Filing an income tax return after moving from the U.S. and temporarily living in another country, or returning to country of residency, presents some challenges and may cause the overall processing time to be longer than usual. Generally there are two ways to file the income tax return. The old way is using paper forms, and more modern is a paperless return using electronic filing, also known as e-file. The choice greatly affects the time it takes to process the return and especially when filing from abroad.
Before you can file the return, first you have to prepare it using appropriate tax forms. In the situation when filing tax return from other country, chances are you are considered a non-resident, such as students that had J1 visa. In this case the proper forms are 1040NR or 1040NR-EZ, depending what you need to claim on the return. Form 1040NR-EZ is simpler of the two for filing income tax by U.S. non-residents. Generally start with this form, unless any of the additional forms that you need to file require Form 1040NR.
Naturally, you don’t have to file a return when you have no income to report. But when you legally worked in US for any portion of the year and earned income, you may be required to file a return. However, even if you are not required to file, I recommend preparing a return or at least doing an estimate to see if you are not entitled to a refund. Individuals with small income usually receive refund for most of their paid income taxes.
When preparing your tax return, you may save some money by doing it yourself. Or like many people do, you can pay someone else do it for you, such as an accountant or a tax professional. Beware of the companies that prepare U.S. income tax returns overseas. They usually charge large fees or may prepare the returns for free but take high percentage of your refund. Know that you can prepare your tax return by yourself very inexpensively and receive the full refund that you deserve.
In my opinion, the safest way to prepare a return is to use one of the well known online preparation services such as TurboTax or H&R Block. These companies also offer software that can be downloaded and installed on your computer. However using the online services let you prepare the return for free, where you don’t have to pay until you’re ready to actually file your return. That way, if you’re not satisfied there is completely no obligation.
When you complete your return and it’s ready to be filed to IRS. The best choice is to file the tax return using e-file as it reduces the whole process by more than a half the time. Instead of sending printed forms via postal service, the forms are delivered to Tax Office, IRS or state, electronically and electronic proof of receipt is available within 48 hours. This ensures delivery and saves a lot of time in transit, especially when sending your return internationally. As expected, since the electronic filing is faster and more reliable, it’s gaining more popularity every year. Currently there are 38 states that participate and accept e-file state tax returns.
If you owe money to IRS, you need to pay that amount when you send your tax return. And then you’re done with taxes. When you expect a refund, then you may choose to receive a paper check mailed to your address or choose a direct deposit to your bank account. Note that you can’t use direct deposit for foreign bank accounts as direct deposits are currently only available for banks located within the United States. So unless you have an account in U.S bank, then you’re limited to a paper check. Cashing U.S. government check in another country may also be a problem, and if the bank accepts the check, may charge you a hefty fee for it. Therefore, if you’re planning for an extended visit or moving to another country, it may be wise to keep an account open in U.S. bank just for that reason. Most banks have online banking, which makes it easy to access and manage your finances remotely. Then if needed you can make a wire transfer to your bank in the country where you reside. Or even better, you can use a debit card to withdraw cash.