We know you have Questions!!
We at All in One Tax Services are here to help!
Follows are a few of the most commonly asked questions asked by first time Contractors headed overseas (or already trading the “waters”).
FAQs for Contractors Overseas
Q: This is my First deployment, so how will the exclusion work for me?
A: For the 2016 Tax year the maximum exclusion you can take will be $100,800. In order for you to take the entire exclusion you must be:
- In country for a minimum of 330 continuous days (no breaks of 30 or more consecutive days in the US) on foreign assignment in country within any 12 month period
- No LESS than 240 days in country – at this point your exclusion will be phased out
- CANNOT be considered DOD
Obviously you won’t always leave on January 1st, so it is very likely you will be taking your exclusion over TWO tax periods. This will be determined by how many days you are In Country over these two years.
For example: You leave March 26, 2016 and are In Country for a year tour, returning to the states on March 30, 2017. You take one 14 day vacation in 2016 to England, but no US time. You will be considered overseas the ENTIRE tour. You will still report your 14 days in England, but it will not count against you as far as you exclusion. So you will get credit for 281 days in 2016, and 90 days in 2017. EASY!
Q: My tour is over in May, will I be considered late if I wait to file when I return?
A: You have many options. But for contractors overseas there is a special rule which allows you an automatic extension of time (180 days) to file your taxes, without having to file an actual IRS form 4868 Extension of Time to File. So you will have 180 days from the time you come home to file your tax return.
Q: I was told to claim EXEMPT from withholding taxes on my W4, and now I owe taxes. What happened?
A: We see this quite a bit actually. Unless you KNOW you will be making WELL UNDER the income exclusion amount while you are overseas, AND/OR (if you are married or have a second stream of income) you are withholding enough to cover all of your taxable income, it is NEVER advisable to hold an EXEMPT status while overseas.
For example: Your total income for the year is $240k. You do NOT have any taxes withheld. You left in March of 2016. Using the example above your exclusion amount will be only $77390 (based on 366 days in 2016). So! If you are married you would take off $12600 if you use the standard deduction, and $4000 per personal exemption in your household. Let’s say you have one child for this example. So that’s $12000 ($4000 per exemption this year), this will leave you will an estimated $138,000 in taxable income. Assuming your child is under 16 and you can still take advantage of the Child Tax credit that still leaves you with quite the tax bill of approx. $25090. WOW!!!
Q: As a contractor, what can I write off on my taxes?
A: As a contractor you can write off any “Ordinary and Necessary” expense having to do with your job that is NOT reimbursed by your company. If your company does not pay for your travel (ie airline tickets, car rentals) to and from job sites, this is a write off for you. If your company does not pay for Lodging while you are at a job site, this is a write off for you. If you are required to purchase a uniform or specific boots for your job and you are not given some sort of stipend or they are not provided, you can write these expenses off as well. If you need to purchase a laptop in order to perform your job onsite and this is not equipment provided by your company, this is also an expense you can write off.
Have more questions? We would love to hear from you!
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