We suggest the most relevant approach to this question is to weigh the potential outcomes as a result of your situation – and usually there are two - Option One - You choose to continue not to file your US taxes.
This is both risky and, by US law, it is a criminal offense. The potential outcome to you personally could be disastrous. Our recommendation is not to consider if you will be discovered, but when
you will be discovered. Even if you believe you are effectively ‘off the grid’ the United States is newly and aggressively establishing data sharing agreements with other countries in order to seek out and find tax evaders. Important!
It’s been most recently reported in The New York Times that the United States has penned agreements with the sovereigns of England, France, Germany, Spain and Italy (with a stampede of other nations signing on) to share data country to country specifically to target potential tax evaders
, thus circumventing any country’s existing individual privacy laws. This is brand new territory and the US considers these agreements to be the ‘breakthrough’ that they have so long been seeking to pinpoint exactly who and where American expatriates are and reside.
When the IRS discovers your whereabouts, they will proceed to perform their own calculation and present you with their assessment of what taxes they believe you owe, plus penalties, plus interest for all tax years you have not filed. Then you are drawn into a nightmare scenario of battling the IRS over what you actually owe versus their assessment (and their assessments are most often astronomically high).
This potential outcome can be remedied though. Option Two - You choose to become current with the IRS and file your US expat taxes.
This is where Bright!Tax can help and probably not as painfully as you might think. A potential strategy that brings you into full good standing with the IRS is this –
The statute of limitations for the IRS’s audit authority for an individual’s returns is 3 years. Anything before that is usually off limits. Important!
For individuals who have not filed a return in several years there is no statute of limitations
– In other words, you could be discovered and assessed for all of the years that you had not filed your taxes. Whether you actually owed any taxes or not, you would still be exposed to IRS assessments, penalties and interest then battling them over who owes what.
To remedy this, a recommendation we often make to clients is to file the current year’s return. Then, in addition, to file 2 prior years’ returns. The strategy is this
– By filing the current year’s return, you’ve created your desired ‘time stamp’ that establishes your 3 year statute of limitations. Then, since filing a single return might kick out a data anomaly, because IRS systems look for 2 years’ prior filings (staying within their 3 year audit window), you decrease the probability you’ll be scrutinized and, by filing a total of 3 years, you are also demonstrating goodwill that you are aware of your obligation and are making a good faith effort to become compliant. This goes a long way toward the government looking at your case favorably or not if, indeed, your returns were to be scrutinized.
Another surprising aspect of this strategy is that, most often, there’s actually no tax owed. Because of Foreign Earned Income Exclusions, etc., our clients, while becoming fully compliant, are also pleasantly surprised to discover they don’t owe any tax whatsoever.
There are other expat tax advisors who suggest filing one year and taking your chances or others who recommend filing the past 6 years. While these are valid approaches, our recommendation, depending on circumstance, is usually to zero in on 3 years’ returns. Contact us at Bright!Tax
and we will gladly and proactively help with your specific circumstance and your becoming fully compliant.
FATCA is the Foreign Account Tax Compliance Act
Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS. In addition, FATCA will require foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.Reporting by U.S. Taxpayers Holding Foreign Financial Assets
FATCA requires certain U.S. taxpayers holding foreign financial assets with an aggregate value starting at $50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer’s annual tax return. Reporting applies for assets held in taxable years beginning after March 18, 2010. Failure to report foreign financial assets on Form 8938 will result in a penalty starting at $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.Go here for an excellent article that explains more broadly the new FATCA laws and their potential ramifications.
If you have more specific questions, please contact us at Bright!Tax. We can help!
FBAR is the Foreign Bank Account Report.
FBAR requires that if you have a foreign financial account or even signature authority over a foreign account, then you must file an FBAR Report. It is the Form TD F 90-22.1. Foreign financial accounts include bank accounts, brokerage accounts, mutual fund, trust or other types of foreign financial accounts. FBAR reporting is necessary if an individual has one or more accounts whose total value exceeded $10 thousand at any time during the course of a given year.
Willful failure to file a required FBAR Report can result in significant penalties. If one's failure to file is non-willful, for example if one did not know about the filing requirement, then there is no penalty. If willfully unreported, penalties can be astonishingly high - the greater of $100 thousand or half the amount in the account for each violation.
It is clear that FBAR reporting must be taken seriously. Talk with a Bright!Tax expert today to discuss your personal situation.Contact Bright!Tax for more in depth information
regarding your expat tax reporting circumstance.
It's as simple as a punchlist, really. If you are able to gather the following documents then you're well on your way to way to getting your taxes done both easily and accurately. The list is as follows -
- A copy of last year's tax return
- Social Security Numbers for yourself and your spouse if applicable.
- Social Security Numbers for your dependents if applicable.
- Forms W-2 from all of your employers
- Forms 1099 showing interest paid to you throughout the year
- Form 1099-G showing any refund, credit or offset of state and local taxes
- All receipts pertaining to your small business sole proprietorship if applicable
- Forms 1099-DIV and Forms 1099-R
- Income receipts from rental, real estate, partnerships, S corporation, trusts
- Unemployment compensation
- Social Security benefits
This list is not exhaustive and perhaps does not cover everything, but it does cover most of the necessary documents you will need. Once you engage Bright!Tax to complete your American expatriate tax return, your Bright!Tax CPA will be able to advise you and strategize with you to make sure you're getting the best and most accurate return possible while remaining absolutely compliant. Contact Bright!Tax if you wish to receive more details.
The answer to the question whether one needs to file a tax return or not depends on certain things, like your age, income level and whether you meet certain other requirements. Even if one does not have to file, it may be in your best interest to do so anyway in order to recoup refund monies that may be owed to you
. According to the IRS, Americans leave billions of dollars on the table by not filing a return. The average amount people walk away from is $500 – read on to find out if this applies to you. Minimum Income to File a Federal Income Tax Return
Other Circumstances that Require You to File a Tax Return
- Single / Under 65 / $9,500
- Single / 65 or Older / $10,950
- Head of Household / Under 65 / $12,200
- Head of Household / 65 or Over / $13,650
- Married Filing Jointly / Both Under 65 / $19,000
- Married Filing Jointly / One Over 65 / $20,150
- Married Filing Jointly / Both Over 65 / $21,300
- Married Filing Separately / Any Age / $3,700
- Widow(er) with Dependent Children / Under 65 / $15,300
- Widow(er) with Dependent Children / Over 65 / $16,450
Regardless of one’s income, you are generally required to file an income tax return if any of the following applies:
It May Be in Your Best Interest to File Anyway
- You owe household employment taxes
- You owe additional taxes on a retirement plan or health savings account
- You owe Social Security and Medicare taxes on unreported tip income
- You had net self-employment earnings of $400 or more
- You earned $108.28 or more from a tax-exempt church or church-controlled organization
- You received distributions from an MSA or Health Savings Account
Following is a list of circumstance that may make you eligible for a tax refund, so it may be in your best interest to file.
- If you had taxes withheld from your pay, you must file a tax return to receive a tax refund.
- If you are claiming education credits, you must file to be refunded the American Opportunity Credit.
- If you have a qualifying child but owe no tax, you can file to be refunded the Additional Child Tax Credit.
- If you qualify, you must file a return to claim the First-Time Home-buyer Credit.
- If you qualify, you must file to claim the refundable Health Coverage Tax Credit.
- If you adopted a qualifying child, you must file to claim the refundable Adoption Tax Credit.
- If you qualify, you must file to claim the Credit for Prior Year Minimum Tax.
- If you overpaid estimated tax or applied a prior year over-payment to this year, you must file to receive the refund.
- If you qualify for the federal fuel tax credit, you must file to receive it.
- If you qualify, having earned under certain limits, you may be eligible for the Earned Income Tax Credit
is standing by to help with your particular circumstance. Let us know how we can help!
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. TWO
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. THREE
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. FOUR
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!
If you meet certain requirements, you may qualify for the Foreign Earned Income and Foreign Housing Exclusions and the Foreign Housing Deduction. A quick rule of thumb is to have been outside the US for 330 days. Then you qualify for the FEIE.
If you are a US citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted for inflation (currently at around $97 thousand). In addition, you can exclude or deduct certain foreign housing amounts.
Your Bright!Tax expat tax consultant
can explain this in greater detail and work with you on your particular circumstance.
The quick version of steps to getting your US taxes done with Bright!Tax is here in this new video, called EZ - approximately 40 seconds. This video short has been distributed widely on the Internet to great acclaim. It is quite nicely done!
Your US tax return will begin with a cursory overview by Bright!Tax © Associates to be sure we have all the relevant elements to complete your return. It is then scheduled and forwarded to your assigned Bright!Tax © Tax Specialist - a fully licensed and qualified American CPA who will thoroughly review your return and make sure that every matter is addressed and that all questions are answered. Your Bright!Tax CPA will communicate with you as necessary to make sure your return yields every tax advantage while staying strictly within legal tax guidelines. Upon completing an initial proof of your return, your Specialist will coordinate a review of your return with a Bright!Tax Team Lead (also a licensed and fully qualified CPA) who will offer comments and recommendations on your behalf. Once this is complete you will be presented with a secure proof of your return for you to review and approve for final e-filing with the appropriate government entities. At all times during the process you will have ready access to your Bright!Tax CPA to make further queries, offer comments and observations. Contact Bright!Tax for further queries and information.
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