Tax Countdown is on for US Expats

If you're a US expat, it's tax time.  Your two-month reprieve on filing deadlines is just about up.  For Americans abroad, hunker down and get that tax return done.  It's due June 15th.

Pray you qualify for the Foreign Earned Income Exclusion (FEIE).  Reduce your agony, at least a bit.

If you live abroad, work overseas, are a Perpetual Traveler gallivanting from place to place (everywhere except the US, basically), you need a bank account wherever you're living.  Check those balances - the highest total hit during the year among all accounts combined - to see if you fall within FBAR and/or Form 8938 limits for reporting bank and other financial accounts, and/or foreign assets, respectively. 

The deadline for RECEIPT of FBAR and Form 8938 is June 30th.  This trips up a lot of people since tax return deadlines are typically the date of postmark.  If you have to file FBAR and/or Form 8938, make sure it arrives before June 30th!  These two have draconian penalties ($50,000) for failure to file or late receipt!

We've gone into these before, so let's not repeat it all again.  Just a friendly reminder to get it done.

Once you get through the pain, maybe you want to rearrange some living arrangements or financial arrangements to reduce next year's bill.

May your road rise to meet you (not Taxman)!
Ann

Quick Note on Foreign Pensions - the US Tax-Grab

Just a quick note while Tax Season rages onward.  We've mentioned the dread Form 8938, wherein "US persons" - not just US citizens - must annually report foreign assets.  This form is in addition to and far more broadly based than the FBAR report on foreign bank and other financial accounts.

Americans have gotten used to certain tax exemptions for IRAs, 401k's and various types of pensions and retirement savings.  We won't waste your time on all the ins-and-outs of those here. 

What you do need to worry about is any foreign pensions!  Foreign pensions are NOT tax-exempt from US taxes!  Unlike various types of IRAs or 401k's, etc, foreign pensions are fully reportable and fully taxable.  So foreign pension funds must be reported, just like foreign bank accounts, stockbrokerage accounts, and other financial accounts.

Don't fall afoul of the IRS on this one!  Penalties take up to 50% of your pension fund if you fail to report it as required.

May your road rise to meet you!
Ann

IRS Adds Fuel to the Tax Fires

As if the FBAR form (TD F 90-22.1) weren't enough to drive US citizens, legal permanent residents, and other "US persons" crazy, there's also Form 8938 to add fuel to the IRS fires under your butt.  Since the rules keep changing, and Form 8938 is new anyway, American expats can go crazy trying to keep up with US tax laws and various IRS requirements. 

We talked in our last post about FBAR (Foreign Bank Account Report, which includes reporting all kinds of banking and other financial accounts).  If you have had any kind of financial account(s) which hit a total of US$10,000 at any time during the year, you need to file the FBAR.  Here's that link: http://www.irs.gov/pub/irs-pdf/f90221.pdf.  Get on it NOW because the IRS must receive it by June 30th.  Note that's the deadline for IRS to receive it, not for you to mail it out!

Now comes Son-of-FBAR, Form 8938.  Here you have to report all specified types of foreign assets, not just banking or other kinds of financial accounts (such as stock brokerage accounts).  http://www.irs.gov/pub/irs-pdf/f8938.pdf is the link to Form 8938.  For the instructions, go to: http://www.irs.gov/pub/irs-pdf/i8938.pdf.  Attach that form, if required, to your income tax return, and file it by the deadline for your income tax return.  If you are living abroad, your deadline for filing your income taxes is June 15th - this week!  If you filed for an extension, that deadline will be October 15th.

Gee whillikers - ain't the IRS sweet?  They even give you a comparison table of the requirements for the two different tax forms, financial assets vs. other foreign assets.  See the comparison table at: http://www.irs.gov/businesses/article/0,,id=255986,00.html. 

It's not just people we think of as expats who are caught in the IRS tax traps.  Many foreigners come to the US & give birth to get their baby US citizenship, then take baby home.  Well, guess what!  They have to file annual income tax returns, FBAR, Form 8938, etc, as required even if they were born in the US, then promptly departed and have never returned.  Even if they have dual citizenship.  Whatever.  Uncle Sam's minions at the IRS want your money!

Penalties are severe - and I do mean really severe - so check these out.  Don't risk making any mistakes on these two forms, in addition to routine income tax returns.  Not all American expats are subject to them, but be careful.  Very, very, very careful!

US Expats & PTs Beware: June 30th Deadline for FBAR

Expats and PTs are not the only ones who need to beware the dread FBAR report!  If you have any financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).

United States persons are required to file an FBAR if:

1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

United States person means United States citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:

1. Certain foreign financial accounts jointly owned by spouses;
2. United States persons included in a consolidated FBAR;
3. Correspondent/nostro accounts;
4. Foreign financial accounts owned by a governmental entity;
5. Foreign financial accounts owned by an international financial institution;
6. IRA owners and beneficiaries;
7. Participants in and beneficiaries of tax-qualified retirement plans;
8. Certain individuals with signature authority over but no financial interest in a foreign financial account;
9. Trust beneficiaries; and
10. Foreign financial accounts maintained on a United States military banking facility.

Look to the FBAR instructions to determine eligibility for an exception and to review exception requirements.

A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on FBAR-related federal tax return or information return questions (for example, on Schedule B of Form 1040, the "Other Information" section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120) and filing the FBAR, satisfies the account holder's reporting obligation.

The FBAR is not filed with the filer's federal income tax return. The granting by the IRS of an extension to file federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. The FBAR must be received by the IRS on or before June 30 of the year following the calendar year being reported.  File by mailing the FBAR to:

United States Department of the Treasury

P.O. Box 32621

Detroit, MI 48232-0621

If an express delivery service is used, file by mailing to:

IRS Enterprise Computing Center

ATTN: CTR Operations Mailroom, 4th Floor

985 Michigan Avenue

Detroit, MI 48226

Delivery messenger service contact telephone number: (313) 234-1062

Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both. 

On July 18, 2011, FinCEN announced that it has developed an electronic filing system that will accept the FBAR form.  E-filing is a quick and secure way for individuals to file FBARs.  Filers will receive an acknowledgement of each submission.  For more information about FBAR e-filing, read the FinCEN news release.

For more info from the IRS (in exceptionally byzantine fashion) see: http://www.irs.gov/businesses/small/article/0,,id=148849,00.html.  Note that the IRS is targeting expats and PTs in particular in search of your foreign bank and other accounts.  But all "US persons" with foreign bank accounts and other financial interests abroad are subject to FBAR.