

[pwilliams89]

This is my second year teaching in China and I've just realized I need to file US tax returns. I guess I will file for 2 years if I can. 

 

How can I show proof of income? I teach in a public school and I got the job through a US organization but even my organization's director told me they do not provide any advice on US tax returns. Anyone out there file US tax returns while teaching in China? How do you substitute the W-2 form? 

 

Any advice is appreciated, thanks.

[SinoDragon]

I don't think you need to worry about this. If you file US tax, be sure to file form 2555. If you make less than $100k (around there), you don't need to pay any US tax under income exclusion. So just fill out the normal 1040 and be done with it   

 

Also check out something called FATCA, this gives me headaches.

[sburkle]

You don't. 

[pwilliams89]

Hey SinoDragon, I forgot to mention that I'm not overseas a whole year, I came back in the summer for two months. Basically I was just under the 330 days you need to be overseas to be excluded from taxation, you think this would still matter?

[SinoDragon]

I think there are two methods to determine whether you count as an expat. You sure you've done both tests and still don't qualify? Would be good to file as an expat since you won't need to pay any tax on earnings <$100k. But if you cannot claim the expat status, technically I guess you should file as a domestic which means you need to pay full tax (since there is no withholding). You might be able to claim tax credit if you paid any tax on this income to the Chinese government. Good luck!

[pwilliams89]

That's the issue I face, I think in the end I don't qualify for expat status. I'm abroad about 10 months out of every year. I know you must stay abroad for at least 330 days to qualify for tax-exempt status, you say you think there is another method to determine if you qualify? 

 

Tax is automatically deducted from my Chinese salary but I have no idea how to show that. That's basically what my first question was about, I could give a percentage that I'm taxed in China but I have no idea how to prove this....or do you have to? Any proof that I pay taxes to my public school in China is going to be, well, in Chinese. So just not sure how that works.

[SinoDragon]

Like sburkle said, you may not need to show proof of tax paid to the Chinese gov't. Why? Because we don't make enough to trigger an audit.

 

But back to the real issue, I think you need to file domestically and paid tax on your Chinese income. Sorry man...

[aroberts42]

Your company doesn't provide any tax documents to the US. The US government has no way of knowing how much money you make overseas, if any. You could be over here working, volunteering, backpacking, or panhandling for all they know. As mentioned above, don't worry about it and simply file as unemployed. To ease your conscience, you know that you are paying taxes in China, but the Chinese government won't issue you any receipt for that. If you file your income with the US government but have no way to show you paid taxes in it already, you are going to end up paying taxes again. Save yourself the trouble and don't worry about it.

[ouyangjun]

The China government definitely issues receipts for the taxes paid on money earned in China... unless your company is not declaring it to the government, which would mean they are not following regulations (or they have some special business license - my experience is with two different WFOE's - wholly foreign owned entity).  If the company is claiming your pay, then each month they claim the money you are earning while in China.  Each month, based on your income you will be taxed directly out of your pay and this money is paid monthly.  The government can supply these tax reciepts upon request... usually your company can handle this for you, you just need to ask the tax bureau to provide the receipts.  

 

I've been in China for around 6 years now and each year I claim taxes in America (with the help of a professional service, so I only know enough detail to be dangerous).  I would not suggest not filing taxes in America.  I have a friend who did that while working in Canada... when he moved back to the USA for a different job he owed 10,000 USD in taxes because his situation was all screwed up.  

 

That being said, the governemnt may never find out what you're really earning anyway if you don't tell them...  all depends on your situation.

[ouyangjun]

Also, if you show that you paid tax on your salary in China, the US will not double tax you.  There is a tax agreement between the two countries.  Essentially if your tax paid in China exceeds what you would've paid in America, then you don't owe the US tax money.  If the tax you paid in China is less than what you would've paid in America, then you need to pay the difference.  Since China taxes are higher, you shouldn't owe anything to the US.

 

You will need to get the tax receipts from the tax bureau showing you paid taxes on your salary.  

[icebear]

So long as you make less than USD 97,500 per year while abroad, filing taxes is very easy. You simply attach a 2555EZ to your simple 1040EZ. The first states that your income is below this level and that you qualify for a foreign income exemption (which isn't particularly hard, granted you are abroad) and you're set.

 

At that point filing is basically informing the IRS that you made income abroad, but they don't have the right to tax it. In your situation use the "bonafide foreign residence" test, which means you intend to stay in the foreign location for more than one year (you've already been two). Failure to file for several years and then popping up on the system when you go back could raise some red flags, so I'd suggest filing, given how easy it is. No supporting documentation is necessary when you file, although you may want to take a photo of your employment contract and save that in case you are audited in the future. I've been told by IRS officials in Beijing that with most expats they have to rely simply on those sort of contracts, since foreign companies don't issue W-2's.

 

What you definitely need to consider is if you need to file a FBAR with the Treasury, required if the total of all your foreign bank accounts exceeds USD 10,000 on any day of the year. There is no payment/tax, simply declaring that you hold assets abroad. Failure to file ranges in fines from USD 50,000 upward. Its a new regulation and no one has any idea how strict they are going to get on this, so best to comply for now.

 

You should file for back years, but make sure to find the right forms for the right year on the IRS website. Once you do it once repeating the process should only take a few minutes, given how straightforward it is for the relatively low income abroad.

[pwilliams89]

icebear, no I have not been abroad for two years. This is my second year teaching in China but I returned in the summer last year. My first almost full year was from August 1 2012-June 28 2013, so I think that fits the 330 day threshold. Is that a "tax year"? I didn't file taxes that year, honestly cause I didn't know I had to. But now I've only been in China about 7 months (returned in August 17 2013 up till now). I guess one of the things I'm really confused about is sorting the dates out, and this is almost a more general tax question, is a tax year April 15-April 15 or something? I'm really new to this.

 

Also, thanks for that 2555-EZ form, it's helpful. If I do my taxes online I could save that or something and attach it electronically? Second, and maybe this is a stupid question, is there any correct way to enter the dates electronically on the form? Let me clarify too, I'm been in China now since Aug 17, 2013, before that I was in China Aug 1, 2012-June 28 2013, was that an entire tax year? As you can tell I'm a noob to this, never filed taxes before, could I just file taxes for the 2012-2013? or do I need to include my time in China up until this point and if so is that going to mess things up (being in China 11 months, gone 2 months, in China again now going on 7 months.

 

I hope what I'm asking makes since, I can try an clarify more, and thanks a lot everyone for your advice. It's slowly getting clearer to me, I don't think I want to just ignore it and do nothing. I've paid interest on student loans for a year now so I'm actually hoping I can get some kind of rebate out of that.

[icebear]

There are two ways to be tax exempt for expat income:

• 330+ days abroad - you earn the full USD 97,500 exemption
• Bonafide foreign resident - basically you've moved abroad with the intention to live primarily abroad for the indefinite (>1 year) future. If this doesn't cleanly line up with a calendar year, you will only get a portion of the above exemption, but that should be fine because you likely make nowhere near that much teaching English. (Otherwise, you could afford a tax professional.)

Taxes are normally filed by calendar year, e.g. full 2012, but in the second case you can declare your bonafide residence abroad over any 12 month period. Thus, if you landed in China summer 2012 you could say you were a US resident through June 2012, but then a bonafide Chinese resident from July 2012-2013. As result you can deduct USD 97,500 x (6 months/12) from your income as tax exempt. You actually should use the number of days/365 for your exact dates of first entry into China to live.

In the next tax year (2013) you could say you are a bonafide Chinese resident from Jan 1 2013 through the full year, less the months you were in the US (I believe - I'm always gone for 330+ days). Its fine for the periods to overlap, since the first one was only used to calculate your tax exempt income in 2012, and wasn't used to get an exemption on greater than 100% of the USD 97,500 maximum. You can download the 2555EZ instructions for each year to figure out the exact calculation.

Just to caution - I always have the full exemption, but the above is based on a workshop I attended with IRS agents explaining the rules to expats in Beijing. In a situation as simple as yours I don't think its worth paying a tax preparer - it will probably take you under an hour to do the first time and less for the next one.

Unless you paid taxes in the US during the tax year, it won't be possible to get a rebate, I think - but I really am just guessing on this last point.

[ouyangjun]

Really good points icebear.  

 

One other point that is critical for anyone who may be long term in China, is that every 5 years you will want to spend 30 days in a row (or a total of 90 days in a calendar year) outside of China. If you don't do this every 5 years your tax situation inside of China changes, which is not good.  As long as you adhere to this 5 year rule every 5 years, you will only be taxed in China on what you make in China.  But if you lapse and don't stay out of the country for the required days, then you are taxed in China on your global tax - not good.  Which means taxed on any investments or income outside of China (example: selling stocks, dividends, interest investment, selling assets/housing, etc.).  I know China has a hard time enforcing this right now, but better to not get stuck on the wrong end of that one once they get their data together.  Even if your current situation does not have these things outside of China, who knows how long you could be here and what your situation could be in 10 to 15 years.  You wouldn't want to screw it up due to bad insight in the early years.  Could really screw up your tax situation in China and abroad.

[icebear]

That's funny - I just had a friend that spent a month in his company's London office specifically for this reason. It's apparently exactly as easy as you describe. A larger concern for him (and maybe others) is that it also impacts your ability to deduct cost of living expenses from your salary (up to 30% reduction in taxes paid!), which is a pretty big deal if your income is decent.

 

Thankfully I don't have to consider this for another few years, as I just came back to China in 2012.

[Virus4762]

I don't know why so many people make such a fuss about this thing. Just file as unemployed and enjoy the benefits of having a 10% cap gains tax.

[Steingletscher]

Though it might seem a little off topic, if I am a student enrolled in a school that that doesn't have US government accreditation and am on a student visa, should I fill out taxes or not? I'm not even sure if I'm still on the US government's radar.

[icebear]

I'm not certain, but I believe if you fall below the poverty line you may not be required to file. Just a hunch!

To the post before on just filing as unemployed - it's probably better to abstain from filing than to file a deliberately fraudulent return.

[Jianglifu]

I am a US citizen.  My wife is Chinese.  We have been married for six years.

 

I am going to file US taxes and my question is:   What form do I use 1040, 1040a or 1040EZ?  I know about the 2555ez.  On the 1040 it asks my filing status...do I put married filing separately?  My wife has no ssn or itin, and feels that when she gets a ssn she will file. 

 

So confusng and I have got three different answers from the IRS.  Anyone have some advice?

[PetraWyatt]

Jianglifu, as I know, your employer should provide you with a filled W2 form. And I guess, your wife will file her form separately. Of course, I'm not a professional consultant, but the only thing I can advise you is to look through the W-2 form online on  https://fillable-form-w2.pdffiller.com/ To my mind, it's the form you need in you situation.