Exposing Myths enveloping US Expats
Moving to a new country brings its own opportunities and challenges. However, it does take a while to adjust, and adapt to the laws of the new land. Some people might think that moving to a foreign country means a new world altogether. Regardless, if you still possess your US citizenship and green card, you can’t break ties with the IRS, and you definitely can’t afford to sever your ties with it either. Hence, it would be a good mover on your part if you accustom yourself to the new tax rules that would apply to you in a new country as soon as possible, so that you don’t face complications later.
It has happened in numerous cases, that people who moved abroad for work or personal purposes weren’t aware that they had to continue to file taxes to the US to remain a compliant citizen. Resultantly, they faced heavy penalties.
While living abroad, you might decide to open new bank accounts as well to ease your financial transactions but these too need to be reported to the US Treasury. If you don’t, you would be in for paying huge penalties, regardless of the statement you put forward to defend your case. IRS encourages individuals to maintain a prudent stance and exercise due diligence in all matters related to tax payments. Thus, you must learn about the fake myths that surround the tax industry before you fall for them.
Myth: You do not need to file taxes with the IRS if you earn foreign income that is less than $97,600.
The foreign earned income exclusion is $97,600. Essentially, the Foreign Earned Income Exclusion does exempt a fixed income amount from US taxes. However, it still requires expats to file tax returns. Thus, clear out any misunderstandings, and even if you earn only $90,000 abroad, just don’t forget to file a tax return by the due date.
Myth: I don’t need to file taxes for foreign bank accounts that are not in my name
Along with the requirement of filing a tax return on an annual basis, US expats also have to comply with US Treasury’s requirement to file a report of the Foreign Bank and Financial Accounts. The rules laid down by IRS are quite extensive, and require you to submit a report of all your foreign bank and financial accounts; even of those for which you have a signing authority only.
If the aggregate sum of all the foreign accounts that have you as a signatory authority, or are in your name, exceeds $10,000 at any point during a reported year, you will necessarily have to report them to the US Treasury. You will need to fill out the Financial Crimes Enforcement Network Form i.e. FCEN 114. The form will not make you liable for a payment, but will only serve as an informational tool to update IRS about your foreign bank balances. Don’t forget to report such accounts, otherwise you will have to face severe penalties.
Myth: You don’t have to file taxes if you pay a huge amount of taxes in your foreign country
Please note, that even if your income is all taken up because you get credit for your foreign taxes, you are still not exempt from filing a tax return.
The US tax code rightfully gives a credit for the foreign income taxes that you pay in a foreign country, but US expats are still required to file a tax return. Fill out Form 1116, and attach it to your tax return to get accredited for the foreign income taxes you pay abroad.
Did the article clear out some big time confusions in your mind regarding the tax laws for US Expats? Share your thoughts in the comments below.
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