Business is Personal (Finance)

I decided to take an early look at my taxes to avoid being overly surprised by an April 15 tax bill. While I have yet to get most of my tax documents, I can make good enough guesses to get me within a thousand or so on my income.

For the first pass, I did the taxes by hand. The starting point of course is the 1040 and as you enter each line by line, you get directed to more forms and instructions. All-in-all, I ended downloading and filling out:

• 1040 - U.S. Individual Income Tax Return
  
• 1040 Schedule A - Itemized Deductions
  
• 1040 Schedule B - Interest and Ordinary Dividend
  
• 1040 Schedule D - Capital Gains and Losses
  
• 1040 Schedule E - Supplimental Income and Loss
  
• 2350 - Application for Extension of Time to File U.S. Income Tax Return
  
• 2555 - Foreign Earned Income
  
• 4562 - Depreciation and Amortization
  
• 6198 - At-Risk Limitations
  
• 8582 - Passive Activity Loss Limitations
  
• 8889 - Health Savings Accounts (HSAs)
  

For 2009, U.S. citizens living overseas and meeting either the bonafide residence or physical presence tests can exempt up to $91,400 of their earned income. For the physical presence test, you must have lived 330 days outside the U.S. during a 12-month calendar period. If you did not meet the physical presence test during a calendar year but will so by the tax filing date, you can pro-rate your time during the calendar year. So for tax year 2009:

• If entered foreign soil before 5/20/2009, you can file your taxes on 4/15/2010
• If you entered foreign soil from 5/20/2009 to 7/20/2009, you have an automatic 2-month overseas extension and you can file your taxes on 6/15/2010.
• If you entered foreign soil after 7/20/2009, you can file 2350 for an extension up to 10/15/2010. On that form, you can enter your estimate of when you will meet the physical presence test in order to file taxes

If you owe taxes, taxes are still due on 4/15/2010 to avoid interest regardless of whether you get an extension or not. In my case, I do not meet the 330-day test for calendar year 2009 but will do so by the automatic overseas extension date. However, my preview taxes say I will owe a few dollars so I will file 2350 anyways to include the payment.

Some more wonderful tax tidbits for those who started working overseas in 2009:

• Your stay starts the midnight after you enter a foreign country
  
• Flying over international waters does not count
• Flying over another foreign airspace does count
• Earned Income Exemption can reduce/eliminate eligibility to contribute to a Roth IRA
• Earned Income Exemption will not make you eligible to contribute to a deductible IRA if your income exceeds eligibility thresholds
  

When it's time to finally calculate tax, make sure you use the Foreign Income Worksheet. The $91,400 exclusion sits at the bottom of your earned income while most other deductions (HSA, IRA, etc) all sit on the top. I went from going "holy shit I'm getting a lot of money back" to "oh yeah, that's about what I expected".

For pass two, I downloaded TaxAct and entered my income & deduction estimates. TaxAct proceeded to eliminate a bunch of deductions I no longer meet (but did so last year). Oh well ... such is life. At least my tax numbers match my guesses from last year on withholding and I only owe a few hundred this coming tax time.

My next task -- I will have read up about California state taxes. There is no California overseas exemption so I am taxed as a resident because I am employed by a California corporation. I probably will need to file an extension also as states piggyback on the Federal filings.

(Filed in taxes)