Sunday, September 2, 2012

Turning in my tax returns

belastingdienstWhile most folks get their taxes done in April, I’ve only file extensions  The real work comes in September, when the fiscal year closes for the BV and the personal returns can be completed.  The job has gotten easier as more banks and brokerages move historic records online, and I’ve worked with Dutch and US accountants to get records complete ahead of the October 15 filing dates.

Nonetheless, expat taxes are never simple, especially for US citizens.

  • Compile the January 1 balance sheet.

I survey all of the year-end statements and get the current positions of all the accounts, investments, assets (house and autos) and deductible payments (children, charities, mortgage, government fees).  The biggest items as an expat entrepreneur are health insurance payments, foreign living expenses, and unreimbursed business expenses. Even if I don’t get credit from the Dutch, it has a big impact on my US returns.

I also compare against last year’s entries: it gives me a check ad validation that I haven’t missed anything and some idea of whether my overall fiscal health is improving or declining.  Unfortunately, stocks are down another 7% for 2011 compared with 2010 <sigh>.

  • Complete the Dutch business returns.

Corporate tax returns in the Netherlands are fairly straightforward if records are complete.  I clear all of my business revenues and expenses, no matter the global source, through the BV.  Each month, I update business records and review them quarterly with my accountant.  I keep expenses in the business where they are taxed at 25% and I get VAT refunds, only paying myself a flat monthly salary (taxed at around 38% net). 

As a result, tax payments are usually pretty modest.  But there’s still some back and forth with the accountants to clear up minor discrepancies before we’re ready to file.  This year’s scramble for documentation was set off when I got paid in stock rather than cash by a couple of clients.

  • Complete the Dutch personal return

Dutch personal taxes are very streamlined, but I still rely on my Dutch accountants prepare the return properly.  It’s a “3-box” form where you enter personal income, business income, and investment income, respectively, then take a couple of modest deductions and calculate tax on the remainder.  The 30% Rule Exemption simplifies even this, preventing me from paying Box 3’s 1.2% tax on savings and investments.

In the end, my monthly Payroll Tax Deductions add up to be close to my personal taxes owed.

  • Complete the US personal return.

US citizens are required to complete a tax return on their worldwide income, unlike Europe where only money earned in Europe needs to be reported.  It’s duplicate expense and effort, but I get credit for foreign taxes paid much like I do for state taxes paid.  If the foreign tax exceeds the US tax owed, then I owe nothing (no credit for going over, though).

This gets very complicated because the US wants exhaustive documentation of all foreign income, investments, expenses, and taxes in addition to all of the usual W2 and 1099 forms.  Further, my Dutch corporation is treated like a sole proprietorship in the US, which means that revenue, expenses, profits, and losses roll into my personal tax return. This is the main reason I can’t file until the fall, when everything else is done.

My accountant filed a 56 page tax return for me last year.

Annual costs for the process are around $5000, mostly for managing and filing the Dutch corporate returns.  The two personal filings are less than 1K$ each.

My advice is to keep good records, have knowledgeable Dutch nd US tax help, and get flat fees negotiated up frot.  Usually you can keep costs down by doing your own record-keeping and reconciliation, but the money saved more than offsets the fees paid. There are many services, such as Taxes for Expats and Global Tax Help, who’s websites offer good current advice and who will give you free review of your situation and ways to save money.

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