Taxes … Taxes

Now I Have to do it Twice!

I filed our US taxes the first week of March. There was an entire day when Denise was going to be out of the apartment. I locked myself in my makeshift office/walk-in closet and forced myself to get it done in one sitting. I used TurboTax. It is an excellent resource…but I hated the whole process!

US Taxes

Don’t get me wrong. For me, it was never the fact that I had to pay taxes. It was simply the process…the fact that there are so many forms, that the process is so complicated and convoluted. Somewhere deep in the IRS, I am certain that there are people that want the US tax system to balance the need for revenue with fairness, efficiency, and enforceability. Unfortunately, those people don’t write the tax code. Instead, they are forced to continually modify a system that includes phaseouts, exclusions, and the latest deductions created to satisfy lobbyists in exchange for political contributions.

And compared to some other Americans, our taxes are pretty simple. Denise receives a military pension, we withdraw funds from my IRA, and we get some interest and dividends. We are married and file a joint tax return taking the standard deduction. Perhaps because I am paranoid, and kept reviewing each set of entries, it took me about 4 hours of heads-down TurboTax work to complete the process. Then there was FBAR…

An American with a Portuguese Bank Account

Last year we had an accountant in Palm Springs do our taxes. We had sold our home, were California residents for part of the year, and had just moved to Portugal. It was worth $500 to have it handled by someone else. But this year, I decided I would bite the bullet and save $400+ by doing our US taxes myself. However, I recalled being told by him that it was important to accurately report funds in a foreign bank account. As I completed my TurboTax odessey, I found myself on yet another website… FinCEN.

FBARs have to be filed online at the FinCEN website. The FBAR form is called FinCEN Form 114.

Because FBARs are filed to FinCEN rather than to the IRS, penalties for not filing are high, starting at $10,000 per year for an unintentional non-compliance. The US government is receiving account balance (and contact) information from foreign banks and investment firms too, so they can verify the information provided on FBARs. — BrightTax

I assumed FBAR stood for Foreign Bank Account Reporting. I got close…the official name is Report of Foreign Bank and Financial Accounts. Shouldn’t that be RFBFA? Anyway, the important thing is that any American who has a total of over $10,000 in foreign-registered financial accounts at any time during a calendar year is required to report. Again, because I checked and rechecked every online entry it took me nearly an hour to complete this form online.

Portuguese Taxes

We used to live just a block away from the Finanças office in Cascais. About 7:30 each weekday morning a line started to form. I have done everything I can (including applying for NHR and changing our address online) to ensure I don’t ever have to stand in that line. Did it take me nearly 3 hours and two visits to the site to enter our new address? Yes, but it was worth it. So when it came time to file our Portuguese taxes, we paid someone for the service.

There are a bunch of firms that provide this tax service. You might find recommendations on Facebook or do a simple internet search. We choose to use a firm based in Tavira called AFM, All Finance Matters. When we first moved to Portugal I had spent an hour on the phone with them talking about NHR and how our various sources of US income would be treated by Portugal. They immediately understood when I said “IRA withdrawal”, military pension, etc. They instantly made me feel comfortable. (This was unlike another Portuguese accountant I had consulted by phone.) Note: I am not a great bargain hunter, others may charge less than the €350 we paid for their services (shown below):

• Validation of the invoices and tax deductions on the tax portal

• Analysis of the documentation provided

• Currency conversion according to the Bank of Portugal exchange rate for the year

• Verification of all the figures and preparation of the tax declaration

• Tax simulation

• Submitting the tax declaration online at the tax portal

• Addressing inquiries and tax audits from the tax authorities

• Submitting and preparing any tax residency certificates, in relation to the current tax declaration

• 1 hour of tax consultancy/advice per year

We met at their office on 28 January. Before the meeting, they asked that we provide our Finanças login and password so they could confirm that everything was correct. We were told that once we completed our US taxes we should contact them with the information. That we should prorate the amounts to coincide with the number of months we were Portuguese residents (in our case 5/12 as we became residents in August.) Also, ideally, we would provide all required information to them by 1 April as the tax declaration has to be submitted between the 1st of April and the 30th of June. (I am not sure what this means for those of you who routinely ask for a filing extension for your US taxes. If you are one of those people, you might want to find out the implications before you need to file Portuguese taxes.)

Since I like to keep my accountant happy, I contacted them well before the 1 April deadline with the required information. They confirmed that they got what they needed, though as I write this I have not gotten their report. Stay tuned…

Final Note: Hopefully you can tell by this post that I am not presenting myself as an expert in US or Portuguese tax systems. So this is not intended as advice, simply the experience to date of two old American women living in Portugal. Also, I can’t imagine that an understaffed US Agency that audits about 0.4% of all taxpayers has time to provide my tax data to a foreign country. So I guess we are on the honor system?

Editor’s Update: Today, 22 April, we received our Portuguese tax return and proof of submission from AFM. 14 pages on the PDF. Well that’s done.