So you moved outside the US way back when, and then a bunch of life happened—jobs, travel, kids, businesses, etc. Somehow along the way you stopped filing US tax returns, and you aren’t even exactly sure what year it was you last filed.
You’re one of millions of US expats in the exact same position. And your position used to not be so bad—the IRS really had no way of finding out what you’ve been up to all these years.
And then FATCA came along . . .
But, things are changing rapidly. Because of the Foreign Account Tax Compliance Act (“FATCA”), non-US banks are now reporting US accountholders to the IRS. Getting that little bit of info sets off a whole chain of events that eventually leads to letters from the IRS wondering where you’ve been all these years. Click here for more detail.
But hey, it’s nice not paying US tax, that’s perfectly understandable. And filing US tax returns means paying US tax, right? Who wants to do that?
Heads you win, tails you win
Well, what if I told you that you CAN have your cake and eat it too? Depending on your exact situation, you may be able to get all caught up on your US tax returns and still pay no US tax, all perfectly legally.
Let’s talk a bit more about where you are, and then we’ll talk more about where you could be.
You are the IRS’s Boogeyman
The IRS is juuuuuust a tad bit paranoid about US citizens hiding assets outside the US. So, they’ve enacted a complex set of disclosure requirements for non-US assets (such as non-US bank accounts and non-US corporations).
Then, the IRS has enacted huge penalties for failing to file all the proper paperwork related to these assets (generally, $10,000 per year per form). So, simply failing to send all of the pieces of paper to the IRS that you’re supposed to could cause you to be liable for a monster penalty if the IRS finds out.
These penalties apply even if you don’t owe any actual tax. Even if you’re able to use one of the expat tax benefits discussed below to reduce your US tax to zero, you could still be liable for a $10,000 penalty simply for not disclosing your non-US assets.
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But there’s a way to fix it
As a counter-balance to these draconian penalties, the IRS has provided easy-to-use amnesty programs to help you get all caught up on your back filings. If you use the proper program for your situation, you can generally get all caught up without having to pay any penalties at all.
The program I most often use for my clients is the Streamlined Filing Compliance Procedures. Under this program, you file 3 years of back returns and 6 years of back “Foreign Bank Account Reports”—that’s the form you’re required to file to disclose non-US bank accounts.
After participating in this program, you’re all caught up on your US tax obligations, and you avoid the penalties for the delinquent disclosure forms. You’ve got a gold seal of approval from the IRS.
And isn’t this the part where I pay tax . . . ?
I knew you’d eventually circle back to this. 🙂
The answer here of course depends on your exact facts. So, we’d have to discuss first before I can tell you for sure.
But, after working with many clients over the years, I can tell you that you have a really good chance of not actually owing any US tax, perfectly legally, because of the application of one or more expat tax benefits.
These expat tax benefits are generally as follows:
- Under the “foreign earned income exclusion,” you can make up to about $100,000 from working without paying any US federal income tax;
- By using the “foreign tax credit,” you can reduce your US tax by any non-US tax you pay; and
- If you own and operate your own business, you can structure that business through a non-US corporation, which could reduce your US tax bill to zero.
Now, sometimes when you have your own business, you’ll have to pay tax for the 3 years of back returns. But, we can often get you into a better legal structure that allows you to pay no US tax going forward, all completely legally.
Also, just paying for three years shouldn’t really be a big deal overall if you haven’t paid tax for a while. You’re already way ahead of the game.
Feed their paperwork-loving hearts . . .
. . . and they’ll leave you alone. It really can be that easy.
The kindly souls at the IRS just like to check in on us expats once a year. Just tell them everything’s OK by filing a return, and they’ll leave you alone until next year, all without you actually having to pay a cent in US tax.
If you need to get caught up on your returns, the first step is to have a call to discuss your specific situation. Click here to easily schedule a call using my online calendar system.
On the call, I’ll let you know exactly how it would be best for you to proceed, and I can even quote you a flat fee for taking care of everything for you.
Looking forward to talking with you. Thanks.
Want to know more? The Tax-Savvy Expat courses teach you everything you need to know about expat tax.