Expat Tax Info and FAQs
I am a US citizen but no longer live in the United States, what income do I have to report to the IRS?
Even though you are no longer a resident of the United States, as a US citizen you are required to report all sources of worldwide income to the IRS. This includes but is not limited to employee wages; interest (schedule B); self-employment income (Schedule C); capital gains and losses (Schedule D and Form 8949); rental real estate, royalties, partnership, S corporations, estates, trusts, REMICs and other supplemental income (Schedule E).
I am a US citizen but my income is earned in my foreign place of residence. Who gets first dibs on taxes?
To answer this question, an examination of the US tax-treaty with your foreign country of residence is required. However, generally speaking, the country where the income is earned has first rights to taxation. In that case, you can either exclude your foreign earned income, or use your foreign taxes paid as a credit to offset your US tax liability.
How much of my foreign earned income is excludable in the United States?
Up to $99,200 is excludable in 2014. If filing a joint tax return with your spouse, then each spouse can exclude up to $99,200.
Are there any conditions that need to be met in order to be eligible for the foreign earned income exclusion?
Yes. To qualify for the exclusion, you must satisfy the bona fide residence test or the physicalpresence test. See foreign earned income exclusion.
My spouse is a non-resident alien. Can I file a joint return?
Yes. You can file jointly provided that your spouse receives an individual taxpayer identification number (ITIN). See ITIN application process.
If I do not include my non-resident alien spouse on my US tax return, can I still claim my children as dependents?
Yes. Provided your children are U.S. citizens during the tax year at hand. If you provide over half of your child’s support you can file as head of household, which may provide additional tax relief.
I am a US citizen and my spouse is a non-resident alien, can my children qualify me for the refundable additional child tax credit?
Yes, as long as your children are US citizens.
Do I have to pay US social security tax on self-employment income earned in my foreign country of residence?
Yes, unless the US signed a Totalization agreement with your country of residence, whereupon you are not required to pay social security tax on foreign earned self-employment income. Countries that have signed such agreements with the US are Italy, Germany, Switzerland, Belgium, Norway, Canada, United Kingdom, Sweden, Spain, France, Portugal, Netherlands, Austria, Finland, Ireland, Luxembourg, Greece, South Korea, Chile, Australia, Japan, Denmark, Czech Republic, Poland, and Slovak Republic.
My child studies in a post-secondary education institution in a foreign country. Am I still able to apply for the American Opportunity refundable credit?
Yes, provided that it is an educational institution eligible to participate in the US Department of Education’s student aid program. A list of recognized foreign institutions can be found on the federal student aid website:
When is the due date to file my return?
Expats who live outside the United States and establish their main place of business outside the United States are entitled to an automatic two month extension. Therefore, their tax returns are due on June 15th. A note must be included with the return stating why they are entitled to the automatic extension.
I sold my house, located outside the United States. Am I still eligible to exclude the gain on my US return?
Yes. Up to $250,000 from the sale of your primary residence (if married filing jointly the exclusion is $500,000) can be excluded, provided you meet the ownership and use tests. However, gains in excess of the excludable amount are taxable in the United States and cannot be excluded with the foreign income exclusion. Foreign taxes paid on the sale of the asset can be used to offset US taxes via the foreign tax credit (form 1116). However, beginning in 2013, such gains may be subject to 3.8% Net Investment Income Tax (form 8960) which cannot be offset by foreign tax credits.
I have an interest in a foreign corporation; do I need to file any additional forms?
If you own 10% or more of the total value of the corporation’s stock or the combined voting power of stock, you may need to file Form 5471, report of US person with interest in foreign corporations. There is a $10,000 penalty imposed for each annual accounting period whereupon the information is not provided on time. However, the IRS has certain programs/procedures that may be followed to absolve the taxpayer from penalties.
My father, a US citizen, passed away. Are assets located outside the United States, subject to US estate tax?
Yes. Estate tax is assessed using the fair market value of all worldwide assets of the deceased on his date of death.
I am fed up with filing my US tax return every year. Maybe I should hand in my passport and renounce my citizenship?
This is an option but beware of the exit tax. Individuals with a net worth of over $2,000,000 or individuals that do not certify their tax compliance over the past five years, will be subject to the exit tax. The Tax Code (Under Section 877A) stipulates that all assets owned by an individual are deemed to be sold on the day the US citizen surrenders his citizenship. Any gain on the sale of the assets will be taxed as a US capital gain. The payment of tax can be deferred until the asset is actually sold. However, this deferment of tax will result in interest accrual.
I live abroad but want to open a business in the United States, which business structure should I use?
Please refer to business entities, where we outline possible business structures to consider. We highly recommend consulting with an experienced professional to choose which business entity will be most tax advantageous and also give a level of liability protection. Tax treaties must be considered to determine the tax consequences in your specific foreign residence.
Income Tax Return FAQ’s
If my spouse is not a US citizen but he/she has an ITIN, does he/she have to be included on my income tax return?
Yes, the spouse must be included, as his/her income must be reported. This is required until the spouse elects to revoke his/her ITIN by sending a revocation letter to the IRS I was eligible for tax refunds in past years that I never claimed.
Is it too late to file to claim my refunds?
A past tax return that is being filed to claim a tax refund, whether due to over-withheld taxes or tax credits, can be filed up to three years after the original due date of the tax return.
What if I own an account in an overseas branch of an American bank?
The status of the account (ie. Foreign or not) is dependent on the physical location of the account; therefore, this account would be considered foreign. In the same vein, if you own an account in a branch of a foreign bank that is physically located in the United States, the account is not considered foreign.
Is a minor child who is owner of a qualifying account required to file an FBAR?
Yes. If, for whatever reason, the child is unable to file his/her own FBAR, the person who is legally responsible for the child (ie. Parent, legal guardian) must do so for him/her.
What if I filed an FBAR and then I realized that I mistakenly left out some information?
The filer always has the option to file an amended FBAR.
What kind of penalties can be applied for failure to file?
If the failure to file was due to a nonwillful cause (for example, you did not know about your obligation to file this form), you can face a penalty of up to $10,000 per instance of noncompliance (ie. for each yearly FBAR not filed). If the failure to file was willful, you can face a penalty of the greater of 50% of the total balances in your foreign bank accounts at the time of noncompliance or $100,000. There is a separate penalty for each year in which there was a failure to file. Additionaly, It is also considered a criminal offence and can result in criminal proceedings.
When I report my bank account balances on the FBAR – how will this affect my tax return?
The filing of the FBAR does not impact your taxes/refund in any way; the purpose of the Fbar is merely to show the U.S. government that U.S. citizens are not hiding money abroad, and the report is not connected to the tax return at all.
If I file an FBAR, does that fulfill my FATCA filing requirements?
No; although some of the reporting requirements of the two forms overlap, the FBAR and the Form 8938 have different rules, and you may be required to file both.
Following is a chart published by the IRS to help taxpayers understand the differences and similarities between the FBAR and FATCA requirements. If you meet the requirements for both forms, then you must file both.
|Form 8938, Statement of Specified Foreign Financial Assets||FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)|
|Who Must File?||Specified individuals, which include U.S citizens, resident aliens, and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold||U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold|
|Does the United States include U.S. territories?||No||Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting|
|Reporting Threshold (Total Value of Assets)||$50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)||$10,000 at any time during the calendar year|
|When do you have an interest in an account or asset?||If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return||Financial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title.Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.See instructions for further details.|
|What is Reported?||Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets||Maximum value of financial accounts maintained by a financial institution physically located in a foreign country|
|How are maximum account or asset values determined and reported?||Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reportedConvert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars.||Use periodic account statements to determine the maximum value in the currency of the account.Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars.|
|When Due?||By due date, including extension, if any, for income tax return||Received by June 30 (no extensions of time granted)|
|Where to File?||File with income tax return pursuant to instructions for filing the return||File electronically through FinCENsBSA E-Filing System. The FBAR is not filed with a federal tax return.|
|Penalties||Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply||If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply|
|Types of Foreign Assets and Whether They are Reportable|
If I am not required to file an income tax return for a specific year, do I have to still file the Form 8938 (FATCA requirement)?
No; if you are not required to file an income tax return for a specific year, then the requirement to file Form 8938 also falls away, no matter what foreign assets you held during the year.
Does my ITIN authorize me to work in the US or make me eligible for Social Security benefits orthe Earned Income Credit?
None of the above; the ITIN is used for reporting and filing federal taxes only. There are no other uses of the ITIN.
Does immigration status affect my need to obtain an ITIN?
No; there may be reporting and filing requirements for both nonresident and resident aliens of the US.
Do I have to be nervous to send my original ID documents to the ITIN operation unit of the IRS?
None of our clients ever had a problem; all received their documents back from the IRS via mail in a timely fashion. The IRS guarantees the return receipt of your documents within 60 days of their receiving your application and documents.
Foreign Corporations FAQs
What would require me to file a Form 5471?
The most common situation that requires US citizens and resident to file Form 5471 is a 10% or more ownership in a foreign corporation.
How could the IRS know about my shares in a foreign corporation?
The IRS has been cracking down on US owners of foreign assets; many financial institutions are reporting information on their US shareholders and account holders. The penalties for failing to file are too high ($10,000 per year per foreign corporation) to risk not filing.