It’s already Sunday afternoon and I haven’t even started on this article (and many other projects). The tax accounting business is keeping me busy. Well, sort of busy. Were I truly busy, I wouldn’t be here poking at my tablet’s virtual keyboard.
As I hunt and peck, I’m trying to make the best of a tax season phenomenon – the time of famine or feast. At this time of the season, there is either no tax information coming in from clients still needing to file their tax returns (the famine) or there are massive, mega-dumps of information clogging my inbox from those wanting next-day turn-around on their returns (the feast).
So, while I sit and hunger for more work, I’ll jot down some ideas and try to magically transform them into an article. (It appears that I also need to make an appointment with the dietician concerning my strange appetite and feeding habits.)
Here are some bits and pieces of things running through the old gray matter.
ON THE TAX SCENE
A question keeps popping up almost daily from “Expats” and “Expat Wannabes” regarding U.S. Income Tax return filing obligations and deadlines. They sort of morph into something like, “Since I’m living outside of the U.S., I shouldn’t have to file an income tax return but, if I do, I heard that ‘Expats’ have an automatic extension until October. What’s up with that?”
As for U.S. Income Tax return filing requirements:
- All “U.S. Persons” for income tax purposes are required to file an annual income tax return and pay any associated income tax.
- A “U.S. Person” for individual income tax purposes is a U.S. citizen, a U.S. resident alien (“Green Card” holder), or a U.S. nonresident alien who has income sourced from the U.S.
- Citizens and resident aliens must report, and pay income tax on, all income they have received during the tax year, regardless of its source – “worldwide income.”
- Nonresident aliens must report, and pay income tax on, all income they have received during the tax year from sources within the U.S.
- Taxpayers have this obligation regardless of where they reside, so “Expats” must file an annual income tax return.
As for filing deadlines:
- All income taxes must be paid on or before the 15th day of the 4th month following the end of the taxpayer’s tax year with no exceptions – for most individuals, that is April 15th.
Taxpayers whose “tax home” is within the U.S. or Puerto Rico must file their income tax returns on or before the tax payment due date – again, for most, April 15th. If additional time is required to file a complete and accurate return, these taxpayers may request an extension of time to file their returns. This extension is for 6 months, moving their filing deadlines to the 15th day of the 10th month following the end of their tax year – again, for most, October 15th.
Taxpayers whose “tax home” is outside of the U.S. and Puerto Rico also have the same income tax return filing deadline as other taxpayers – again, for most, April 15th. However, if they are outside of the U.S. and Puerto Rico on that date, they are given an automatic 2-month extension of time to file their income tax returns AND pay their income taxes without incurring a penalty assessment. Those paying their income taxes between the original deadline and the automatically extended deadline will be assessed interest charges for each day between the original deadline and their date of payment. Paying income taxes after the automatically extended deadline will result in the taxpayer incurring both interest AND penalty charges.- A “tax home” is the place of residence that the taxpayer has established for conducting business and paying obligations, such as taxes.
- If a taxpayer enjoying the automatic 2-month extension requires additional time to file a complete and accurate tax return, the taxpayer may request an extension to file, similarly to others requesting extensions of time to file. Their “follow-on” extension is for 4 months, bringing them in line with other taxpayers.
There’s no easier way to explain the ins and outs of this topic. If you have the same question bothering you, read and re-read the above until the little light comes on. That’s the only way you’ll get it.
INTERNET SPEEDS IN THE PHILIPPINES
A short piece here regarding the horse I seem to be beating to death lately. Relax, though. It’s about something that you and I can’t control. But it is newsworthy.
Internet speeds in the Far East have been hampered for the past few months due to a couple of breaks in undersea communications cables. Though Internet service providers have been busy with “workarounds” and re-routing their links to off-shore trunk terminals, speeds and latency 
issues still abound. This time, it’s not the service provider’s fault (at least, it’s not their fault for the most part).
While some service subscribers are enjoying their average or better speeds, low or negligible byte losses, and respectable latency reports, most others still feel the sting – yours truly included.
GOOD NEWS! Complete repair of the breaks and return to full service is projected for the middle of April. (~17th). So, get your speed test software and/or speed test favorites in your browser up to date and ready. I’m sure that everyone will be testing and loading down the bandwidth for the first few days. But have hope. Broadband speed service will reappear in the Philippines.
I’ll keep my fingers crossed anyway, just in case ………
Thanks Paulk. I always thought that my internet somehow or other, magically came through the air! No cables involved!!! I’m on Smart Bro. But then, I am old.(my usual excuse for my ignorance). About a month ago I did experience really bad reception, so it’s good to know that things will improve.
Hi John – I saw a news release yesterday from PLDT announcing that the undersea cable breaks have been repaired completely and service has been fully restored to the Philippines.
So, things should be showing improvement right now! Hopefully, for both of our sakes, they are! 😀
IMPORTANT NOTE:
As provided by PLDT and by friends on Facebook:
…..PLDT Home
…..Yesterday · Edited
…..CUSTOMER ADVISORY
…..Dear HOME DSL/HOME Fibr Subscriber:
…..The consortium operating the Asia-Pacific Cable Network (APCN) which includes the Philippines has
….. fully repaired the two breaks in its fiber optic undersea cable network in China-Korea and Taiwan-
…..Japan. Thus, PLDT services affected by this fiber cable cuts are now fully restored
So, it appears all is well. I redid my DNS Benchmark testing and found that the DNS servers I had been using were tied to the “work-around” and were no longer being used (i.e., they’re now “dead” – no response”). So, I’ve new primary and alternate DNS servers identified and in place. Things are faster.
A bit of trivia related to taxes.
the USA and the Tiny African nation of Eritria are the only countries in the world that tax their citizens when they do not reside full time in those countries.
http://en.wikipedia.org/wiki/International_taxation#Individuals
Hi Tito Joe – Yes, currently, that is true with regard to individual income taxes.
At one time within the last decade, that number was up to about four or five, but changes in law or changes in geopolitics has shaved those numbers down to two.
For businesses, the USA is one of seven countries that tax “worldwide income.”
A side-effect of this worldwide income taxation policy is the numerous tax treaties entered into by the USA. The main purpose of these treaties is the prevention of “double taxation” of income. So, one governmental department (Treasury) provides employment opportunity for another (State). 😆
http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Tax-Credit
Hi GaryM – Thanks for the link to the IRS tax topic on Foreign Tax Credit.
Care has to be taken with these tax topics as they are sharply and narrowly focused on the topic itself. They leave out and don’t link to the ancillary or “good to know” information that is provided in other tax topics. By reading a tax topic alone, you may never find out about a tax liability it causes you which is discussed in a different tax topic that you don’t even know exists! 😯
A much better source for Expats needing US income tax information is IRS Publication 54, “Tax Guide for U.S. Citizens and Resident Aliens Abroad.” The link: http://www.irs.gov/pub/irs-pdf/p54.pdf
btw, employing the Foreign Tax Credit is one of many ways to avoid double-taxation when compiling your income tax return and calculating your net taxes due. Other methods include:
– Foreign Earned Income Exclusion – Currently, $97,200 of “earned income” resulting from providing labor or services while physically outside of the USA can be excluded from gross income.
– Foreign Tax Deduction – Taking a deduction on Schedule A, sometimes makes more sense than taking the Foreign Tax Credit. Its effect is a reduction in taxable income.
Each method of avoiding double-taxation works against the other methods, however, so as to avoid “double-deduction,” “double-credit” and “double-exclusion.” For an example:
– Taxes paid to a foreign tax agency on earned income excluded from the USA gross income cannot be off-set by the Foreign Tax Credit or taken as a Foreign Tax Deduction on the US tax return.
– If you paid foreign taxes, you must research and discover whether or not they can be used to compute a Foreign Tax Credit or take a Foreign Tax Deduction. Not all foreign taxes qualify.
– Paid foreign taxes that are eligible for credit or deduction, if taken, must be taken as EITHER a tax credit OR a deduction — NOT BOTH.
Thanks Paul that is why you are the CPA and I am just the VITA/ TCE volunteer.
Started out with VITA and volunteering in the military, then VITA and volunteering while back in college, then, after becoming a CPA, worked with VITA peeps, reviewing and signing their work!
You’re on the right path! 😀
Paul, Thanks for the good tax details – – I have a question of my own perhaps you could help me with. Me and my wife are planning an extended residency in the Philippines. She is a dual resident (US-Phil). I am planning to ask my US employer to allow me to continue my current job working remotely from the Philippines. If they say yes, I plan to pay US taxes as usual. Will I have tax obligations to the Philippines?
Thanks Paul – Ed
Hi Ed – Thanks for asking! That’s a good question, and it comes up quite often. Let’s see what the law says:
The National Internal Revenue Code of the Philippines – Republic Act No. 8424 – provides the general principles of income taxation in the Philippines, and specifies “who pays income taxes on what and when.” It addresses the “who” completely, listing income tax responsibilities for the different permutations of immigration status and residency status in which an individual might find him or herself in.
For your case, here’s the citation of law that answers your question:
“General Principles of Income Taxation in the Philippines–Except when otherwise provided in this Code:…(D) An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines;….”
— Republic Act No. 8424, TITLE II, CHAPTER II, SEC. 23(D).
So, simply stated:
* You would be required to pay Philippine Income Tax on any income your receive from a source physically located in the Philippines.
* Since you are:
1) working for a US employer not physically located in the Philippines;
2) providing all of your services to that US employer alone; and
3) receiving income in the form of compensation for those services provided solely to that US employer,
then you are not obligated to pay Philippine income tax on that compensation you receive.
Side Note: If your wife is a US-Philippine “dual-citizen” (you can’t have dual-residency), her tax obligations fall under the Republic Act which establishes the pathways to dual-citizenship. In a nutshell, it provides that her tax obligations as a dual-citizen are the same as yours.
Hope that helps you, Ed, especially when deciding whether or not to move to the Philippines. But make sure that you have more important reasons for making the move. Never plan your life on taxes, plan your taxes on life!
😆
Paul, I appreciate your detailed and concise reply. This kind of information is invaluable to someone like myself who is planning a move to the Philippines, but really needs to understand all the implications.
I owe you one! Thanks, Ed
No problema, Ed. You are too kind in calling that answer “concise”! 😆
When it comes to taxes, there just aren’t any “short and sweet,” simple answers for even the simplest of questions. Your question, for an example, took more time to refine, distill, and chop down to a size that’s “blog friendly” than it took to merely say “Yes” or “No,” both of which would have been followed with a BIG “BUT….”!
😆
It would seem that I am going to need some help with taxes and the IRS. I live in Tacloban City…If you are willing to help or know somebody in the Philippines that would be please let me know…Thanks Lee
I would be more than happy to help, Lee. I’ll send you a private email. Paul