U.S. Tax For Expats

Before every election voters on both sides inevitably say, "If [insert other party's candidate] wins, I'm leaving the country." Mostly this is talk, but on this day after the election lets look at the basic tax responsibilities of U.S. Expats. After all, before making the big move you should at a minimum be aware that you can't simply drive, fly, or sail away from your responsibilities as a U.S. taxpayer. U.S. Taxpayers Pay Taxes on Worldwide Income Packing up and moving to another country doesn't mean you won't pay taxes to the U.S. The U.S. tax system taxes U.S. persons on their worldwide income. That means even if you earn a living in another country you are still responsible for reporting and possibly paying tax on income earned outside the U.S. To help limit double taxation, that is paying tax in your new home country and in the U.S. on the same income, there are two available remedies. The first is the Foreign Earned Income Exclusion. This allows U.S. Citizens who have established a tax home in another country and have remained outside the U.S. for 330 full days to exclude up to $120,000 in overseas income. The second remedy to avoid double taxation is the Foreign Tax Credit . The Foreign Tax Credit allows you to claim a tax credit or itemized deduction on your Federal income tax return for foreign taxes you paid on income also subject to U.S. tax. Whether you are you use the Foreign Earned Income Exclusion or Foreign Tax Credit it does not waive the requirement to file an income tax return with the IRS. Report Certain Financial Assets Beyond payment of taxes, the Federal government through the Department of Treasury has imposed several requirements that U.S. Taxpayers disclose foreign financial assets. Generally, the disclosure of foreign financial assets takes place on three forms: Schedule B is most commonly used to report interest and dividend income, but the IRS has added three disclosure questions related to foreign financial accounts and foreign trusts. Did you have a financial interest in or signature authority over a financial account located in a foreign country? If “Yes,” are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)? Did you receive a distribution from, or were you the grantor of, or transferor to, foreign trust? Form 8938 is used to report specified foreign financial assets if the total value of all the specified foreign financial assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year. The reporting threshold is $100,000/$150,000 if you file a joint tax return with you spouse. FinCen Form 114 , Report of Foreign Bank and Financial Accounts or more commonly referred to as an FBAR, is used to report a financial interest or signatory authority in a foreign financial account such as bank, brokerage, or mutual fund. An FBAR is required when the combined value of those foreign financial accounts exceeds $10,000 at any time during the calendar year. Disclose Foreign Corporation or Trust Interests In addition to individual income tax and foreign financial asset reporting concerns, U.S. expats must also be aware of complex rules surrounding foreign corporations and foreign trusts. U.S. taxpayers who are officers, directors, or shareholders in certain foreign corporations are responsible for filing Form 5471 , Information Return of U.S. Persons With Respect to Certain Foreign Corporations . U.S. owners of a foreign trust are required to file Form 3520-A , Annual Information Return of Foreign Trust. Conclusion Becoming a U.S. expat does not exclude a Taxpayer from their U.S. tax responsibilities and in many cases introduces even greater tax compliance requirements. U.S. taxpayers considering leaving the U.S. or who have already left should consult with an experienced tax professional to determine their reporting requirements.

Taxpayers with income not subject to withholding are far more likely to file a tax return with a large balance due to the IRS. To minimize the risk of serious tax consequences the IRS has established a system for Taxpayers to make voluntary tax payments throughout the year -- Estimated Tax Payments.

A Federal Tax Lien is a public notice that you owe money to Internal Revenue Service (IRS). The filing of a lien does not result in the immediate taking of your property, but it may limit the your ability to sell, refinance, or borrow, and qualify for security clearance.

Both Presidential candidates have proposed tax law changes, but what chance do these proposals have at becoming law?