Vol. VI No. 13 - Tuesday May 22, - May 28, 2007
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BUSINESS 
HEADLINES [click on headline to view story]:

US taxpayers advisory: Reporting taxable income

Positive factors in Thai economy

US taxpayers advisory: Reporting taxable income

Joe Krebs, CPA
The June 15th deadline for U.S. taxpayers living abroad to file their Federal income tax returns is rapidly approaching. However, many American expatriates, especially those living in Thailand, often misunderstand what income must be reported on their tax returns. It is clear and simple…all worldwide earned and passive income is reportable whether received in the form of wages and commissions, or as passive proceeds such as Social Security benefits, pensions, interest and dividend income, and retirement account income (IRAs, Roth IRAs, and 401Ks).
US taxpayers reading this Advisory should take special note of the differences between (1) reportable income, which is a combination of earned and passive income, (2) excludible income, which is deducted from reportable income, and (3) adjusted gross income, which is the difference between (1) and (2). Thus, reportable income that is not excludible or tax exempt is taxable only if it exceeds the amounts allowed for the standard or itemized deductions, and exemption amounts. Simply illustrated:
Reportable Earned and Passive Income (1)
Less: Excludible and Tax Exempt Income (2)
Adjusted Gross Income (3)
Less: Standard or Itemized Deductions, and
Number of Exemptions X $3,300
Taxable Income
For example, a single taxpayer under age 65 would not have to pay income taxes unless Reportable Income less Exclusions and Tax Exempt Income exceeds $8,450 (the Standard Deduction of $5,150 + one Exemption amounting to $3,300).
Wages, commissions, and net income from businesses are defined as earned income, and are often excludible if earned abroad; that is, reportable but not taxable as long as the taxpayer is not an employee of the U.S. government and meets certain other conditions; for instance, not returning to the U.S and/or its territories in excess of 35 days during the tax year. Nonetheless, taxpayers are still required to file a Federal income tax return if their earned income from wages and commission was more than the equivalent of $5,150, or if they have self-employed net income of $400 or more. For year 2006, taxpayers can exclude hefty foreign earned and self-employed net income up to $82,400 from their reportable income if they meet foreign residency requirements.
Often times, Americans living abroad erroneously believe that their passive income as earlier described is equally not reportable. Such is not the case; they are required to file a tax return if their passive income exceeds $850. Once again, there is no tax due unless their combined non-excludible earned income and non-excludible passive income exceed the total of their exemptions and standard deduction as previously illustrated.
Taxpayers who do not file their income tax returns on a timely basis are subject to two civil penalties: (1) failure-to-pay and (2) failure-to-file. The failure-to-pay penalty is of 1% of the unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. For US taxpayers living abroad, the due date for paying their income tax liability is normally April 15th.
Failure-to-file is a completely separate issue. This civil penalty is usually 5% for each month or part of a month that a return is late, but not more than 25%. If the taxpayer files a return more than 60 days after the due date, the minimum penalty is the smaller of $100 or 100% of the unpaid tax. For US taxpayers living abroad, the due date for filing their income tax returns is June 15th.
Obviously, it behooves US taxpayers to file their income tax returns annually, reporting all of their worldwide income accurately, whether excludible or taxable. Otherwise, they could be prosecuted for criminal penalties such as tax evasion or preparing and filing fraudulent tax returns in addition to the two civil penalties as noted above.
Hopefully, this Advisory will help simplify much of the confusion about the filing requirements for reportable income and some of the income tax terminology that is too often misinterpreted by US-taxpayers living abroad. The overall goal of this Advisory is to alert US taxpayers about the importance of filing correct Federal income tax returns to preclude future litigation with the Internal Revenue Service.
Joseph “Joe” Krebs, CPA is a U.S. tax practitioner living in Thailand. Send questions about this Advisory to: [email protected]


Positive factors in Thai economy

Lehman Brothers, one of the world’s leading investment bankers, says that the foundation of Thai economy is still strong, and if the political uncertainty ends, the economy should expand by 5.5 percent next year. The firm says investment in Thailand is still attractive as all investment factors are positive.
Lehman Brothers forecast that the Asian economy for 2007 and 2008 will have to deal with lower exports. However, three factors will help support the economy in this region, and they include low inflation, stimulation of investment, and the rising of the Southeast Asian economies. The firm believes the Asian economy will expand by eight percent this year and 8.2 percent in 2008. TNA



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