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Do you have U.S. Tax Filing Obligations?

November 20, 2018

 

 

As a U.S. Citizen your worldwide income and gains are reportable and potentially subject to U.S. income tax, even if you are not currently resident in the USA.  U.S. citizens living outside the USA have an automatic filing extension until the 15th June for filing their U.S. 2018 return, however interest and penalties will occur if the 2018 U.S. tax due is not paid by April 15th 2019, regardless of any extension to file the Return.

 

A further automatic extension may be requested to extend filing to October 15th, and if required another discretionary extension to December 15th, but this is not guaranteed.  Should you need and fail to request an extension, you will incur financial penalties.

 

For U.S. citizens, tax filing obligations will occur especially if you have personal income from a salary, consultancy fees, commissions, pension funds, alimony, U.S. and/or foreign social security, savings interest, dividends, capital gains, rental property, farm income, royalties, an inheritance or payment in kind.

 

Even if you have never lived in the USA, or left several years ago, you are still required to file Form 1040 if your income exceeds a certain threshold.  This applies even if all your income is from "foreign" sources, some or all of your income was already taxed at source, or it is going to be taxed by the overseas country where you are resident.

 

When considering relevant threshold amounts, remember that the amounts reported are in U.S. dollars and any foreign monies should be converted and exchanged. If historically you filed a joint return with your spouse, there is a different exclusion that relates to joint income.

 

For US citizens living and working overseas, due to two main U.S. tax rules, you may not owe tax to the IRS.  These are "Foreign Earned Income Exclusion"(FEIE) and the ability to claim Foreign Tax Credits, so ensure you check the requirements to claim.

 

Finally, always ensure that you enclose the correct forms relevant to your tax affairs with your Return.  Expatriates choosing to claim the foreign earned income exclusion require Form 2555 and additional, and occasionally overlooked forms include: IRS Form 8938, Statement of Foreign Financial Assets Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company, or where you may have a foreign pension such as a Personal Pension Plan or SIPP, you must file Form 3520 / 3520-A.  Penalties for omitting them can be costly could be $10,000 per form, or a proportion of the asset’s value on the form. 

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