As filing season gets underway here in the United States, I wanted to take a minute to list my Top 10 US Expat Tax Tips for US expats living in the UK and elsewhere.
10. You Still Must File — US Citizens and Green Card holders must file US taxes on their income even after they leave the United States.
9. Tax Code Benefits Lessen the Burden — Provisions of the US tax code lessen the burden. Take full advantage of the foreign income exclusion, the foreign housing deduction, and the foreign tax credit to minimize your US tax burden.
8. Report Your Foreign Accounts — Taxpayers with an interest in or signature authority over foreign financial accounts with over $10,000 at any time during the year must file Form TD F 90-22.1 with the Treasurey Department by June 30th. Failure to timely file the FBAR can result in civil penalties, criminal penalties, or both. Larger sums may trigger additional reporting requirements.
7. Read Your Tax Treaty — The US has tax treaties with many foreign countries that provide benefits to US citizens and expats living in those countries. One key benefit to the US-UK treaty regards cross-border pensions. Under the Treaty, contributions and growth to certain UK pensions are tax free in the US. Additional provisions provide that pension benefits are only taxed in the state of residence.
6. Foreign Mutual Funds Can Lead to Tax Headaches — For US tax purposes, foreign mutual funds are known as Passive Foreign Investment Companies and result in complex returns and, often, substantial tax liability.
5. There is an Automatic Extension (to File) — The IRS grants full-year expats an automatic 2-month extension to file their US expat taxes. But any payment is still due in April, so if you expect to owe pay early to avoid interest and penalties.
4. The World is Getting Smaller — The IRS has been stepping up enforcement efforts abroad and entering agreements with foreign financial institutions to get these institutions to disclose their US account holders. Even those who have lived abroad for years are at risk and should consider taking steps to resolve potential liability.
3. Amnesty Programs Exist — Those who face potential criminal liability should speak with a lawyer to discuss whether the IRS Overseas Voluntary Disclosure Initiative (OVDI) is for them. While the program does not eliminate civil liability, it may prevent criminal liability and is worthy of consideration for those at risk. Talk to a tax lawyer to discuss whether this program is right for you.
2. Other Options for Coming Clean — Besides the OVDI, there may be other options for coming forward and resolving situations involving delinquent US tax returns and FBARs, such as the IRS’s New Streamlined Filing Compliance Procedures for Non-Resident US Taxpayers. This program is not for everyone, but if you owe minimal taxes on your past due returns and otherwise meet the requirements, the program may be a good fit.
1. Don’t Go It Alone — Even if you’re used to doing your own taxes, expat tax returns are complex and contain many traps for the unwary. Contact us for a free consultation at firstname.lastname@example.org!
This article is not legal advice, and is provided for informational purposes only. The topics discussed may or may not apply to a particular taxpayer’s situation. There are a myriad of rules and considerations not discussed in this article that can affect your situation. This is a Top 10 list and not a comprehensive review of any of the issues discussed herein. If you have any questions about your tax situation, please contact us, the IRS, a tax lawyer, or another tax advisor. Tax rules change frequently, and you should always consult the applicable rules currently in effect. The information on this website is not intended to be used, and cannot be used by a taxpayer, for the purpose of avoiding penalties that might be imposed on the taxpayer.