How to pay US taxes this year

[Falconator]

1. This year will be my first time ever filing US taxes. I am a young guy who just finished college and know absolutely nothing about taxes or tax filing, so I need some US Tax 101 education. I'm totally confused and don't know how to do taxes.

2. I just started working online last year and am making good middle-class level income. This is all foreign-earned income from freelancing platforms (US location profiles) and direct referrals (PayPal payments that go into my US PayPal account).

3. My permanent address is in California, I had a California drivers license, but it is expired. I don't know if I have to pay CA taxes.

4. I'm married to a Thai and am under 30 years old.

 

The tax filing deadline is July 15, so I'm trying to get started.

 

[Mama Noodle]

Im 36 and been living overseas as a US citizen since I was 24. 

 

Pay the money for a CPA or tax attorney. Mine costs $250 per filing. 

 

If you have been outside of the USA for 330 days then you are eligible for a pretty fat exemption due to the physical presence test. 

 

Im a resident of a state that does not collect state income tax, so I can not speak for Cali, but im inclined to think that they will want a piece. 

 

Get a CPA or Attorney. They can do it all by email/remotely. Ive been working like this for quite a while. 

[lopburi3]

36 minutes ago, Mama Noodle said:

so I can not speak for Cali, but im inclined to think that they will want a piece. 

I suspect that is an under under statement - Taxact or other online options would be a lot cheaper than using a 3rd party and they are quite easy to navigate.  Believe most are pay when file so you could try with no obligation.  Another option if wife does not have much income is to obtain ITIN for her during filing of a joint account (she much agree to paying tax on her income but can file a joint return as married).

[Mama Noodle]

4 minutes ago, lopburi3 said:

I suspect that is an under under statement - Taxact or other online options would be a lot cheaper than using a 3rd party and they are quite easy to navigate.  Believe most are pay when file so you could try with no obligation.  Another option if wife does not have much income is to obtain ITIN for her during filing of a joint account (she much agree to paying tax on her income but can file a joint return as married).

 

All true ^

 

And all the more reason for OP to contact professionals. 

[Falconator]

Any recommendations?

 

A quick Google search turns up dozens of competing providers.

 

[lopburi3]

I do not have non US income but have been using Taxact for several decades and it allows foreign address (a key factor as some do not it seems).  I believe many use Turbotax.  As for CPA have no information and would not use myself unless specialized as they often have little knowledge for foreign accounts and fact software is so good these days.  But if very high income might make more sense.

[cmarshall]

The OP should take especial care to avoid having to pay income tax to California which is known to be especially aggressive in trying to collect income tax from former residents who have moved out of the state.  He should be able to avoid CA state income tax, but only if he takes great care to avoid making himself eligible.  The main point is to avoid behavior that CA could interpret as indicating an intention to return to CA at some point in the future, but there is more to it than that.

 

Here's a start:

https://www.lexisnexis.com/LegalNewsRoom/tax-law/b/stateandlocaltaxation/posts/california-residency-for-income-tax-purposes

[taxout]

California will do its best to tax you. Best to break all contacts. Voting, bank accounts, insurance, etc. If you need a U.S. address, look to Nevada or another no-income-tax state.

 

Careful with the first year using the Federal earned income exclusion: the 330-day calculation can be a bit complicated if it laps two calendar years.

 

Remember that if you're self-employed, you remain liable for FICA self-employment taxes even though you are working overseas and even though all your income may be excluded from Federal income tax under the foreign earned income exclusion. You should probably be making quarterly payment of FICA tax throughout the year. It's a flat 15.3 percent tax, so it can quickly add up, especially if there are interest and penalties for late payment.

 

Do not forget FBAR!

[Falconator]

How much are California state taxes? I only have a few bank accounts and a permanent address there (actually my dad's new house, and I've only stayed there for about a week). I also haven't visited the US in 5 years.

 

And I'll try to pay quarterly FICA taxes then. Hope the July 15 extension will save me from penalties and late fees.

 

[Falconator]

And I don't have any property in my name in California, no insurance, no utility bills.

[lopburi3]

1 minute ago, Falconator said:

And I don't have any property in my name in California, no insurance, no utility bills.

No DL?  Believe that is often used by states.

 

Tax Bracket	Tax Rate
$19,495.00+	3%
$30,769.00+	4%
$42,711.00+	8%
$53,980.00+	9.3%

[Falconator]

That pushes my tax rate up to 24.6% if I'm paying both federal and state taxes!

 

No tax brackets if you're a self-employed American living abroad for over 330 days per year?

[taxout]

You're talking about self-employment tax (FICA or Social Security tax as it's often known)?

 

No, it's a flat-rate on your earnings from self-employment. (Actually, if your earnings are relatively high -- over $137,700 in 2020 -- the tax drops considerably since you only pay the Medicare tax above that amount.)

 

Note that if you are not self-employed but an employee of a foreign (non-U.S.) company, then you don't pay Social Security tax on your earnings outside the U.S.

 

As said, it would be in your interest to get some professional advice; we're just summarizing a complicated area for you here.

 

 

[cmarshall]

3 hours ago, Falconator said:

And I don't have any property in my name in California, no insurance, no utility bills.

So, you think you can just decide what the criteria for tax domicile in CA are off the top of your head?  Are you registered to vote in CA?  Have you voted by absentee ballot since you left or do you intend to in this year's election? Do you use professional services from a provider in CA such as a lawyer, accountant, doctor, etc?  Do you have a CA driver's license Do you have friends in CA?

 

CA uses all of those criteria and more to decide if you have an intent to return to CA at any point in the future which would make you liable for CA state income tax from the time you left. 

 

The news is your tax liability does not depend on what you think reasonable criteria would be.  That's true with every state, but the worst of all is CA.

 

So, don't be stupid.  Look up the tax domicile rules for CA and make sure you don't qualify for any of them.  Better yet, hire a good lawyer or account to advise you, but not one in CA.

 

Can I make it any clearer than that?

[Falconator]

4 minutes ago, cmarshall said:

So, you think you can just decide what the criteria for tax domicile in CA are off the top of your head?  Are you registered to vote in CA?  Have you voted by absentee ballot since you left or do you intend to in this year's election? Do you use professional services from a provider in CA such as a lawyer, accountant, doctor, etc?  Do you have a CA driver's license Do you have friends in CA?

 

CA uses all of those criteria and more to decide if you have an intent to return to CA at any point in the future which would make you liable for CA state income tax from the time you left. 

 

The news is your tax liability does not depend on what you think reasonable criteria would be.  That's true with every state, but the worst of all is CA.

 

So, don't be stupid.  Look up the tax domicile rules for CA and make sure you don't qualify for any of them.  Better yet, hire a good lawyer or account to advise you, but not one in CA.

 

Can I make it any clearer than that?

Good advice! Very clear. Appreciate the tough love bro.

 

[GinBoy2]

So my take on all of this.

 

I filed using my Thai address and used Turbotax for years, it's as good and a whole lot cheaper than using a CPA or tax preparer, guides you through the whole process.

 

Then you get to California, that's a different problem. Sacramento is notorious for claiming that you are a resident and thereby liable for State tax. 

 

The good news is that your DL has expired, but it's time to dump your mailing address at your Dad's house. Just sign up for one of the many companies that provide you with a mailing address in a non tax State.

 

Now this all maybe a moot point if you never intend to return to CA. But never say never. You never know what will happen in 5, 10, 15 years, and if you did go back to CA without doing this 'housekeeping' it could become a real problem down the road.

 

I'm a Californian, Kern County native, but all the time I lived overseas I was a South Dakotan, still am actually since I kinda like the place.

 

But check this out.

 

https://americasmailbox.com/advantages

[ChouDoufu]

9 hours ago, Falconator said:

2. I just started working online last year and am making good middle-class level income. This is all foreign-earned income from freelancing platforms (US location profiles) and direct referrals (PayPal payments that go into my US PayPal account).

 

forget crowdsourcing your tax returns.  you need professional advice.

 

uncle sam and aunt calli are greedy sob's!  they're gonna want their cut.  pretty good chance you'll owe based on the freelancing platform being located in the us along with your pay going into a us account.  it may not matter where you're physically located.

[Falconator]

24 minutes ago, GinBoy2 said:

https://americasmailbox.com/advantages

Thanks. I've checked this out, and am looking at a few other options. $200 per year may be worth it in this case. But I need a good location to put on my online work profiles, and banks should hopefully have no problem with them.

 

4 minutes ago, ChouDoufu said:

you need professional advice.

I keep getting advised, "find a tax professional." Where do I start? Intuit and H&R Block keep saying they have live agents. There are "taxes for expats" websites everywhere. You get quotes from $100 to $1,000. Then some people say it's best to just use TurboTax software and not hire anyone.

 

Any leads would be greatly appreciated. Or even better, tax professionals that you have personally worked with and would recommend.

Edited May 8, 2020 by Falconator

[ChouDoufu]

6 minutes ago, Falconator said:

Thanks. I've checked this out, and am looking at a few other options. $200 per year may be worth it in this case. But I need a good location to put on my online work profiles, and banks should hopefully have no problem with them.

 

I keep getting advised, "find a tax professional." Where do I start? Intuit and H&R Block keep saying they have live agents. There are "taxes for expats" websites everywhere. You get quotes from $100 to $1,000. Then some people say it's best to just use TurboTax software and not hire anyone.

 

Any leads would be greatly appreciated. Or even better, tax professionals that you have personally worked with and would recommend.

 

you might start by contacting that freelancing platform.  find out where they are incorporated.  what company info is on the tax forms they send you each year?  do they send you tax forms?  what tax advice do they give their other freelancers?

 

that's probably some of the first questions you'll get from your advisor.

[Falconator]

Much of my income is from Upwork. They have many FAQs available online. The reason I need to set my location as the US is because many jobs on Upwork are US-only jobs.

 

When searching for tax professionals, many competing companies show up. Have any of you guys used these?

 

https://www.greenbacktaxservices.com/

 

https://www.cpasforexpats.com/

 

https://onlinetaxman.com/

 

https://www.myexpattaxes.com/

 

https://www.taxesforexpats.com/

 

https://www.ustaxconsultants.net/

 

https://expattax.com/

 

https://protaxconsulting.com/

 

Edited May 8, 2020 by Falconator