After spending knowledgeable years in the US taxation industry, it is the on-hand experience of US expat tax consultants Hong Kong who have encountered three major misconceptions about foreign tax credits, retirement schemes, and amendment of previous return procedure. If you are an expatriate, your ignorance of these three major aspects of taxes can lead to costly errors and incoherent IRS penalties.
Below are three tips highlighted by the US tax advisor Hong Kong to help the US citizens living in abroad, avoid these common tax pitfalls.
• Accrual process of taxes for the foreign tax credit
Very few taxpayers in Hong Kong know that they can prevent themselves from the liability of double taxation by taking the right advantage of foreign tax credit. To utilize the opportunity, it requires your instant decision whether: want to opt to take paid or accrued the liability to pay tax.
Points to remember: If you are working in a country as an expat with the same tax year as the US, you can accrue all the foreign taxes owed for the year. But, the countries with a different tax year won’t allow you to accrue the tax.
• Provision for Hong Kong retirement contributions
A taxpayer who works for a US employer and withholds social security or Medicare taxes is exempt from giving contributions to the employer as well as from employee MPF. However, he can do so voluntarily, if he wants to. Although making voluntary contributions to Hong Kong US Taxes account seems a good step to save more for retirement.
• Amend the previous return if made a mistake
Mistakes do happen. Nobody is perfect. If you find that you have failed to file some income on your previous year return, you can cross check the details first with a professional tax consultant, then file an amended return form for that tax year.
It will work in your favor to file the amendment form before the IRS catches the mistake as penalties are often less.For U.S. citizens living and working in Hong Kong, preparing taxes is daunting and often confusing. Better to leave the job to its professionals and you do the work that excites you!
