Life Can Be Taxing

The best laid plans of mice and men ………

I planned to be here every week or so to provide you, dear readers, with another helping of the finest eggs that my mind can scramble. Well, two failures are the result – one obvious and one not.

Obviously, unlike MacArthur, I didn’t return.  As I’ve whined before, “Life Happens” and “Life gets in the way.” Oh, I went through all of the motions: setting aside time in my weekly schedule for writing, additionally intense observations of the world around me, etc. ‘Twas all for naught.

Not obvious, and maybe I should keep it that way, I’ve run out of eggs. Frying pan and whisk are at the ready, my mind is suitably well-heated, the mental lard is bubbling, but no eggs. Rremembering some advice from long ago that addresses not knowing what to write about, I’ll follow it. I’ll write about what I know. 

So, until Life throws another curveball to this batter, I have returned.  Hopefully, my stay and my contributions to this fine Web Magazine will be more to everyone’s liking over the upcoming “so many” weeks, months, years, decades, whatever.  Right now, I’ll try my best and present an article that is fitting for this time of year. Yes, dear readers, it’s “Tax Time.”

A “MOST OFTEN ASKED” QUESTION

Over the past few months, this question has tied with another (that will be discussed in another article) for the most frequently asked question about U.S. Income Tax by taxpayers living in the Philippines.  Like all things “tax,” the answer is not simple. It can be summarized in a single word, however: “Maybe.”

Q: I’m an Expat from the States living in the Philippines. Do I have to file an income tax return?

A: That all depends on your individual circumstances, you may have to file a U.S. Income Tax return, or a Philippine Income Tax return, or both, or neither.

First, let’s look at the U.S. Income Tax filing requirements. Mandatory filing of a tax return with the IRS is determined by three factors:

1. The amount of your “gross income” received during the tax year;
2. The filing status that you are eligible to use; and
3. Your age.

Simply put, for U.S. Income Tax purposes, “gross income” is the total amount of income (regardless if it’s cash, property, or services) that is received during the tax year from any and all sources worldwide EXCEPT any income that is EXEMPT from income taxation.  Note that I did not say income that was “excluded,” “safe-harbored,” or otherwise not counted as “taxable income.” I said, “EXEMPT.)  (Did I say, “simply,” too? Well, that’s as simple as it gets. Remember, with all things “tax,”…………)

There are five different filing status options that a U.S. taxpayer might employ:

1. SINGLE – no need for explanation there;
2. MARRIED FILING JOINTLY (MFJ) – two eligible taxpayers (e.g., spouses) combined their income tax reporting and tax paying into one tax return.
3. MARRIED FILING SEPARATELY (MFS) – each taxpayer of the couple (e.g., each of the spouses) file their own individual income tax return, independent of the other.
4. HEAD OF HOUSEHOLD (HOH) – a lone taxpayer with qualifying tax dependents, who live with the taxpayer for the 12 months of the tax year, and for whom the taxpayer provides at least 50% of the housing and living expenses; and
5. QUALIFYING WIDOW(ER) (QW) – a taxpayer who lost his MFJ partner through death, having filed MFJ for the tax year immediately prior to the year of the death, who has a dependent child, and who has not remarried. (A QW can file MFJ for the tax year of the death, then file as a QW – more beneficial than filing SINGLE – for each of the followers two tax years in which the QW taxpayer remains unmarried.)

The difference involved with age is a little simpler. Taxpayers who are 65 years of age and older are treated differently than their younger counterparts.  It gets a little complex for MFJ filers, where there are the permutations of a) both taxpayers are 65 or older; b) one of the taxpayers is under 65; or c) both taxpayers are under 65 years of age.

IF IT’S TAX-RELATED, THERE’S A TABLE FOR IT

Taking all of the information gathered – as described above – into consideration, the determination of whether or not a U.S. Income Tax return must be filed comes down to a single focus: Does the taxpayer(s) “gross income” exceed the mandated return filing threshold obtained from the appropriate tax table?

The IRS loves tables. They have a table for almost every complex and simple tax issue that can be thought of, and they don’t mind developing an impromptu table for unique issues not covered by established tables. (More tables than a furniture store!)

Here is the table we need for the 2014 tax year – yes, they update the tables annually, adjusting some for inflation, some for changes in economic and other environments, and some just to stay busy between tax seasons (personal comment).

There you are.  Just determine which filing status line (remember to figure in age) you should be looking at, and check out the amount in the column labeled, “2014.” As you can see, the adjustments for 2015 have already been projected and published.

An example:  Both you and your spouse are 65 years old and plan on filing under the MFJ filing status.  For 2014, the mandated filing threshold for you is $22,700.  If your “gross income” does not exceed $22,700, then you are not legally bound to file a U.S. Income Tax return for tax year 2014.

A final note, there are other instances where filing a U.S. Income Tax return is either mandated or is beneficial to do so voluntarily.  If the couple in the example above had any income taxes withheld by the source of their income, they would want to voluntarily file a 2014 U.S. Income Tax return and claim the amount of income taxes withheld as a tax refund.  Some of the other mandatory filing instances are:

• A taxpayer who works for tips that may not have been reported to the IRS;
• A taxpayer whose employer failed to withhold income taxes or report income tax withholding;
• A taxpayer who filed an income tax return in the previous year and was subject to the Alternate Minimum Tax (AMT); and
• That’s enough, already!

PHILIPPINE INCOME TAX RETURN FILING

Not being a Philippine Certified Public Accountant, and not holding myself out as a Philippine Certified Public Accountant, I can only pass along a synopsis of the tax laws to you with regard to filing a Philippine Income Tax return.  For a non-citizen of the Philippines living in the country, as well as for dual-citizens, the requirements are much simpler.  If you earn or receive income within the physical boundaries of the Philippine Islands, you are subject to Philippine Income Taxation on that Philippine-sourced income alone.   An income tax treaty between the Philippines and the U.S. allows for this, as well as allowing for income exclusions and tax credits being available to prevent double taxation (being taxed by both the Philippines and the U.S. on the same income).

I recommend that if you are in a situation where you think you might be liable for Philippine Income Taxes, contact a Philippine tax professional for assistance.  Trust me:  You don’t want to mess with the Philippine Bureau of Revenue (BIR).

There will be more in future articles.  For now, I’m really taxed for words.  Think I’ll go get an egg salad sandwich.