I HAVEN’T FILED MY TAXES IN YEARS, WHAT SHOULD I DO?
First, never avoid filing your U.S. taxes again.
Through aggressive data sharing agreements, the IRS is expanding its reach to identify delinquent taxpayers in foreign countries including but not limited to England, France, Germany, Spain, and Italy. Once caught, the IRS will impose a calculated sum of money for taxes you owed over the years.
After that, the IRS will add penalties, and accumulated interest, and the IRS’s assessment is most often much larger than what you actually owe.
The best solution to your situation is that you become current with your taxes. The IRS requires a federal income tax return when the gross income is larger than the combined amount of personal exemption and standard deduction, and the IRS generally needs tax returns going back six years.
Locus clients based abroad are often pleasantly surprised to find out that they actually owe no taxes thanks to Foreign Earned Income Exclusion and other deductibles. Regardless of the amount of taxes you think you owe, what you must do is to file this year’s taxes as soon as possible.
DO I NEED TO FILE U.S. FEDERAL AND LOCAL TAXES AS AN EXPAT?
All U.S. citizens and Green Card holders are required to file for federal taxes if you meet the following requirements:
Single and income over $10,300
Joint filing as married and income over $20,600
Separate filing as married and income over $10,300
Self-employed and income over $400*
*Even if the net earnings from self-employment were below $400, if you meet any other filing requirements, you still have to file for income tax return.
AS AN EXPAT, DO I HAVE TO FILE FOR STATE TAXES AS WELL?
In terms of filing for state taxes, depending on your state of residency before moving, your tax requirements differ.
Like most expats, if you are renting your U.S. property, the income from your rental property will be subject to state tax. If you were a resident of one of the following states; Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, that does not collect individual state income tax, you don’t have to file for state taxes as an expat.
However, if you lived in other states before moving overseas, you may still have a state tax filing obligation.
WHAT IS THE FOREIGN EARNED INCOME EXCLUSION?
If you are a U.S. citizen or a resident alien who lives abroad, your worldwide income is subject to U.S. taxation.
However, the IRS allows the Foreign Earned Income and Foreign Housing Exclusions and the Foreign Housing Deduction if
You have been outside the U.S. for 330 days and
Your foreign earnings are less than $100,800*
*Earnings exceeding $100,800 can still take advantage of the Foreign Earned Income Exclusion for $100,800 of the entire gross earnings.
THEN WHAT IS FOREIGN TAX CREDIT?
If you have paid taxes on your income in a foreign country and still have U.S. tax obligations, you may receive a foreign tax credit.
Taken as a deduction, foreign income taxes reduce your U.S. taxable income. If you take it as a credit, your U.S. tax liability can be reduced by foreign income taxes. In most cases, it is more advantageous to take foreign income taxes as a tax credit.
WHAT IS FATCA?
The Foreign Account Tax Compliance Act (FATCA) requires U.S. citizens report financial assets held outside the U.S. to the IRS if the total value exceeds $50,000 at the end of the tax year or $75,000 at any point during the year.
It also reserves the right to request certain information about financial accounts held by U.S. taxpayers from foreign financial institutions. You can attach Form 8938 to your annual income tax return (Form 1040) to satisfy the FATCA requirements.
CAN YOU EXPLAIN WHAT FBAR IS?
The Foreign Bank Account Report (FBAR) requires U.S. taxpayers to report foreign financial accounts, including bank accounts, brokerage accounts, mutual fund, trust, or others if you have a financial interest or signature authority over one.
To avoid filing an FBAR, the aggregate value of all foreign financial accounts should not exceed $10,000 at any time during the reporting year.
DO CAPITAL GAINS FALL UNDER WORLDWIDE INCOME?
Capital gains and real estate, are included as worldwide income for tax purposes for U.S. citizens and Green Card holders. Regardless of the source, any income from dividends or investments will also be met with strict reporting requirements.
However, Locus can identify different tax rules and exceptions applied to your specific types of investment.
CAN I AVOID PAYING FOR SOCIAL SECURITY BENEFITS IN TWO DIFFERENT COUNTRIES?
U.S. expats, just like any other U.S. citizens, are entitled to Social Security, and as a result, expats still pay for social security taxes.
Currently, 24 foreign countries offer a similar social insurance program, and through agreements, U.S. citizens can avoid double taxation. Based on your residency and the duration of stay, Locus can identify an opportunity for you to avoid dual taxation.
CAN LOCUS HELP ME RENOUNCE MY U.S. CITIZENSHIP?
If you have made a decision to give up your citizenship, Locus can help you in the process.
Staying current to tax obligations is a major component in the renunciation process as you may even be required to file eight tax returns along with the Foreign Bank Account Reports. Depending on the local U.S. embassy, the steps and required documents vary. We recommend that you consult with the embassy to know the exact tax requirements, so we can prepare your taxes accordingly.