As an American living abroad, US taxes can be complex. We have had a brief look at some of our US expatriate tax cases to identify common US tax mistakes and make recommendation on how to avoid them.
Failing to file your annual US taxes
Arguably one of the most obvious mistakes you could make as an American living abroad is failing to file your annual US taxes (if you are required to do so). All too often we have clients come to us who are years behind on filing their US taxes, whether it be because they were completely unaware of their US tax obligations or other extraneous variables.
There are a number of schemes that the IRS have put in place for those who have failed to file for a number of years, such as OVDP (ending this year) and Streamlined Filing Procedures.
If you fail to catch up you can be subject to hefty taxes from the IRS.
Failing to file FBARs and FATCA
Another common mistake the Americans abroad often make when it comes to their US taxes is failing to file and FBAR or FACTA where required. As an American living abroad you are responsible for not only submitting a Federal Tax Return every year, but also- in many cases filing a Foreign Bank Account Report (FBAR) or a Form 8938 under the Foreign Account Compliance Act.
If you have stayed on top of filing your yearly Federal Tax Return, but have failed to file FBARS you can use the streamlined filing procedure applied to the required forms only. Under this scheme you would have to file 6 years work of FBARS.
Not dealing with Foreign Company Investments suitably
For Americans abroad who have more than a 10% ownership of a foreign company, you are required to file more forms than typical to remain compliant with your US tax obligation.
Passive Foreign Investment Companies (PFIC) include mutual funds, hedge funds, insurance, money market saving, or a non-US pension.
Not dealing with your foreign investments properly for tax purposes can lead to fines exceeding $10,000. The forms involved in reporting foreign investment can be extremely complex. For this reason, many Americans living abroad opt to have an expert US tax adviser to support them through the filing process.
Want professional help with your US taxes?
Contact us today and stay compliant