With the Colombian tax season now upon us, expats filing forms DIAN 110 and DIAN 210 have one important question:  How does this affect my US taxes?

The short answer, as with most tax questions, is it depends.

Generally, US expats living in Colombia should expect their combined Colombian and US taxes to be an amount equal to that if they remained in the US.  The goal should be to avoid double taxation by taking advantage of those credits and exemptions available to taxpayers while complying with both countries tax laws.

 

DIAN 110 is the form used for Colombian nonresidents whereas DIAN 210 is for residents.  Determining which form is required should be evaluated on a case-by-case basis and with professional guidance.

Once you have your Colombian tax forms prepared, the following can assist you in understanding what information should be considered when preparing or amending a US Income Tax Return – Form 1040.  Specifically, its impact on the Foreign Earned Income Exemption (Form 2555) and the Foreign Tax Credit (Form 1116). 

DIAN 110 – Nonresidents

Foreign Earned Income Exclusion (FEIE):

Since FEIE requires US expats to meet either the bona fide residence or physical presence test, this exemption may not apply.  If Colombia considers you a nonresident then the US will likely do the same.     

Foreign Tax Credit (FTC):

Most expats earn income from one of two categories: Passive Category Income and General Category Income.  Taxes paid on passive income (e.g. dividends, interest, royalties, and rents) and general income (e.g. wages, salaries, income from a trade or business) should be reported separately.  These taxes can be found on lines 79-88.

DIAN 110 – English

DIAN 210 – Residents

Foreign Earned Income Exclusion (FEIE):

This document may be used as evidence to support one’s eligibility for taking this exemption.  It should be kept with other all other tax documents that support the contents of the tax return.  Important income and deductions information start on lines 32 and 54.

Foreign Tax Credit (FTC):

This credit can be taken when an expat does not qualify for the FEIE, if they earned income in excess of the exclusion amount, or on those income types not eligible for the FEIE. See lines 93-96.

DIAN 210 – English

Taxes – Paid vs. Accrued

Generally, US expats can choose to take the FTC on taxes paid or accrued.  This may benefit expats who owe taxes to Colombia but have yet to pay them.  If the FTC is taken on accrued taxes, that choice must be followed in later years.  For DIAN 110, see lines 79-101. For Dian 210, see lines 75-104

Colombian Peso – Converting to USD

Income and deductions received or paid in Colombian peso must be reported in U.S. dollars.  The IRS only accepts exchange rates from predetermined governmental or private resources. For additional information see Foreign Currency and Currency Exchange Rates.

 

Please send any comments, suggestions or corrections to info@usatax.co.