These newsletters come out about this time every year and they are a wealth of information. Probably the big one here is Luke’s suggestion of setting up a S Corp. Especially with the increased scrutiny by the IRS on those who have been claiming the foreign income exclusion.
Check it out below and definitely email him and his team if you have questions or are looking for a CPA. As you can see, he is a busy guy and Luke has partnered with another CPA to keep up. I also put his newsletter in the blue bar up top under Taxes For Contractors if you need to find it again. –Matt
Greetings!
For all you ex-teams, ex-pats, ex special forces, security contractors and operators out there I hope this letter finds you well. In an attempt to keep you current with your tax filings I am sending out this letter as a year end reminder that 2011 is almost over. There are some important new tax law changes this year such as the foreign tax being withheld in Afghanistan and increased IRS scrutiny of the foreign income exclusion and on Schedule C filers which I will address below. Feel free to pass this email on to anyone in your situation who could use the help or anyone that I missed on this email. As always, I will do my best to minimize your tax bill and provide relevant advice for your situation.
Important Updates for 2011:
1) Audits on the foreign income exclusion have greatly increased. Those of you filing a Schedule C as an IC seem to be of particular interest. This is due to the IRS opening a new office specifically dealing with this type of tax return. In a typical audit, you are asked to provide some or all of the following:
a. A letter from your employer stating your work location and job duties for the year.
b. Letter of Authorization from the DOD stating your qualification to work overseas.
c. Copy of your passport to include any visa stamps.
d. A schedule of days outside the US for the period in question.
e. A copy of receipts for expenses claimed as deductions.
f. A copy of your work contract.
g. If claiming bona fide residency, they want to know where you lived, for how long and if it was your intention to remain overseas for a certain period.
2) Based on these audits, I strongly recommend starting an S Corporation for anyone who is an IC getting a 1099. This appears to greatly reduce audit risk. Additionally, if you do not think you could provide the above information or prove your qualification think twice about claiming it as you will most likely incur a 10 – 20% penalty on the additional tax due.