All Americans, including those who live overseas, have to file annual tax returns with the IRS. If you were unaware of this and owe back taxes, how can you pay them?
If you owe taxes to the IRS and you live overseas, you can pay them just as you would if you lived stateside. File your annual return immediately, even if it is late. If you wait even longer to file your tax return and pay the necessary taxes, you will likely receive financial penalties from the IRS. Furthermore, as interest and penalties accrue, certain tax perks for expats, such as the foreign earned income exclusion and the foreign tax credit, might become less impactful. Failing to pay overdue taxes can lead to passport revocation and expensive fines for expats. You might lose out on your tax refund as well.
To get assistance paying your back taxes while living overseas, call the tax accountants for American expatriates at US Tax Help today at this link – get in touch.
How Can You Pay Back US Taxes from Overseas?
If you have not filed a tax return while living overseas, and you need to file a late return, you can do so. The process is relatively similar, whether you file your taxes on time or late.
Our tax accountants for American expatriates will begin by preparing and planning your taxes. We will see which exclusions and deductions you are eligible for as an expat and attach them to your tax return as necessary.
Part of tax preparation is gathering all information about your finances and residency status. We might require details about your income, foreign financial assets, and dependents. Once your tax return is ready to be filed, we will file it with the IRS.
Many expatriates are unaware that they still need to file and pay U.S. taxes while living overseas, resulting in overdue tax returns. If you haven’t filed your taxes by Tax Day or the automatic two-month filing extension for expats, you might receive a notice from the IRS informing you of your delinquency. You will likely receive several notices from the IRS before you are fined for late filing or unpaid taxes.
If you have an overdue tax return, it is important to file it as soon as possible. Delaying filing even further once made aware of your non-compliance might lead to serious penalties from the IRS, even if you live overseas.
The IRS offers various payment plans to expats and domestic citizens who owe back taxes, making payment more feasible, regardless of how much you owe. These plans include installment agreements and payment extensions.
Can You Claim Exclusions if You Need to Pay Overdue US Taxes from Overseas?
Filing your taxes late might impede your ability to claim certain deductions and exclusions for expats. Fortunately, the IRS provides extensions for expatriates that may allow them to retain eligibility for specific tax perks.
The foreign earned income exclusion and the foreign tax credit help to eliminate double taxation and taxation of specific income for expats living overseas. If you need more time to claim these exclusions and credits because you have yet to meet the necessary residency tests, the IRS may allow you to get a filing extension. To get an extension, you must file IRS Form 2350.
If you file your taxes late and owe money to the IRS, the positive impact of the foreign earned income exclusion and the foreign tax credit might be reduced, especially if you will be fined for late filing. When these exclusions are in full force, expats can exclude up to $120,000 of their foreign earned income from taxation by the IRS and get a tax credit for eligible taxes paid to their foreign country of residence. Because these perks are so advantageous, it is important that expats be able to benefit from them in their full capacity.
What Happens if You Don’t Pay Back US Taxes from Overseas?
Paying back taxes as soon as possible is of the utmost importance. Even if you live overseas, you will be subjected to fines and penalties from the IRS for not filing your annual tax return on time.
Fines
The IRS levies significant financial penalties against expats and domestic citizens who fail to file their taxes on time. The initial penalty for late filing is 5% of a filer’s unpaid taxes, up to 25%. In addition to filing an annual tax return, expats have other filing requirements. For example, expats with certain foreign financial assets must file international information returns such as Form 8938 and a Report of Foreign Bank and Financial Accounts. Fines for not filing these forms on time can be extreme, adding up to thousands of dollars for expatriates.
Passport Revocation
When expats do not file their taxes on time and do not make any effort to pay back taxes, they might lose their passports. Being severely delinquent could cause your passport to be revoked by the U.S. Department of State. This can leave you stuck in your foreign country of residence until you pay the necessary back taxes to the IRS. You might be able to get a limited-validity passport to travel back to the U.S. if doing so is necessary to settle your debt with the IRS.
Loss of Refund
The IRS might withhold tax refunds from expats who do not pay back taxes. Furthermore, your tax refund might be withheld if you do not file all necessary forms along with your annual tax return. This includes information returns regarding your foreign financial assets or bank accounts. You should get your refund once you pay all overdue taxes owed to the IRS. You must file a late return within three years of its due date in order to receive your full refund.
Call Our Tax CPAs to Discuss Your US Taxes While Living Overseas
You can call our tax accountants for American expatriates at this link – get in touch to speak with the team at US Tax Help today.
Having dual U.S. citizenship, meaning you have citizenship with the U.S. and a foreign country, can impact your taxes, depending on where you live. If you live abroad, you will have to claim certain credits and exclusions to avoid double taxation.
Having dual citizenship with the U.S. and another country can impact your taxes. You will still have to report your annual income to the United States and possibly the other country you have citizenship with, depending on its taxation system. If you have citizenship with another country and live there, you might be able to qualify for certain tax perks designed for American expatriates. For example, the foreign earned income exclusion can allow you to eliminate a significant portion of your income from taxation. And the foreign tax credit can allow you to avoid double taxation while living in a foreign country as an American citizen.
To get help with your taxes while living overseas, call the tax CPAs for American expatriates at US Tax Help at this link – get in touch.
Dual US Citizenship and Tax Liability
Having dual citizenship with the U.S. and another country will not eliminate your tax liability. This goes both ways. For example, U.S. nationals who have dual citizenship with another country and foreign individuals who get dual citizenship with the U.S. will have to file taxes with the IRS.
Any person who has citizenship with the United States, even if they have citizenship with another country, has a tax liability to the United States. This is because the U.S. operates under a citizenship-based taxation system.
So, even if you move abroad and ultimately get citizenship with another country, you will have to file an annual tax return with the IRS and you will continue to be taxed on your worldwide income.
Alternatively, suppose you have moved to the United States, gotten citizenship there, but maintained citizenship with your previous country of residence. In that case, you will have to pay taxes in the United States. Whether or not you have to continue paying taxes to the other country you have citizenship with will depend on its taxation system. The only way to totally avoid taxation as a person with dual U.S. citizenship living in another country is to renounce your American citizenship.
Renouncing your U.S. citizenship to lower your tax liability can put you in a difficult situation should you wish to return to the United States at any time in the future. Furthermore, renouncing your U.S. citizenship is hardly necessary when you use all of the available tax perks the IRS provides for expatriates.
Can Having Dual US Citizenship Help Your US Taxes?
Although you will still have a tax liability if you have dual citizenship with the U.S. and another country, you might be able to lower your tax burden. This is because there are specific exclusions available to expats who have established residency in a foreign country.
When assessing an expat’s eligibility for tax credits like the foreign earned income exclusion, the IRS uses the bona fide residence test and the physical presence test. These tests aim to prove that an expat has been a resident of or physically present in another country long enough to qualify for expat-specific tax benefits. If you have dual citizenship with another country, it may be easier for you to meet the bona fide residence or physical presence test. You will still have to meet either test, as being a dual citizen alone is not sufficient. That’s because you can have dual citizenship and still live in the United States.
If you qualify for expat tax perks after establishing your dual citizenship with the U.S. and your current foreign country of residence, our tax CPAs for American expatriates will help you use them. One of the biggest exclusions available to expats is the foreign earned income exclusion, which allows you to exclude up to $120,000 of your foreign earned income from taxation by the IRS. Additional credits and exclusions are available to expatriates, including those with dual citizenship with a foreign country.
Preventing Double Taxation as an Expat with Dual US Citizenship
Double taxation is a real concern for expats with dual U.S. citizenship. If you primarily live in a foreign country as a U.S. citizen, learning how to avoid double taxation on your income is important.
The best way to do this is by claiming the foreign tax credit. The IRS devised this perk to help expats living in other countries avoid double taxation, specifically. Using the foreign tax credit, you can apply taxes paid to your country of residence to your IRS tax liability. For example, suppose you paid $500 in income taxes to your foreign country of residence. That can be applied to your tax liability to the IRS. So, if you would also owe $500 to the IRS, your tax liability for the year would fall to zero. And, if your foreign tax credit is higher than your owed taxes to the IRS for the year, it can be applied to future years. Preventing double taxation is important, so that you are not taxed twice on the same income.
To properly claim the foreign tax credit and help you avoid double taxation as an expat with dual U.S. citizenship, our tax accountants will help you file Form 1116 and attach it to your annual tax return. The foreign earned income exclusion can also prevent double taxation from taking place and is claimed using Form 2555.
To ensure you are not subject to double taxation, file your annual tax return and all necessary supplemental forms with the IRS by Tax Day. Expats also get an automatic two-month filing extension for their annual tax returns.
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Call our tax CPAs for American expatriates at this link – get in touch to get assistance from US Tax Help today.
Living and working abroad can be a great experience, but it does not always end the way we want. Due to circumstances beyond their control, some people may be forced to return home to the U.S. suddenly. This can be difficult for numerous reasons, including paying taxes.
If you are a U.S. citizen, you may be taxed in the U.S. on your worldwide income. This means that no matter where you earn income, it is subject to taxation by the United States government. If you work and live abroad, you might also be liable for taxes in a foreign country. Being forced to return home does not automatically relieve you of your tax obligations overseas. You might have to pay taxes in the other country depending on whether you were a tax resident. This is often based on how long you lived and worked in that particular country. If you owe taxes in both countries, an attorney can help you utilize certain exemptions, credits, or tax exclusions.
For help figuring out your tax situation, call our tax accountants at US Tax Help at this link – get in touch.
How Do I Pay Taxes When Forced to Return Home to the U.S. From Another Country
As the old saying goes, nothing is certain in life but death and taxes. If you are a citizen of the United States but live and work in a foreign country, you might have multiple tax obligations to work out. Of course, as a U.S. citizen, you may owe U.S. taxes. Living abroad, you likely only have to pay federal taxes since you do not reside in any state. You might also need to pay taxes in the country where you live and work. Your tax obligations might change if you are suddenly forced home to the U.S.
In the United States, you are taxed on your worldwide income. This means that any income you earn in any country might be taxed in the United States as long as you are a citizen or resident. Other countries have similar laws, and you might also owe taxes in the country where you live if you are considered a tax resident.
There might be various ways that a country determines whether residents are tax residents, and these criteria may vary between nations. Generally, the length of time you live in a country factors heavily into determining whether you owe taxes in that country. If you are forced home very suddenly and your time abroad is cut short, you might not qualify as a tax resident, depending on how long you were living abroad.
To determine if you were a tax resident in the other country where you were living before being forced home to the U.S., talk to an attorney. Our tax accountants can help you review the other country’s tax rules and laws and determine your tax obligations. If you owe taxes in both countries, we can help you avoid double taxation by taking advantage of exemptions or exclusions.
How Do I Know I Have to Pay Foreign Taxes if I Am Forced Home to the U.S. From Abroad
It can be tricky to understand whether you are obligated to pay taxes in a foreign country. As discussed above, if you were working in a foreign country before you were forced to return home to the U.S., there is a chance that you are considered a tax resident of that country. If that is the case, you might have tax obligations in that country. An attorney can help you go over the relevant country’s laws on tax residency.
Below are two methods the United States uses to determine if people working and living abroad may take advantage of certain tax exemptions and exclusions on foreign-earned income. Meeting these requirements might not automatically mean you are a tax resident in a foreign country, but it might give us a good idea of where you stand.
Physical Presence Test
One method is the physical presence test. As the name implies, this test is based on the amount of time a taxpayer was physically living in a foreign country. In the United States, you might satisfy this test if you lived in a foreign country for at least 330 full calendar days during any 12 consecutive month period. The exact time frame required in other countries may vary, and you should talk to a lawyer.
Remember, this is a test the United States uses to determine if people qualify for certain tax exemptions or credits on foreign-earned income. It might differ from the laws in the foreign country in court cases used to determine tax residency. However, many countries have similar laws that hold that if you live there long enough, you must pay taxes.
Bona Fide Residence Test
The United States also employs the bona fide residency test. Using this test, the government will determine if someone is a bona fide resident of a foreign country based on their intent to stay. This test adds an extra consideration to the situation. While physical presence in a foreign country may be considered, it is not the sole determining factor. You must also have the intention to remain living and working abroad to be considered a bona fide resident of that country.
Again, this test is used in the United States for U.S. tax exemptions and exclusions. Passing this test does not necessarily mean you are a tax resident in the country where you work and live. However, your country might have similar tests and rules. If you move to a country and intend to live and work there, you might be considered a tax resident.
Call US Tax Help to Talk About Potential Tax Implications for Your Specific Situation
Call our tax accountants at US Tax Help at this link – get in touch to discuss your tax situation and determine if you must pay taxes in two countries if you were forced to return to the United States.
Owing taxes to the IRS while living abroad can put you at risk of losing your U.S. passport.
If owe taxes to the U.S. but live abroad, you might not be able to return to the U.S. until you settle your debt with the IRS. In fact, your U.S. passport might be revoked, preventing you from being able to travel anywhere. If you are at risk of losing your passport because of unpaid taxes, file the necessary returns with the IRS and pay what you owe. If you’ve already lost your passport, you can apply for a limited-validity passport for direct travel back to the United States. The IRS provides payment plans for individuals in these situations. To avoid the possibility of losing your passport or owing considerable fines and taxes to the IRS, learn about your reporting requirements before moving abroad.
For help with your taxes while living abroad, call the tax CPAs for American expatriates at US Tax Help at this link – get in touch.
Can You Return to the US if You Owe Taxes While Living Abroad?
Whether or not you can return to the U.S. when you owe taxes to the IRS while living abroad depends on the severity of your delinquency. This can cause serious issues for expats overseas who might be unaware of their tax liability to the United States.
Expats still need to file annual tax returns with the IRS when living abroad. If they do not, they will be penalized. If you have seriously delinquent tax debt, the Secretary of the Treasury might revoke your U.S. passport, meaning you cannot return home. Generally, this only happens in cases where expats owe more than $55,000 in debt, including interest and penalties.
If you are an expatriate, you might not owe much in taxes to the IRS because of the foreign earned income exclusion. That said, the penalties associated with late filing might put you over the threshold for seriously delinquent tax debt, causing your passport to be revoked. If you are at risk of your passport being revoked, you will likely receive a Notice CP508C by mail. This will be sent to your last known address. If the IRS is unaware of your recent move abroad, you might not receive this notice at your current foreign residence, causing your passport to be revoked without your knowledge.
What if You Owe Taxes and Are at Risk of Not Being Able to Return to the US?
If you have seriously delinquent tax debt and you are at risk of your passport being revoked, preventing you from returning to the U.S., or your passport has already been revoked, there are certain things you should do.
Passport Might Be Revoked
If you recently became aware of your tax liability as an expat living overseas and are concerned that your U.S. passport might be revoked, it is important to settle your debt with the IRS. Start by filing the necessary forms. To use exemptions for expats, like the foreign earned income exclusion, you must file your returns within three years of the return due date. The sooner you file your back taxes, the better, as doing so can allow you to limit interest charges and other penalties that might increase your tax debt. If you owe back taxes to the IRS but were unaware of your reporting responsibility while living abroad, contact our tax CPAs for American expatriates. We can help you file the proper forms with the IRS so that your passport is not revoked.
Passport Has Been Revoked
If your passport has been revoked because you have seriously delinquent tax debt as an expatriate, you may be able to get a limited-validity passport. This will only allow you to return directly to the United States. To get this passport, you will likely have to take care of all arrears, or money owed to the IRS. If you cannot pay the entire amount you owe to the IRS, you might be able to get a short-term payment extension. This extension is typically 120 days or less. Even those with seriously delinquent tax debts might be eligible for an installment agreement with the IRS that allows them to make payments towards their tax debt over time instead of one lump sum payment.
Ensuring You Will be Able to Return to the US if You Live Abroad and Owe Taxes
To ensure that you will not face issues should you wish to return to the U.S. when you owe taxes to the IRS, it is important to confirm your tax liability before moving abroad.
If you plan to move overseas, consult with our tax accountants so that you fully understand your filing requirements as an expatriate. Despite living in another country, you will still have to report your income to the IRS on an annual basis. Even though income exclusions might leave you with no tax liability, you will still have a reporting liability. Failure to file an annual tax return, regardless of tax liability, can lead to penalties for expats. Expats might see their U.S. passports revoked if those penalties are not paid.
You can avoid this issue altogether by having our tax accountants plan and prepare your annual U.S. tax returns. We can use the applicable exclusions and credits available to expatriates and submit your tax returns by the necessary deadlines. In addition to reporting your income, you might have to file international information returns, such as Form 8938 and a Report of Foreign Bank and Financial Accounts. Failure to file these returns can also result in penalties that, if not paid, can lead to passport revocation for expats living overseas.
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Planning and preparing your annual tax return is already stressful enough. But what happens when you move overseas? How can you plan your taxes as an American expatriate?
Tax planning is a process that involves reviewing your tax filing requirements and looking into how you can best lower your tax liability while remaining within the confines of the law. For expats, this process can be even more complex, especially when considering the intricate international information returns expats must file as well as the tax credits they are eligible for. Our tax accountants can confirm your residency in a foreign country, explain reporting and tax thresholds as they pertain to you as an expat, and prepare your taxes so that you do not face penalties from the IRS while living overseas.
To get the assistance you need during tax season, call the tax accountants for American expatriates at US Tax Help at this link – get in touch.
Tax Planning Guide for Expats
Tax planning can be complicated for anyone, especially for expats. With help from our tax accountants for American expatriates, you can plan and prepare your U.S. taxes in a few simple steps while living abroad. Start by learning about your filing requirements and how to use special exclusions and credits to your benefit. Then, make sure you have properly established your residency in a foreign country and heed all reporting deadlines set by the IRS.
Reviewing Your Filing Requirements
Expats can begin tax preparation by knowing their filing requirements. Even if you are an expatriate living in another country, you must report your worldwide income to the IRS annually. On top of filing your tax return, you might also have to submit international information returns, such as Form 8938 and a Report of Foreign Bank and Financial Accounts (FBAR). FBARs can be sent to the Financial Crimes Enforcement Network directly using its online portal. You will have an FBAR reporting liability if you have more than $10,000 across all of your foreign bank and financial accounts.
Form 8938 is for expats and others to report their foreign financial assets. Expats filing alone must submit Form 8938 if they have more than $200,000 in foreign financial assets on the last day of the tax year or more than $300,000 in foreign financial assets at any time during the tax year. For expats filing joint returns, the reporting thresholds are doubled. Our tax CPAs can inform you of any additional forms, schedules, or information returns you must file while living overseas. It is important to remember that your tax reporting liability will not disappear when you move abroad as an American citizen.
Using Special Exclusions and Credits
The IRS provides several exclusions that are specifically for expats. The first perk is the foreign earned income exclusion. By claiming this exclusion, you can eliminate a substantial portion of your foreign earned income from taxation by the IRS. In 2023, the maximum exclusion is $120,000 per person. Depending on your income, you might be able to exclude your entire income from taxation by the United States. If you still earn income from an American source while living overseas, you cannot exclude that income from taxation by the IRS. Included in the foreign earned income exclusion is the foreign housing exclusion. You can claim both the foreign earned income exclusion and the foreign housing exclusion using IRS Form 2555. Attach this form to your annual tax return.
Expats should also plan to use the foreign tax credit. This prevents instances of double taxation. By claiming the foreign tax credit, you can offset your U.S. taxes with taxes paid to your foreign country of residence. For example, if you owe the IRS $2,000 in taxes and paid $1,500 in taxes to your foreign country of residence, you will only owe the IRS $500. Using the foreign tax credit might eliminate your tax liability to the IRS in its entirety. You can claim the foreign tax credit by filing Form 1116 with the IRS. There might be other exclusions you are eligible for as an expatriate that can also reduce your tax liability.
Establishing Your Foreign Residency
In order to confirm your filing requirements and your eligibility for special exclusions and credits for expats, you must establish your residency in a foreign country. Expats can do this by passing the bona fide residence test or the physical presence test. Passing the bona fide residence test requires expats to be residents of foreign countries for an uninterrupted period that includes a whole tax year. To pass the physical presence test, you must be physically present in a foreign country for at least 330 days during a one-year period. The IRS will determine foreign residency by looking at a few things, such as your foreign earned income and whether or not you have paid taxes to a foreign country. If you do not pass either residency test, you cannot claim expat-specific exclusions.
Preparing for Filing Deadlines
During tax planning, expatriates need to be aware of the filing guidelines they might face. Generally speaking, all expat tax forms, including forms for special exclusions or tax credits, are due on Tax Day. You can attach these forms and other schedules to tax return. That said, there is an automatic two-month extension for expats who fail to file on time. However, if you owe taxes to the IRS, interest will accrue during those two months that your taxes remain unpaid. Expats can also apply for a six-month extension from Tax Day. Although filing extensions might be available, it is best to submit all of your tax forms by Tax Day. This can eliminate any issues with late filing that might result in unintended consequences for expatriates. Our tax CPAs can plan and prepare your taxes so that they are filed on time and without any additional stress or work on your behalf.
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While you might be spending the next few years in another country – or even the rest of your life – it is still important to plan for retirement. Many people use IRAs because they are a unique, well-structured way to save money and leverage tax-free growth. But if your Roth IRA is a U.S. account and you are moving abroad, is there anything you need to do? Does this affect your account in any way?
Usually, Americans living abroad will still pay U.S. taxes and can still hold U.S. accounts, including their IRA. This usually means you will not need to move your IRA with you. Moving your Roth IRA abroad might incur a lot of penalties, but you should instead be able to leave it where it is and use it just as you would while living in the U.S. However, some tax credits for Americans living abroad might drive your income down so low that you can no longer make contributions.
Call our tax CPAs for expats today at US Tax Help for assistance with your taxes and IRA contributions by dialing this link – get in touch.
Do I Need to Do Anything to Contribute to My Roth IRA While Living Abroad?
Contributing to a Roth IRA is a great way to save money for retirement. With a Roth IRA, you get the benefit of paying taxes now – ideally when you are in a lower tax bracket than you will be at retirement – and then drawing on tax-free growth after your account has grown over the years. If you live abroad, there are a few complications on how to contribute to your IRA, but you can plan for these with the help of a tax accountant for expats.
First, in order to contribute to a Roth IRA at all, you need to meet certain income requirements. These requirements look at your taxable income – that is, income taxable by the U.S. government. Many people living abroad take advantage of the Foreign Earned Income Exclusion and the Foreign Housing Deduction, both of which can shrink their final income amounts potentially to $0. If that happens, then you have no “income” that qualifies you to contribute to an IRA, and you cannot contribute anything.
If you forego these deductions, you might still be able to contribute to your IRA, but you might face higher taxes because that will push you back up into taxable income and a higher tax bracket. That also means you will be paying higher taxes on your contributions to your IRA.
Taking the Foreign Tax Credit instead, if you can, might end up taking less out of your taxable income so that you can end up with taxable income at the end of the day, allowing you to contribute to your IRA. In any case, it is worth having a tax accountant review your situation so that you know how much you can contribute and what if any steps you need to take to allow yourself to contribute to your Roth IRA while living abroad.
Do I Need to Do Anything to Draw on My Roth IRA While Living Abroad?
Whether you live in the U.S. or abroad, the rules for drawing on your IRA should be the same. With Roth IRAs, you can only draw funds early for certain reasons, such as purchasing your first home, paying for education, or paying for healthcare. If you have reached close to retirement age, you may qualify to start drawing on your Roth IRA without taxes or other penalties. If you do not meet these qualifications and account age requirements, you can face taxes and penalties. There are some situations where you do not need to worry about penalties, but taxes might still apply if you do not wait long enough to draw on your funds.
However, living abroad does not create many additional hurdles for withdrawing, other than the cost of converting and/or transferring currency abroad. Keep in mind that if you do draw on funds in your IRA and put them into a foreign account, you will also have to follow foreign account reporting requirements for that foreign account, such as filing an FBAR. If you already have accounts abroad, you might already be familiar with these requirements.
Should I Move My IRA to a Foreign Account if I’m Moving to Another Country?
If you are moving abroad, you might think you need to bring your accounts with you and put your funds into an account in that foreign country. With a Roth IRA, this is not usually necessary, especially if you plan to move back to the U.S. before retirement.
If you move your account abroad and it has over $10,000 in it after the transfer, you will have to complete an FBAR and report your foreign account to the IRS. You will have to do this the first year you move it and every year after that as long as it has a balance of at least $10,000 in it. This is an extra hassle that you do not need to worry about if your account stays in the U.S.
The other major problem with trying to take out the funds from your Roth IRA and move them into another account is that you cannot usually roll over your funds without a penalty. Account rollovers are special ways of transferring funds from retirement accounts that put all of the funds into another account or consolidate multiple accounts without incurring penalties for withdrawing funds early. Rollovers are only available when putting a domestic account into another domestic account – usually another IRA. So if you try to bring your Roth IRA abroad with you, it will not usually count as a rollover.
This means that you will face whatever penalties you would normally face in the U.S. for early withdrawals or distributions. With Roth IRAs, you already paid taxes on the money you put into the account, and any growth in the account will be tax-free – but only if you wait to withdraw it. If you withdraw it early, you can face taxes again as well as a penalty on the withdrawals unless you follow certain rules.
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If you live abroad and were unaware of your American tax liability until now, the streamlined offshore tax filing compliance procedures provided by the IRS might allow you to avoid penalties.
The IRS has an amnesty program that allows expatriates who have failed to file their taxes to report their income to the IRS without incurring additional penalties. Only taxpayers who did not file their taxes because of negligence or a mistake can use streamlined offshore tax filing compliance procedures. To use these procedures, you will have to file a delinquent return. You must also submit IRS Form 14653, certifying that your failure to file your international return was out of non-willful conduct. File your delinquent return as you normally would a tax return and include forms for additional information returns and tax credits.
To get assistance from our tax CPAs for American expatriates, call US Tax Help now at this link – get in touch.
What Are Streamlined Offshore Tax Filing Compliance Procedures?
Sometimes, expats and other individuals are unaware of their tax filing or reporting liabilities to the IRS, causing them not to file the proper forms on time. While normally, this would result in fines and other penalties, the IRS recognizes that non-compliance is not always willful and so offers streamlined offshore tax filing compliance procedures.
Also known as the streamlined foreign offshore procedures, this process allows non-resident citizens, or expats, to file the necessary information with the IRS past the due date. This can allow you to remain in compliance with filing requirements despite not having filed the proper information by the original deadline.
The IRS gives automatic two-month filing extensions to expats, allowing them to submit their tax returns in mid-June instead of by the normal mid-April filing deadline. Because of this, you might not have to use streamlined offshore tax filing compliance procedures if you realize your tax liability soon after Tax Day passes. Not all expats can benefit from this amnesty program from the IRS, which is why you should not rely on it. If you know you have a tax liability as an expat and do not file your taxes, such actions will be considered willful non-compliance.
The IRS can make changes to its various amnesty programs, including the streamlined offshore tax filing compliance procedures. If you used these procedures in the past, do not assume that they still work in the same way. And, do not anticipate that the IRS will not make changes to or possible eliminate this amnesty program in the future.
Who is Eligible to Use Streamlined Offshore Tax Filing Compliance Procedures?
Only certain individuals are eligible to benefit from streamlined offshore tax filing compliance procedures. If you are not eligible, you might be penalized for non-compliance by the IRS.
When using streamlined offshore tax filing compliance procedures, individual taxpayers must certify that they were not willfully non-compliant in initially failing to file their taxes with the IRS. Non-willful non-compliance is the result of negligence or a mistake, not a decision to ignore tax reporting liabilities.
If any of your previous tax returns are under civil examination by the IRS, you cannot use streamlined offshore tax filing compliance procedures. The same can be said for taxpayers who are under criminal investigation by the IRS.
If you have delinquent returns or delinquent amended returns, you cannot use streamlined offshore tax compliance procedures until you pay the penalty assessments applied in your situation. Once penalties are paid, you may be eligible to use streamlined filing procedures.
Finally, in order to use streamlined offshore tax filing compliance procedures, you will need a valid taxpayer identification number. This will be your Social Security Number if you are an American expatriate.
Provided that you were not willfully non-compliant in your failure to file your taxes and have no additional issues with the IRS, you should be eligible to use streamlined offshore tax filing compliance procedures as an expat. To do so, you must also meet the non-residency requirements of the IRS. If you are a citizen living in the U.S., you will have to use separate streamlined tax filing compliance procedures.
How to Use Streamlined Offshore Tax Filing Compliance Procedures
Expats must follow specific instructions for streamlined offshore tax filing compliance procedures. Our tax CPAs for American expatriates can ensure that you send the necessary information to the IRS so that you are not penalized for non-compliance.
You can use streamlined offshore tax filing compliance procedures for any unfiled return within the most recent three years. We will start by completing a delinquent tax return using IRS Form 1040. Alongside this delinquent return, we will include the necessary information returns. The most prominent information return for expats is IRS Form 8938, Statement of Specified Foreign Financial Assets. We will note within your delinquent return that they are being filed under streamlined foreign offshore procedures so that the IRS properly processes it.
Then, you must complete IRS Form 14653, certifying that you were not willfully non-compliant in initially failing to file your tax return. If you have to file a Report of Foreign Bank and Financial Accounts with the Financial Crimes Enforcement Network, you should attach a copy of Form 14653 there as well. You must also submit all payment of taxes due at this time, including the statutory interest that is applied to late payment of taxes.
Within your delinquent return, our tax accountants will include IRS Forms 1116 and 2555, which are for the foreign tax credit and foreign earned income exclusion, respectively. These tax benefits for expatriates will allow you to lower your tax liability and exclude a large portion of your income from taxation by the IRS. Using the streamlined offshore tax filing compliance procedures does not exclude you from being eligible for these benefits.
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If you have foreign financial accounts overseas, or engage in other financial activity abroad, you might have to file several international information returns (IIRs) with the IRS. Such reporting requirements apply to all taxpayers, even expatriates.
International information returns must be filed by certain taxpayers to inform the IRS about their financial activities overseas, whether personal or business related. Penalties for not filing these international information returns typically equate to thousands of dollars. Depending on your reporting liability, you might even face jail time for failing to submit an IIR to the IRS. International information return forms are used for informational purposes. This means that you will not be paying taxes by submitting these forms. Most IIR forms are due on Tax Day and can be submitted with a taxpayer’s annual tax return. Careful preparation of IIR forms is important, as submitting inaccurate information can also result in penalties for taxpayers.
For help filing international information returns, call the tax CPAs at US Tax Help at this link – get in touch today.
Tax Penalties for Failure to File Common International Information Returns
When American taxpayers engage in financial activity overseas, they may have to inform the IRS and other similar entities of such activity. While you might not have to pay taxes to the IRS for certain foreign financial activity, you may have to file an international information return. If you do not file the proper forms, you could face serious penalties and be investigated for foreign financial crimes.
Foreign Financial Assets
The IRS and the Financial Crimes Enforcement Network (FinCEN) pay close attention to Americans that hold foreign assets overseas. If you, at any time, have an aggregate of $10,000 across all of your foreign financial accounts, including bank and investment accounts, you must file a Report of Foreign Bank and Financial Accounts, or FBAR. Our tax CPAs can help you do this using FinCEN Form 114. You must file the FBAR annually if you meet the reporting requirements. Both expats and domestic citizens have an FBAR reporting liability. Annual FBAR reports are due on Tax Day. This is necessary for informational purposes only so that FinCEN can monitor American money overseas and look out for possible instances of money laundering.
If you do not file the FBAR when required, you will be penalized by the IRS. The initial penalty for acts of non-willful non-compliance is $10,000. If the IRS finds that you intentionally did not file the FBAR when required to, you can be fined upwards of $100,000 or half the amount held in your foreign financial accounts, whichever amount is greater.
In addition to the FBAR, you must file IRS Form 8938, Statement of Specified Foreign Assets, if you are unmarried, live in the U.S., and had specified foreign financial assets of more than $50,000 on the last day of the tax year or more than $75,000 at any point during the tax year. If you are married, filing a joint return, and live in the U.S., the reporting threshold is having more than $100,000 in specified foreign assets on the last day of the tax year or $150,000 in assets at any point during the tax year.
If you are an expatriate, you must file IRS Form 8938 if you are filing alone and your specified foreign assets are valued at more than $200,000 on the last day of the tax year or more than $300,000 at any point during the tax year. For expatriates filing jointly, the reporting threshold is having $400,000 in specified foreign assets on the last day of the tax year or $600,000 at any point during the tax year. In general, the penalty for not filing Form 8938 is $10,000 per year. Penalties can continue to be levied, up to $60,000. Criminal charges might also be applied to those that do not file this international information return with the IRS.
Interest in Foreign Companies or Partnerships
If you have an interest in a foreign corporation, you may have to submit an international information return to the IRS. For example, taxpayers must submit Form 926 to report a property transfer or exchange with a foreign corporation. This form must be filed alongside your normal tax return. The penalty for not filing Form 926 is 10% of the market value of the property transferred, up to $100,000.
American companies that are at least 25% foreign-owned must file Form 5472 when reportable transactions are made. Failure to file Form 5472 can result in a financial penalty of $25,000. Foreign companies engaged in a business or trade in the U.S. must also file Form 5472 when necessary.
Form 8858 must be filed by American taxpayers, corporations, estates, and trusts that own a non-U.S. entity separate from its owners for tax purposes. To determine if your entity meets the definition of a foreign disregarded entity or foreign branch, consult with our tax CPAs. If you do not file international information return IRS Form 8858 and its corresponding schedules, you will be subject to a $10,000 financial penalty.
American taxpayers with interest in foreign partnerships may have to file Form 8865 with the IRS. The same is true for those who have recently transacted with a foreign partnership. The penalty for not filing Form 8865 when necessary is, again, $10,000. For each month that you fail to file Form 8865, you might be fined an additional $10,000, up to $60,000.
Interest in Foreign Trusts
Suppose a foreign relative passed away and left you as the owner of a foreign trust. In that case, you may have to file Form 3520-A as an information return with the IRS. This will contain information about the trust itself and any listed trustees or beneficiaries. Property transfers or money transfers to the trust should also be reported using Form 3520-A. The penalty for failure to file Form 3520-A is $10,000 or 5% of the value of the foreign trust’s assets, whichever amount is greater. If you receive a financial gift from a foreign relative, you may have to file Form 3520. The penalty for not filing this form is 5% of the value of the foreign financial gift, up to 25% of its value.
Interest in Passive Foreign Investment Companies
U.S. shareholders of passive foreign investment companies (PFIC) that get direct or indirect distributions must file IRS Form 8621. This form also applies in other situations involving a gain on the direct or indirect disposition of a PFIC’s stock and to taxpayers with ties to a qualified electing fund. There is no penalty for not filing international information return Form 8621. However, if you do not submit this form on time, your tax return for that year may stay open indefinitely, which could lead to larger problems in the future.
What is the Purpose of an International Information Return?
International information returns are not used for tax purposes. They are instead used to inform the IRS of your financial activity in foreign countries around the world. The IRS can check the information you provide on an IIR against its own records to confirm that no criminal financial activity is occurring.
Information returns are used for informational purposes. For example, just because you file an FBAR does not mean the IRS will tax you on foreign financial holdings overseas. Simply put, the IRS wants to keep tabs on what American taxpayers do with their money in foreign countries. Although you may not be taxed when submitting international information returns, you can be severely penalized if you do not file the necessary paperwork with the IRS.
In addition to international information returns, expat taxpayers might have to report their worldwide incomes and submit additional forms if they wish to claim tax credits or deductions available to them.
When Should You Submit an International Information Return to Avoid Penalties?
In general, most international information return tax forms are due on Tax Day. While this date can change yearly, often because of extenuating circumstances, it typically falls in mid-April.
If you have an international information return liability to the IRS, you will have to submit the necessary information, often by Tax Day. In some cases, taxpayers can file for extensions for certain IIR forms. For example, if you are an expatriate, you will get an automatic two-month extension for most tax forms.
Other international information returns must be filed in a timely fashion, meaning as soon as possible after a sale or transaction occurs. This is somewhat flexible and will depend on your specific situation.
If you need more time to prepare your tax return and the additional international information returns required by the IRS, you can file for an extension through the IRS website. Doing this will provide you with a six-month extension, giving you, in most cases, until mid-October to file your taxes and any additional corresponding information.
Taxpayers who do not apply for extensions and fail to file international information returns alongside their tax returns will likely be penalized by the IRS. Even if you file an IIR, you could be penalized if the information you provide is incorrect.
Where Should You Submit an International Information Return to Avoid Penalties?
Most international information returns are submitted to the IRS, except for a Report of Foreign Bank and Financial Accounts.
In most cases, you will attach any pertinent IIRs with your annual tax returns. These forms will then be sent to the IRS so that they can confirm the information you have provided. This is generally the case for all international information returns, apart from the FBAR.
The FBAR is sent to FinCEN directly using Form 114. The Financial Crimes Enforcement Network has an online portal through which individuals can report the holdings in their foreign bank accounts and other foreign financial accounts.
Depending on where you live, your state of residence might also be interested in your financial activity abroad. Confirm that you do not have to submit information returns to your state in addition to the IRS. If you do, you could be penalized for non-compliance.
How Can You Prepare an International Information Return to Avoid Penalties?
Preparing your international information returns is important. Careful preparation will allow you to avoid costly financial penalties from the IRS for not reporting your foreign financial activity when necessary.
Start by consulting with our tax accountants. You might be responsible for submitting an IIR even if you are not aware that your foreign financial activity is of concern to the IRS. While the IRS more harshly penalizes individuals for acts of willful non-compliance, it still places consequences on those who were unaware of their reporting responsibility.
While penalties for failing to submit international information returns most often impact expatriates, they can also impact domestic citizens living in the IRS who engage in foreign financial activity overseas.
Once you have confirmed your reporting liability, send over the necessary information to our tax accountants. Depending on the forms you must file, that might include foreign bank statements, updated information on a foreign trust, or any other financial details. Once we have the necessary information, we can prepare your international information returns so that they are ready to submit alongside your normal U.S. tax return.
If you live overseas but are still an American citizen, you must report your worldwide income to the IRS. While exemptions for expats might reduce your tax liability, they will not erase your reporting liability, whether for your income or other financial activity that occurs in another country.
By consulting with our tax accountants, filers can more easily understand their reporting responsibilities so that they are not unnecessarily penalized by the IRS. The IRS will levy financial penalties against those who do not submit international information returns when required, whether out of willful non-compliance or ignorance.
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American expats often build a life in a new country by buying property like a home or creating financial stability with investments. As long as taxpayers are still U.S. citizens, their financial decisions might come with certain tax obligations.
Your first order of business should be to speak to a CPA and determine whether your properties or investments need to be disclosed to the IRS. In many cases, especially when the investment or property is worth a substantial sum, you must disclose your holdings to the IRS. If you sell the property or investment, you may be taxed on the profits as income, and you should report the sale to the IRS. Simply owning valuable property or investments might be reportable under FBAR requirements. If you are taxed on the sale of property or an investment, you might be able to claim foreign tax credits so you do not pay taxes on the same income twice.
Call our U.S. tax accountants at US Tax Help at this link – get in touch for help with your taxes as an American expat.
Reporting Foreign Property or Investments on Your U.S. Taxes
While living overseas, you might buy some property, make investments, and otherwise take steps to build your life broad while planning for financial security. If you remain a U.S. citizen while living overseas as an expat, you still have U.S. tax obligations.
Buying Property or Investments
You do not necessarily have to report that you have purchased a property or made an investment. The purchase alone is not taxable. However, what you do with the property or investment might determine whether you must report it on your U.S. taxes.
If the property is used for business purposes, you would have to report the income you earn from the property. For example, suppose you buy a home while living in another country and decide to rent it out to earn extra income. The purchase of the home might not be something you have to report on your taxes, but the income you earn from renting it out is definitely something you must disclose on your taxes.
How you purchase the property or investments also determines whether you must report certain information about the purchase to the IRS. Making a purchase in your name as an individual is not necessarily a taxable event. However, if you buy the property through a business or corporate entity, there might be certain tax obligations. You should speak with a CPA to make sure.
Selling Property or Investments
When you sell property or investments, you might earn income. That income must be reported on your taxes. However, reporting requirements might depend on whether you turned a profit from the sale.
People do not always sell properties or investments for more many than they paid. Unfortunately, things do not always pan out as we hope, and we sometimes sell at a loss. If you turn a profit, you may be taxed on your capital gains. If you sell at a loss, you are not taxed on the sale and may deduct the loss from your taxable income.
For example, suppose you buy an investment property in the foreign country where you live for the equivalent of $100,000. Next, suppose you sell the property for $150,000. Your initial investment of $100,000 is your base. The $50,000 profit from the sale is the capital gains that must be reported and taxed.
Alternatively, suppose you sold the investment property for less than what you paid. Perhaps you sold it for $60,000, meaning you experienced a $40,000 loss. You might be able to deduct that loss from your taxable income. Not all losses are deductible, and you should speak to an experienced CPA if this situation sounds familiar.
How Owning Property or Investments Abroad Affect Your Foreign Tax Requirements
While buying some property or investing in certain assets is not necessarily worthy of reporting on your taxes, particularly valuable assets might adhere to different rules. If your property, investments, or other assets are worth enough money, you might need to file FBAR reports.
Buying property or investing overseas might trigger Report of Foreign Bank and Financial Accounts (FBAR) requirements. You might need to report properties and investment assets if they amount to more than $10,000. This means that even if you have not yet made any money from the property or investment, you must submit an FBAR report if it is worth more than $10,000.
Real property is often worth enough to warrant FBAR reports. As such, expats often have to disclose homes or other valuable assets. If you are unsure, speak to a CPA about your finances. It might be better to err on the side of caution and report assets anyway if you are unsure about reporting requirements.
Possible Tax Breaks Regarding Foreign Investments and Property
When you file your U.S. taxes, you must report your worldwide income. This includes any income you might earn while living in a foreign country. Often, people find themselves already paying taxes on their foreign-earned income to the country where they earned the income in the first place. You can claim a foreign tax credit to avoid paying taxes to two countries on one income.
To put it differently, if you sell a property or investment and make a profit, the country you live in will likely tax that profit as part of your income. Unfortunately, the United States will try to tax it too. To avoid paying taxes twice on a single source of income, you can claim a foreign tax credit by filling out Form 1116.
You can take this tax break as a credit and reduce your tax liability or as an itemized deduction. Whichever is best depends on your specific situation and should be discussed with a CPA.
Call US Tax Help to Discuss Your Foreign Property and Investments
Contact our U.S. tax accountants at US Tax Help by calling this link – get in touch to ask for help with your taxes as an American expat.
Taxes are difficult whether you are filing from the United States or living abroad. As such, many American expats make unintentional tax mistakes and must fix them. A CPA can help you file an amendment from overseas.
American citizens can file amendments correcting mistakes, errors, or omissions on their taxes, even while living abroad. Tax mistakes are more common than many people realize, and they are especially common for people living abroad whose tax obligations might be very different or complicated. Common reasons people submit amendments include forgetting important information such as taxable income or dependents or providing incorrect information. To amend your taxes, you and a CPA must fill out Form 1040X and submit any additional forms or paperwork as necessary. Failure to correct tax mistakes with an amendment might get you into trouble.
If you are an expat living abroad and need to file an amendment to your taxes, call US Tax Help at this link – get in touch and ask our US tax accountants for help.
Amending your Tax Returns as a U.S. Expat
Filing taxes while living abroad as an expat can be challenging. If you discover you made a mistake on your taxes, it might not be too late to fix it. Our U.S. tax accountants can help you file an amendment and correct your tax situation.
Expats who have made mistakes on their taxes have no more than 3 years from the date they initially filed or 2 years from when they paid original tax liabilities to submit an amendment, whichever is later.
This lengthy deadline allows people much time to realize their mistakes, find legal help, and fix their tax returns. This is especially important for expats who might have difficulty amending their tax returns from overseas.
Many expats want to know if filing an amendment has penalties or consequences. While you might encounter financial penalties, such as late fees or accrued interest, you are unlikely to be penalized simply for filing an amendment.
If you make a mistake on your taxes, the IRS wants you to be able to fix it. The IRS is primarily concerned with getting any money owed to it. If you catch a mistake and take the proper steps to fix it, the IRS will likely not penalize you.
Common Reasons U.S. Expats Amend Their Tax Returns
As you likely already know, taxes are not simple, and mistakes are normal. Many expats find themselves filing amendments because they provided incorrect information on their taxes. Perhaps you recently had a child and forgot to include them as a dependent on your taxes. Maybe you have a small side gig that helps you earn extra income, but you forgot to include that income on your taxes. Maybe you recently got married, and you and your spouse made a mistake when filing as married for the first time.
These are very common mistakes that the IRS is more than prepared to deal with. Do not feel scared or intimidated when trying to fix these minor issues. However, if you realize the mistake, you should take steps to correct it as soon as possible. Realizing you provided false information but choosing to ignore the problem might be seen as fraud by the IRS.
How to Amend Errors on Your U.S. Tax Returns as an Expat
The key to submitting your amendment and correcting tax mistakes is Form 1040X. We can help you fill out this form and attach any other necessary forms. Generally, the form should include details about the tax mistake you are correcting and information needed to correct the mistake. It should be made very clear on the form that you are filing an amendment. If necessary, you should even write “AMENDMENT” at the top of the form to avoid any clerical errors.
Some expats amend their taxes because the U.S. government owes them more money in tax returns. This might be because you forgot to claim dependents or missed important tax credits or exclusions in your initial filings. In such cases, you should wait until you receive your tax return from your original tax filing. Once received, we can work on submitting the amendment, and you should get any remaining money owed to you.
Other expats are filing because they owe the IRS more than originally thought. Perhaps you claimed too many dependents or forgot to include taxable income on your original filing. In that case, you should submit any additional payments along with your amendment to avoid possible monetary penalties or interest.
What Happens if I Do Not Amend Mistakes on My U.S. Tax Returns as an Expat?
The IRS often understands unintentional mistakes, especially when taxpayers recognize them and try to fix them as quickly as possible. However, you might risk civil penalties, fines, fees, and possibly even criminal charges if you know about the mistake but ignore it.
You might incur monetary penalties, such as fines, fees, or higher interest on your overdue payment. Financial penalties are usually based on the amount of tax you owe. The more money you owe as part of your tax amendment, the higher the possible penalties might be. Many expats face small fees if they contact a CPA and try to rectify the problem as soon as possible.
Penalties might be small and more manageable for those who do not owe that much money. If you owe a great deal of money, you should talk to a CPA about how to deal with possible penalties.
If the IRS owes you money, there should be no penalties.
If you realize the mistake but do nothing to correct it, you might find yourself in hot water. While the initial mistake might have been unintentional, ignoring it and doing nothing might land you in trouble. Depending on the mistake, whether you owe additional money to the IRS, and the amount you might owe, you might face serious civil or criminal penalties.
The IRS might consider your failure to amend taxes you know are incorrect as submitting false or misleading information to defraud the government. The longer you wait to file an amendment, the more suspicious the IRS might become. Talk to a CPA as soon as you realize the mistake.
Contact the team at US Tax help About Amending Your Tax Returns
If you are an expat and realize you made a mistake on your taxes, call US Tax Help at this link – get in touch and ask our US tax accountants for expats for help.