Do you have U.S. Tax Filing Obligations?
As a U.S. Citizen your worldwide income and gains are generally reportable and potentially subject to U.S. income tax, even if you are not currently resident in the USA.
It is important to be aware of your tax filing obligations. You may still have an obligation even if you have never lived in the USA or left several years ago and all your income is from "foreign" sources. You are required to file a Form 1040 if your income exceeded a certain threshold, regardless of its origin, whether it was already taxed at source, or is going to be taxed by the overseas country where you are resident.
When considering the relevant threshold amounts always remember that the report amounts are in U.S. dollars and any foreign monies received will need to be converted and exchanged. If historically you filed a joint return with your spouse, there is a different exclusion that relates to joint income.
Although U.S. citizens living outside the USA have an automatic filing extension until the 15th June for filing their U.S. 2017 return, interest and penalties will still occur if the 2017 U.S. tax due is not paid by Tuesday 17th April.
A further automatic extension may be applied for, to extend filing to the 15th October and if required another discretionary extension to 15th December, but this is not guaranteed. Should you need and fail to request an extension, you will incur financial penalties.
For U.S. Citizens living and working overseas, you may not owe tax to the IRS. This can be due to two main U.S. tax rules; "Foreign Earned Income Exclusion"(FEIE) and the ability to claim Foreign Tax Credits. FEIE allows you to exclude $102,100, of your foreign earned income from U.S. tax for 2017, and Foreign Tax Credits enable you to offset UK tax paid on specific income sources, and potentially capital gains, against US tax on the same amounts.
It is important to always ensure that the correct forms relevant to your tax affairs are included with your return. Penalties for omitting them could be $10,000 per form, or a proportion of the asset’s value on the form. For Expatriates, additional key forms include Form 8938, Statement of Foreign Financial Assets, and Form 8621, Information Return by a Shareholder of a Passive Foreign Investment
Company, which is required where non U.S. based collective investments such as UK unit trusts, are owned, even if held in an ISA.
Finally don’t forget the 3.8% Net Investment Income Tax (NIIT) which applies when some investment incomes including capital gains and rental income, exceed certain thresholds and the Alternative Minimum Tax which can result in unexpected US liabilities arising.