Some American citizens and tax residents may decide that the opportunities they wish to pursue will necessitate living outside of the United States. For many individuals, living abroad as an expat in a nation like Hong Kong, Brazil, the U.K., France, or Saudi Arabia is an adventure and a treasured life experience. For other people, living abroad as an expatriate is merely one element in the total package that brings them closer to their goals. However, regardless of your reasons or views on living abroad, most Americans will have tax obligations to consider while abroad. In fact, certain foreign tax and information reporting obligations are likely to exist for expats that are not widely known and carry large civil penalties if omitted.
U.S. Expats Living Abroad Have Additional time to File Taxes
When a person is living overseas, it can be relatively easy to become disengaged with the normal course of life. When one is living abroad, it is unlikely that the same reminders regarding tax filing deadlines will be part of daily life. At best, one might be sporadically reminded about taxes through conversations with fellow expats or through advertisements in publications targeting American expats. For these and other reason, expats living abroad automatically have an additional two months to file their taxes. This means the tax filing deadline for expats is June 15, 2017. However, one important note is that, if the taxpayer owes money, late payment penalties (up to 25% of tax due) and interest is calculated starting on the original April 18th 2017 due date as an extension of time to file is not an extension of time to pay.
If an extension to June does not permit ample time to file, then the taxpayer still has the option of filing for an additional extension. Taxpayers can file IRS Form 4868 before June 15, 2017, to receive an additional individual income tax extension to October 15, 2017.
Do I Need to File FBAR? FATCA Form 8938?
Expatriate taxpayers are also often concerned about whether they have a duty to file under FATCA or need to file an FBAR. The duty to file an FBAR exists when a taxpayer holds foreign accounts where the aggregate balance exceeds $10,000 during the calendar year. Thus, if a U.S. taxpayer holds two covered accounts, one with a balance of $2,000 and another account with a balance of $9,000, a duty to file the FBAR exists despite neither account exceeding the filing threshold individually. However, when aggregated, the taxpayer would have $11,000 in foreign assets and therefore an obligation to file FBAR exists.
For Form 8938 FATCA obligations, there is no single filing threshold. Rather, taxpayers should consider both their residency status and tax filing status. For expats, they are ordinarily concerned with the filing thresholds for citizens and taxpayers living outside of the United States. For taxpayers living abroad, a sole filer must file form 8938 under FATCA when he or she has $200,000 on the last day of the tax year or more than $300,000 in the account at any time during the year. If you file your taxes jointly with your spouse and live abroad, you must file taxes when the aggregate balance in your foreign accounts exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
If you have an obligation to file an FBAR or an 8938 under FATCA, both obligations are now due on Tax Day. For individuals who have filed FBAR in the past, it is essential to note that this is the first year where the FBAR filing deadline was moved up to align with Tax Day. However, an automatic extension that allows taxpayers to delay FBAR filing until October 15 is in place. It is also important to note that while it may seem duplicative, one can have an obligation to file both FBAR and FATCA. That is, filing FBAR does not relieve a taxpayer of the independent duty to file FATCA and vice-versa.
Tax and Foreign Account Disclosure Guidance for Expats
If you have questions regarding whether you have an obligation to file U.S. taxes, FATCA, FBAR, or any other tax obligation while abroad the Tax Lawyers, CPAs and EAs of the Tax Law Offices of David W. Klasing may be able to assist. We can also review your finances and previous tax filings to look for mistakes and errors that can result in unexpected tax or foreign information reporting obligations or trigger an audit. To schedule a confidential, reduced rate initial consultation, call our Irvine or Los Angeles law offices at 800-681-1295 or schedule online today.
