Every U.S. citizen and Green Card Holders – regardless of whether they are living in the U.S. or abroad – must file a tax return with the federal government. Even some states require that you file a tax return when living abroad.
We know the tax situation for expatriates is often complicated and frustrating. Whether its filing a current year tax return, preparing years of unfiled tax returns or resolving an IRS problem, we assist our satisfied clients with every aspect of tax preparation and tax planning.
There are opportunities for U.S. Expats to avoid double taxation on their foreign earned income through the Foreign Earned Income Exclusion and Foreign Tax Credits. You may qualify to exclude from income up to an amount of your foreign earnings that is adjusted for inflation ($100,800 for 2016). In addition, you can exclude or deduct certain foreign housing amounts – Housing Exclusion or Housing Deduction. But you must file a tax return with the Internal Revenue Service to qualify for these benefits. Or, you can use the foreign tax credit instead. Call us to figure out what the better option is for you.
FBAR & FATCA Reporting Requirements
New rules on financial reporting will affect expatriate. If you’re an expatriate who hasn’t been filing returns and FBARs, this could affect you.
What is FBAR?
FBAR, the Foreign Bank Account Report or FinCEN Form 114, formerly TD F 90-22.1 is due by June 30th each year. Every “United States Person” who has one or more foreign bank account(s) which at any point during the year reached an aggregate balance of over $10,000 is obliged to file a report with the US Treasury Department listing all foreign accounts.
The IRS clarified that the term “United States Person” means (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.”
FBARs must be filed electronically.
A $10,000-per-year penalty can apply even if your failure to file a FBAR is an oversight. If the IRS can show you purposely avoided the FBAR reporting obligations, the penalties can be as high as:
- $100,000, or
- 50% of the greatest value of the account
Taxpayers who intentionally avoid FBAR reporting can face criminal charges.
If you haven’t filed required FBAR reports in prior years, you should act quickly.
What is FATCA?
The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act. Starting in 2014 foreign financial institutions (FFI) will be required by the US government, under FATCA, to report information regarding accounts of US citizens, US persons, Green Card holders and individuals holding certain US investments to the IRS. This law requires foreign financial institutions such as your local bank, stock brokers, hedge funds, insurance companies, trusts, etc. – to report directly to the IRS all their clients who are “US persons.” FFIs that do not become compliant will be subject to a 30% withholding on these investments, which will directly impact FFI clients.
FATCA also requires US citizens who have foreign financial assets in excess of $50,000 for single filers or $100,00 for joint filers (higher for bona fide residents overseas – $200,000 for single filers and $400,000 for joint filers) to report those assets on a new Form 8938 to be filed with the 1040 tax return.