U.S. Citizens Working Abroad

In 2018 taxpayers can exclude up to $104,100 in wages or earned income. To qualify you have to satisfy either the bona fide residence test or the physical presence test. To be a bona fide resident you have to be a resident for a full tax year in the foreign country. The physical presence test requires being present in a foreign country or countries 330 full days during a period of 12 consecutive months. Spending more than a month in the U.S. will cause you to fail the physical presence test.  If you only qualify for part of the tax year you get a pro-rated amount of the exclusion. You have to track the days you come back to the U.S. and whether it was work or vacation.

Extension of Time to Pay Tax

There is a way to extend your payment of tax for six months from the due date of your 1040 return. You have to file form 1127 and show that the payment would be an undue hardship. You have to show that you can't sell any assets without severe losses or borrow money under reasonable terms. If the extension is approved then you are not subject to the late payment penalty of .5% per month. You are still subject to interest charges.

Documentation of Cash Donations

If you make a cash donation under $250 to a charity, then all you need is a cancelled check or bank statement to support your tax deduction. However a donation of $250 or more requires a written acknowledgement from the charity dated prior to the filing date of the return to support the deduction. The acknowledgement letter indicates your tax deductible donation and if you received any goods and services in exchange for the donation which reduces the tax deduction. I like to keep a copy of your acknowledgement letters in your tax file to respond to any IRS audits of your tax return. Deductible charitable contributions also do not include political contributions, cost of raffle tickets, contributions to foreign organizations(except certain Canadian, Mexican, and Israeli charities), payments to nonprofit organizations other than 501(c)(3) organizations, and payments to individuals. If you make recurring payments to a charity under $250, but that total over $250 for the calendar year, the charities are not required to give you an acknowledgement letter which is one reason why I recommend you do lump sum contributions in December of every year.

Meals and Entertainment Deductions Under the New Rules

The IRS has just issued guidance on meal and entertainment expenses in Notice 2018-76. Client business meals are 50% deductible if business is conducted, taxpayer is present, and it is not lavish or extravagant. Meals during business travel, meals in the office for employee meetings, and meals provided occasionally to employees are 50% deductible. There are no deductions for sporting event tickets or club memberships. Water, snacks, and coffee provided to employees is now only 50% deductible. Office holiday parties and picnics are 100% deductible.