Provided you’re a US citizen or have a green card, you will still have tax obligations, even if you live outside the country.
The IRS is far-reaching, and US citizens will need to report their foreign income if it exceeds a certain threshold. In many occasions, your taxes on foreign income can be reduced to zero, but you still need to report it to the IRS.
Offshore bank accounts are frequently used to hide income and evade taxes in the US. Therefore, the IRS monitors feverishly how US money moves throughout the world. Failure to properly report your foreign income and financial accounts can lead to sizeable penalties.
To add to the problem, there are a variety of layers in reporting foreign finances and a complicated system to evaluate tax deductions and exemptions. Individuals and businesses can easily become confused and make a mistake.
Daily & Toups is a specialized tax law firm. We can help you understand your responsibilities as a taxpayer and help you navigate through the complex web of procedures surrounding foreign income and financial assets.
If you receive income from foreign countries, and exceed a certain threshold, you will have to report it to the IRS. It doesn’t mean that you will necessarily pay taxes to the IRS. Depending on the circumstances, there are numerous exemptions and deductions available to reduce the taxes you pay in the US.
You have to report foreign income if:
If you’re over 65, file separately from your spouse, or are a widow(er), there are special thresholds that apply to you.
To report your foreign income, you have to submit Form 1040 by April 15th for the previous year. In addition, there are a number of other tax reports you will have to complete and submit to the IRS.
The IRS is interested in the amount of money US citizen holds in foreign bank accounts. If you hold more than $10,000 foreign bank accounts, you will have to report it using the Foreign Bank Account Report (FBAR). If you have more than 1 account or own different financial assets, then the total sum is evaluated.
Even if you don’t own any money in foreign bank accounts, but have authority over such you will be required to submit an FBAR form. For example, if you manage work-related foreign bank account owned by your employer.
Other assets included in the Foreign Bank Account Report:
FBAR is merely a statement of your finances and it doesn’t necessarily mean you owe any taxes. But you might.
To submit an FBAR, taxpayers are must to file an electronic FiCen Form 114 by April 15th each year with a possible extension up to October 15th. The information will be submitted to the Department of the Treasury – not the IRS.
If you own sizeable financial assets in foreign bank accounts, there are additional duties to report them to the government. Under the Foreign Account Tax Compliance Act (FATCA), you must also complete and submit Form 8938. This is in addition to Form 1040 and/or FBAR.
The thresholds are different for citizens who live in the US and those living abroad.
You must submit a FATCA form if your foreign financial assets are:
For married couples filing jointly, the thresholds double.
Since 2015, foreign banks also submit data about your financial assets to the IRS. So, the agency is much more likely to catch you cheating than with FBAR filings.
An FBAR is a serious responsibility. Failure to submit the report will result in a 5 or 6-figure fine, depending on the circumstances.
The agency provides a chance for individuals and businesses to get caught up with their due FBAR submissions. The Streamlined Filing Procedure is available to residents and expats of the US and gives them an opportunity to file all their late paperwork without any consequences. For residents of the US, a fine of 5% over foreign financial assets is applied.
If the IRS catches you first, you lose the ability to use the Streamlined Filing Procedure and will face the full consequences of your actions.
At Daily & Toups, we’ve dealt with hundreds of cases involving foreign income and financial assets. With more than 50 years of experience, we have unique knowledge of IRS procedures and processes.
We can assess your finances and foreign accounts and check your eligibility for various exemptions or penalties under US tax law.
Furthermore, we can take over your defense and manage your tax matters in front of the IRS. We’ll make sure all required tax reports are filed in the proper timeline and use all available leverage to reduce your expenses.
Contact us for a free consultation and we’ll discuss what options you have and how you can avoid harsh financial penalties.
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