Streamlined Disclosure for U.S. Taxpayers Living Outside the U.S.

An American taxpayer living abroad could have any number of reasons why they may have missed a deadline or neglected to file a form. Many Americans who live overseas fail to realize that moving to another country does not exempt a U.S. citizen from having to file a tax return with the IRS; in fact, it often increases the number of forms that must be submitted. Still, expatriates benefit from several advantages when filing their taxes with the IRS, including the ability to disclose overseas assets – even those that should have been reported previously but were not – without fear of penalties.

U.S. taxpayers living outside the country should consult with a professional before attempting to follow streamlined disclosure procedures, however. This process can be quite complicated and can have a significant impact on a person’s legal and financial standing with the U.S. government. The specialists at U.S. Tax Help can lend you the assistance you need. Led by Ted Kleinman, CPA, this team of international tax experts will guide you through your streamlined disclosure to ensure compliance with the IRS. To set up a consultation, visit U.S. Tax Help online or call (541) 362-9127 today.

Tax Requirements for Americans Living Overseas

The U.S. and Estonia are the only two countries in the world that tax based on citizenship, rather than geographical location; for taxpayers, this means that leaving your home country does not exempt you from its taxes, though there are ways to reduce your obligation. Regardless, if you have recently moved abroad, be aware that you are still required to file a tax return with the IRS, plus (most likely) forms related to FBAR and FATCA reporting requirements.

On its face, filing a tax return while living abroad seems just like filing a return from within the U.S.; you will use the same form, Form 1040, as the basis for your return, and it is due by the same deadline, April 15. However, expats receive an automatic two-month extension for filing their tax returns, making June 15 the true deadline to file. Please note that, while there will be no penalties for filing after April 15 but before June 15, interest on any taxes owed will begin to accrue starting April 15.

Most Americans living overseas will also want to file Form 2555, which allows qualifying taxpayers to account for any savings through the foreign earned income exclusion or the housing exclusion or deduction. Expats who earn their living abroad can often exclude more than $100,000 of income from their U.S. tax obligation, significantly reducing – or even eliminating – their final tax bill.

Those who have foreign assets, whether in the form of a bank account or property, will also have to report these holdings to the IRS. The most common method of doing this is through the Report of Foreign Bank and Financial Accounts, or FBAR, which requires the electronic submission of FinCEN Form 114 (FinCEN refers to the Treasury Department’s Financial Crimes Enforcement Network). Any taxpayer with an interest in, or authority over, a bank account or accounts worth more than $10,000 at any point in the year must file an FBAR to avoid penalties.

The other common reporting requirement regarding foreign assets is the one laid out in the Foreign Account Tax Compliance Act, or FATCA. The threshold for this is much higher than with the FBAR – hundreds of thousands of dollars in assets, as opposed to $10,000 – but it includes any property or other possessions as well as bank accounts. A qualified accountant can further explain the disclosure requirements for Americans living overseas.

Streamlined Disclosure Procedures for U.S. Citizens Living Abroad

The streamlined filing compliance procedures offered by the IRS allow taxpayers who have failed to properly report income or assets to come into compliance with the law while avoiding most of the attendant penalties. There are several eligibility requirements for this, however:

  • Taxpayers must issue a statement certifying that their failure to report assets was not willful or knowing
  • The taxpayer must not be under investigation by the IRS and must have paid all previous tax penalties
  • They must have a valid Taxpayer Identification Number (for U.S. citizens and residents, this could be a Social Security Number)
  • The taxpayer must have been living abroad for at least 330 days in one of the three most recent tax years

Returns and forms submitted through this process are treated like any other by the IRS; essentially, this means your return will not be automatically audited, but it could be selected for examination through the same procedures as any other tax return, delinquent or not.

The actual procedures themselves are a series of seven steps, each of which must be followed exactly to ensure proper treatment under the streamlined reporting procedures. Taxpayers will be required to submit three years of returns, in addition to any delinquent forms that must be submitted and the payment of all taxes that may still be due. The reporting requirements for delinquent FBARs is slightly different; a knowledgeable CPA can explain the details of this process and guide you through it successfully.

Specialized Accountants for International Tax Return Preparation and Planning

The process of filing a tax return as an American expatriate can be complicated and confusing, even to those with experience filing their own taxes. That’s why the professionals at U.S. Tax Help offer their decades of experience to clients around the world; we want to make sure you avoid any penalties while making the tax filing process as easy and stress-free as possible. To learn how our expert accountants can help you file your taxes, no matter where you live, visit U.S. Tax Help online or call us at (541) 362-9127 and set up an initial consultation.

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