Do Americans Abroad Have to Disclose Accounts and Assets?
Generally, American citizens must disclose information about various assets and accounts when filing their taxes. However, the situation might be different for Americans living abroad.
Americans should be reporting information about assets and accounts when they file taxes, but different rules apply to accounts and assets based in foreign countries. While you likely need to disclose this information, there may or may not be certain tax liabilities. If you do not report assets, accounts, or other holdings, you might encounter penalties and other unpleasant consequences. If your country of residence has already taxed your assets, you should still disclose them to the United States. However, you might be entitled to tax credits or exemptions to avoid being taxed twice on the same assets.
Speak with our U.S. tax accountants by calling US Tax Help at (541) 362-9127 and get advice, guidance, and support for your unique tax situation.
Do Americans Living Overseas Have to Report Accounts and Assets on Their Taxes?
People might move overseas for various reasons, including work, relationships, or to get a fresh start. Living in a new country does not necessarily mean you are no longer a U.S. citizen, and you might still be liable for U.S. federal taxes. Depending on where your accounts and assets are based, you might have to pay taxes on them.
Domestic Accounts and Assets
Any assets, accounts, holdings, or other finances based in the United States must be disclosed on your U.S. taxes. If you are unsure whether certain holdings or assets are based in the United States, consider where the money comes from. Are your accounts held in U.S. banks? Are assets or properties held or maintained within the borders of the United States? If your assets seem to exist solely within the United States or under its jurisdiction, you should consider it domestic and report it on your taxes.
Reporting details about assets, accounts, and income on your taxes is notoriously complicated, even when your financial situation is relatively straightforward. For those with more complex finances, our US tax accountants can help you determine what must be reported and how much tax might be owed. It is likely that domestic accounts and assets are going to be taxed, especially if you have withdrawn money or otherwise derived income from these assets.
Foreign Accounts and Assets
If your accounts, assets, or other finances are foreign, you should still disclose them on your US taxes. You might be required to submit Foreign Bank and Financial Accounts (FBAR) forms about your foreign assets. FBAR reports are required as part of the Bank Secrecy Act to prevent US citizens from hiding assets overseas.
You are required to file FBAR reports under the following circumstances:
- You are a U.S. citizen, resident, business, trust, or estate.
- You have a financial interest or authority over at least one account outside the U.S.
- The aggregate value of your foreign account is more than $10,000 at any time during the tax year.
Remember, it does not matter if you did not earn income from your foreign assets or accounts. You must still disclose them using FBAR reports. Filing FBAR reports does not automatically mean your foreign assets will be taxed. You should speak with an accountant about your situation as soon as possible.
What Happens if I Do Not Report Accounts and Assets on My American Taxes?
The penalties for failing to disclose foreign accounts and assets are no joke. Not only might you face civil fines and penalties, but you might also face serious criminal charges. If you live overseas and are unsure if some of your assets must be reported on FBAR forms, talk to an accountant about your situation.
Civil fines and penalties depend on several factors. First, the government will consider your intention when violating FBAR reporting requirements. It is one thing to fail to file FBAR forms by mistake but quite another to do so willfully. On top of that, if you have violated FBAR reporting requirements in the past, the government will view this as a pattern of negligent activity, and fines might be higher. The upper limits on civil fines are annually adjusted for inflation, but there is no minimum.
Criminal penalties do not apply if your failure to file FBAR forms was a mistake or the result of accounting negligence. Even a pattern of negligently failing to file FBAR forms does not usually lead to criminal penalties. However, you might be criminally charged if your violation was willful. Criminal penalties might include thousands of dollars in fines, years behind bars, or both. The most severe criminal penalties tend to apply in cases where the taxpayer is involved in some tax fraud scheme.
What if Another Country Already Taxes My Assets?
A major source of confusion is tax liability to other countries. Americans living abroad often must pay taxes in the country where they reside, especially if they are working and earning income overseas. Even if your country of residence has taxed your assets and accounts, you must still disclose them on your U.S. taxes. However, you might not have to pay taxes on them in the U.S. if certain exemptions or credits apply.
Foreign-Earned Income Exclusion
The foreign-earned income exclusion may be used to exclude income you earn in other countries from being taxed in the U.S., at least up to certain amounts. You must be liable for U.S. taxes and taxes in your country of residence to take advantage of this exclusion. You must also be earning income from a foreign source. Common foreign sources include an ordinary job for a salary or hourly wages in a different country. It might also include income from assets, accounts, or investments in foreign sources.
You might be unable to exclude all your foreign-earned income from your U.S. tax obligations if you earn more than the legal limit. The limit is adjusted yearly for inflation, and for 2023 the limit is $120,000.
Foreign Tax Credit
If you have to pay taxes in a foreign country on your income, and that same income is also subject to taxation in the United States, you might be eligible for a foreign tax credit. This credit is applied to your U.S. taxes as a deduction and is based on the amount you paid in taxes to your country of residence. For example, if you paid $1,000 in income tax in your country of residence, you might take a $1,000 deduction on your taxable income in the United States. There are limits on what kind of income qualifies for this credit, so you should talk to an accountant immediately.
Call US Tax Help About Disclosing Your Assets and Accounts
Talk to our U.S. tax accountants at US Tax Help by calling (541) 362-9127 and get support for your foreign tax situation.