You’re an American living abroad and one of the things you must do, regardless of your personal circumstance, is to file an annual US tax return. There’s really no other reasonable option.
Some, if not many, expatriates do not know they need to file an annual return. Others, for various personal reasons, may simply choose not to but we suggest taking that decision - not to file, is misguided and potentially leads to significant trouble.
Here are 5 good, hard reasons why now more than ever you should file your US taxes each year.
ONE (this one is new and important)
Just recently from the New York Times – “In a joint statement, the United States, France, Germany, Italy, Spain and Britain said they wanted to intensify their cooperation in combating international tax evasion.”
The net effect of this is for the first time, there will be a total sharing of data and it will follow this path – first, foreign banks to their countries’ governments, then government to government including the USA, which will effectively reveal all Americans’ financial account activity wherever, within these nations, they hold accounts.
And this is just a precursor of what is to come. The Times, quoting US Treasury Officials, went on to say, “Canada, Switzerland, China and Japan, will see the benefits of the approach announced and that the agreement is almost certain to expand”. It is projected that it’s only a matter of time before this manner of reporting is commonplace and becomes the norm worldwide.
For an updated report on how your personal data is being shared between countries, see this excellent article.
Enforcement aside, it’s already the law. Wherever you reside within or outside the United States you must file an annual tax return. Whether you actually wind up owing taxes or not is irrelevant. You still must file. If you fail to file, you may be liable for fines and penalties and with FATCA (Foreign Account Tax Compliance Act) laws now coming online, the potential penalties are significant. From $10 thousand, to $50 thousand to half your foreign held assets - the US government is painfully serious about collecting taxes and by not filing you are potentially making yourself a target - one that, with new data sharing agreements, is more and more easily revealed to the US taxing authorities.
If you do not file US taxes you miss the 3 year statute of limitations rule. In other words, if you have not filed, the IRS can go back much, much further looking into your affairs, whereas once you’ve filed they are limited to 3. As an example, if one is assessed for 10 years back taxes, plus penalties and interest, the resulting figures can be staggering, much less financially debilitating.
The United States government is actively pursuing the denial of renewal of passports to Americans who are not in compliance with the IRS. They’ve tasked the GAO, the Government Accountability Office with studying the matter and the GAO, thus recommends, “If Congress is interested in pursuing a policy of linking federal tax debt collection to passport issuance, it may consider taking steps to enable States to screen and prevent individuals who owe federal taxes from receiving passports”.
Most Bright!Tax clients don’t owe any tax! With foreign earned income exclusions and other strategies we help you with, the vast majority of our clients owe and need to pay nothing at all.
Taking all of these elements into account, one can see the obvious conclusion – It’s not worth the risk not to file. If one does not file their annual US tax return, the penalties are significant (and potentially debilitating). If one does file, the cost is minimal and the peace of mind one gains is maybe priceless. Bright!Tax is here. Let us help!