Expat Tax FAQ

Who needs to file?

All US citizens and Green Card-holders are required to file a US Federal Income Tax Return every year if their income is over the minimum threshold.

When filing my US tax returns, am I able to quote foreign currencies, or must I report everything in USD? If the latter, what exchange rates should I use?

All figures must be translated into and reported in US dollars. The IRS provides annual average exchange rates for reference, or exchange rates for individual dates are available at Oanda.com

As an American expat living and working abroad, when am I required to file annual tax returns and when are my taxes due?

While Americans living abroad enjoy an automatic 2-month extension, which means you must file your return by June 15, any taxes due are calculated by the standard return date (April 15) i.e. interest will be charged on any taxes due but not paid by April 15.

If I qualify as a non-resident American and I file in my country of residence, am I still required to file a tax return in the US?

Yes. Regardless of your residential status, you are required to file annual tax returns though, depending on your situation, you may be eligible for foreign tax credits, partial foreign income exemption, etc.

What other information do expatriates need to have while preparing taxes?

Also needed is a proof of residency in a foreign country or proof that you were physically present in a foreign country for 330 days in a 12-month period. This could include residency permits, valid identification cards or a travel calendar that explains which countries you were present in throughout the tax year.

I have not filed for more than five years. What are my options now?

The best thing to do now is to file your income taxes right away and pay all penalties and interests before they grow. This situation is more common than you think. You should start with an expat tax expert to identify how many years of back taxes you are to file and what documentation you need to complete the reports and returns needed to comply with the US tax authorities. Our tax consultants will be able to review your situation to test eligibility for Streamlined Offshore Filing Procedures (in which case only past 3 years of tax filing and 6 years of FBAR are required).

As you are likely aware. all US persons have a tax filing and Foreign Bank Account Report (FBAR) obligation, wherever they live or work in the world. Tax paid in the country of residence can often be used to offset taxes owed in the US. However, as each individual’s situation is different, it is always best to seek the advice of a professional tax preparer to help ensure full compliance with all applicable US tax laws.

How many years do I need to file?

If you are a non-resident tax filer and behind on your taxes, we highly recommend that you start filing immediately – with the recently introduced FATCA and ongoing improvements in multi-jurisdiction information sharing efficiency, the chance of the IRS contacting you first (not ideal) is increasing over time. Your next decision will then be, how many years to file. This depends on circumstances, but for most situations, you need to file returns going back six years. Another possibility is the Streamlined Foreign Offshore Procedures, under which if you meet all of the criteria for eligibility, requires you to go back 3 years (6 years for FBAR).  Actual number of years to file will depend on the facts and circumstances of your particular situation, and our tax professionals can assist to review your situation and recommend possible courses of action.

What if I owe more than I can pay?

Even if a taxpayer doesn’t have enough money to pay, returns should be filed to avoid further penalties for failure to file. Contact us and we can assist in finding a solution to the problem.

What penalties do I face?

While everyone is familiar with the penalties associated with non-disclosure of foreign bank and financial accounts, it is important to know other types of penalties. Failure to file your U.S. tax on time can result in the loss of some of the tax benefits available to American expats. There are additional IRS forms that must be filed specifically, for which penalties start at $10,000 and go up from there.

I neglected to report my worldwide income on previous returns. What should I do?

If such situation occurs, you should file an amended return to avoid penalties from the IRS for incorrectly reporting your income. Depending on the situation, you may not end up owing any taxes after the credits and deductions applicable to expatriates have been applied to your return.

What is FinCEN Form 114 or FBAR forms?

“FBAR”, short for Foreign Bank and Financial Accounts, refers to FinCEN (Financial Crimes Enforcement Network) Form 114, a form used to report financial accounts held outside the United States. Account types include bank accounts, brokerage accounts, mutual funds, unit trusts, or other types of financial accounts.  According to the IRS’s website: “An FBAR must be filed for each calendar year that the person has a financial interest in, or signature authority over, foreign financial account(s) whose aggregate balance exceeds the $10,000 threshold at any time during the year. FinCEN Form 114/FBAR must be submitted electronically to he Financial Crimes Enforcement Network, a bureau of the United States Department of the Treasury.

What do I do if I haven’t filed FBAR for several years?

“Just file it!”. This is a recent approach used by many delinquent filers who have only recently been made aware of the FBAR filing requirements (or for other reasons e.g. did not realize they were required to file, account types etc.) and are now scrambling to “get back on the grid”. Basically, this entails filing your delinquent FBARs electronically via FinCEN (Financial Crimes Enforcement Network, Department of Treasury), along with an explanation why the reports are being filed late. According to the IRS, “…IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.”

What are your fees?

Our fees are highly competitive and represent excellent value for money. We offer itemized, hourly billing for consulting (e.g. tax equalization calculations for employment agreements), as well as cost effective fixed rate package plans. Visit our Quote Form for a free quote and/or to arrange a FREE consultation with one of our tax experts.

How does the process work?

We will send you a basic Tax Questionnaire, used to help us assess your situation and filing needs. Based on that, we will send you a copy of our Letter of Engagement and quote for our services. Once you have confirmed/accepted our quote and terms, we can get started on your taxes.

What information do I need to prepare for my tax return?

We will send you a comprehensive Tax Organizer used to collect information to prepare your return, and then follow up to request any additional information needed to complete your return. Once we have reviewed your return and confirmed everything with you, your tax preparer will coordinate with you to sign and submit to the IRS. As a general “homework” list to get started, your preparer will likely ask you to produce the following:

-Your most recently filed tax return (both Federal and State) if available.
-Your salary statements showing the taxable wages and foreign income taxes paid, preferably government or company issued documents.
-Form W-2(s) or foreign equivalent.
-Form 1099(s) and the exact amount from the foreign bank earned interest If you have interest or dividend income.
-Form 1098-E, from student loans if any.
-Any other tax documents if applicable.

Do you offer consultation or tax planning services?

We are able to provide consulting services covering a wide range of concerns for non-resident U.S. tax filers, including tax equalization calculations, FATCA compliance, global tax planning strategies, and many other important tax considerations for Americans living and working abroad.

I need to apply for an ITIN for my non-resident alien spouse. Is this a service you provide?

Yes. To get started, simply visit our Quote Form to request this service. Important: If you need an ITIN for an upcoming tax return, it is best to get started as soon as possible – It can take 6 weeks or more to obtain, depending on your location and other factors!

If I have not filed federal tax returns for several years, will I have to pay any penalties when filing?

Not necessarily. If you have not filed and do not have any taxable income (e.g. under the threshold of the Foreign Income Exclusion for all tax years), then neither penalties nor interest will be applied. If you do owe tax, then you may be eligible for the Streamlined Foreign Offshore Procedures, under which you would be able to avoid non filing and/or late filing penalties and only have to file for three years (but you would still owe interest on any unpaid tax).

Do I have to pay capital gains tax if I sell a property at a profit in mainland China?

Question: We recently sold our home in China at a considerable profit. Will we have capital gains tax obligations on the U.S. side?
Answer: In addition to potential capital gain exclusions on sale of primary residences, the U.S.-PRC Tax Treaty stipulates that capital gains derived from the sale of real estate (i.e. real property) may only be subject to capital gains tax in the contracting state (in this case, China). However, tax treaty wording can be quite complicated and often requires a tax professional’s input to determine whether or not it is applicable under each set of individual circumstances.

What are Totalization Agreements, and do they cover income as well as social security/pension payments?

Totalization Agreements are formal agreements between the US and foreign countries to avoid double taxation of income through social security taxes. The Agreements only apply to the imposition of social security tax. If you are self-employed, your self-employment income is eligible for foreign earned income exclusions if you can satisfy the required conditions, but you are still subject to US self-employment tax (i.e. social security tax). However, if you are residing in a country that has a totalization agreement with the US and are subject to social security tax in that country on your self-employment income, you can be exempt from US self-employment tax. List of countries with signed Agreements with the US.

What is the Foreign Income Exclusion (FIE) for the tax year 2016?

The foreign earned-income exclusion amount for 2016 is will increase from $101,300, up from the previous year’s $100,800.

If I am under the Foreign Income Exclusion threshold, why not just prepare my own taxes, either manually or using some free online software?

While it is certainly possible to prepare you own tax return, the potential upside in doing so (saving money) is dwarfed by the potential repercussions of the downside, which could include accuracy related penalties, neglecting to submit certain forms required for expat specific tax returns, and even potential failure to be aware of certain forms that must be filed independently of your Federal Tax Returns – ones with severe penalties for non-compliance (e.g. FinCEN Form 114/FBAR). The U.S. tax code is extremely complex, and as one example we have included actual text from a recent inquiry received by a panicked tax filer*:

“I’m hoping you can help me regarding a letter I received from the IRS. I attempted to do my taxes by myself. It seems I made a mistake on my Form 2555/2555-EZ, and just received a bill for $4,000. I should not have to pay anything given the amount I made last year was low enough to qualify for the foreign income exclusion. Is there anyway I can correct this? Please help!”
*Some details changed to protect the individual’s identity.

What are the criteria for eligibility or requirements for the Streamlined Filing Compliance Procedures?

While this is not intended to be a comprehensive list of criteria, the following conditions must be met in order to be eligible for the Streamlined Filing Compliance Procedures (for non-US residents):

(1) During at least one of the most recent three income tax years for which, the return due dates have passed, you must be present in a foreign country for at least 330 days and you have not have a permanent abode in the US.
(2) You must have income from foreign financial assets that have not been reported to US income tax and you may have requirements for filing a report of foreign bank and financial accounts that you have not complied with.
(3) The non-compliance is not due to a willful conduct.

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