In recent years, it seems that the trend is for the tax obligations of expatriates to become increasingly complex each tax year. In the late 2000s, the Report of Foreign Bank Account (FBAR) obligation was enforced for the first time in the modern era. However, this new reporting obligation was only the tip of the proverbial iceberg. In 2010, the additional and sometimes duplicative obligation to report foreign accounts and assets under FATCA was enacted into law. When viewed in the context of the already existing problem of double taxation due to the United States’ citizenship-based taxation, one can begin to see the mess that expatriate taxpayers must sort out each and every year.
US tax accountant Ted Kleinman focuses his accounting practice on international tax laws and can help expatriates navigate these laws. At U.S. Tax Help, Ted will take the time to address your questions and concerns point-by-point. He can help you avoid common tax mistakes and minimize the potential impacts of double taxation.
International Tax Trap #1: You Forgot to Assess Your Obligation to File FBAR, FATCA, or Other Informational Reports
Generally, taxpayers holding or controlling foreign assets in excess of $10,000 are required to file an FBAR. The FBAR obligation is satisfied by filing FinCEN Form 114 on the Bank Secrecy Act Portal. Individuals with foreign assets may also hold an obligation to make FATCA disclosures. FATCA disclosures are made by filing IRS Form 8938 with the IRS.
Of note for the 2017 filing season, is the fact that the FBAR deadline has been moved up from is traditional June 30 deadline. The new deadline aligns with tax day in April so taxpayers will have an additional obligation to satisfy by Tax Day. Penalties for FBAR and FATCA failures are harsh and do not take your intent into consideration. Therefore, even an accidental failure to file FBAR or FATCA can lead to penalties in the tens or hundreds of thousands of dollars.
International Tax Trap #2: You Didn’t Report All of Your Income
Many U.S. expats are confused about the types of income they are required to report on their taxes. Some expats may even reason that they have already paid foreign taxes on the money, so the U.S. government could not possibly care or tax their income again. Unfortunately, this assumption is incorrect. Taxpayers need to report all of their income regardless of where it was earned.
However, some confusion is understandable since the United States is the only developed nation that taxes on the basis of citizenship rather than the economic nexus. The foreign earned income exclusion and provisions contained in tax treaties may be able to reduce this tax burden, but the income must be reported. If the income is not reported and taxed, the individual is likely to end up owing back taxes plus penalties and interest.
International Tax Trap #3: You Attempt to File a Joint Tax Return with Your Foreign Spouse
At least some American expats find love while living aboard. However, there are important tax differences when your spouse is not a U.S. citizen or otherwise subject to U.S. taxes. That is, people commonly joke about having to file their taxes jointly after marriage. They may have also heard that filing one’s taxes jointly can confer certain tax benefits and advantages. Thus, they may automatically file a joint tax return.
Unfortunately, if your spouse is a nonresident alien for tax purposes, you should not file a joint tax return. Rather, you should file your taxes as a sole filer. Clearly, selecting the wrong filing status will have some major impacts on the deductions you can take, tax brackets, and many other aspects of your tax return. Facing a huge tax bill due to a preventable mistake is hardly a welcome surprise for newlyweds.
Work with an Experienced CPA for Expats When Handling International Tax Obligations
If you are living abroad and required to file U.S. taxes, put CPA Ted Kleinman’s more than 20 years of experience to work for you. At U.S. Tax Help, Ted can provide careful and strategic tax guides to your questions and concerns. To schedule a free and confidential consultation, call U.S. Tax Help at 1-800-810-9312 or contact us online.