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There are really 2 issues here (1) Whether to pay estimated taxes quarterly (because there's no withholding going on) and (2) the foreign income exclusion
On the first, what you really doing is being sure that you don't end up with an underpayment penalty when you do your taxes after the end of the year because you did not pay enough all along the way
Whether this happens through withholding from W-2 wages or through quarterly estimated payements there will be an amount that should have been paid in by the time you actually DO your taxes
ON the second issue, the foreign earned income exclusion, this is something that will also be done with your taxes after the end of the year, IF it turns out that you qualify
Here are the requirements for the Foreign Earned Income Exclusion: http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Requirements
And here are the guidelines regarding the underpayment penalty from IRS as well: http://www.irs.gov/taxtopics/tc306.html
I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)
Please let me know if you have any questions at all ...
so on my first question, since i will be abroad, and the company abroad has nothing to do with any american paperwork, so there is no W2, I must do quarterly payments? So in other words, does it mean, all expatriates, who live abroad and have income, file tax returns 4 times a year?
on my 2nd question, i am asking this: when you choose either Foreign Income Exclusion or Tax deduction option in your first expat year, for all the following years, must you keep that selection forever? Because one accountant had told me so and it didnt make sense to me. I am asking to get second opinion
ok so, if i choose foreign income exclusion option at the end of the year, (and assuming my overseas income will be less than 97 K) because i will not owe any tax on it to USA, so i will not have to do estimated taxes correct?
but if at a later year, say i establish a business there and it becomes succesfull and i earn much more than 97 K, and i choose to take other option, which is deducting the foreign tax paid, and if i think i will end up with tax to US, then for that only i have to make estimated payments correct?
and no matter which option i choose, i can change it later , according to what you said as I understand. i was concerned because in my first years i will just work somewhere and taking just the income exclusion is easier. but what if i start a business there and start making a lot of money? then deducting just 97K and paying double tax on the rest wont make sense. so i have to be absolutely sure that it is interchangeable every year
so estimated tax payments is really only that form and nothing else? so it is not like filing income tax, it is just making a payment right? and to fill it out, because i will have foreign income, i will have to use the other worksheets related to foreign income to calculate just like when doing regular income taxes correct?