As a U.S. citizen/green card holder residing abroad, you still owe U.S. taxes on your worldwide income. The U.S. has tax treaties with many countries, which allows the federal government to exchange data on its citizens living in other countries for tax purposes. Most importantly, if you do not file a tax return for a given tax year, the statute of limitations on that year never runs out.
If you are a U.S. citizen or a resident alien of the United States and you live or work abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is now adjusted for inflation $91,400 for 2009, $91,500 for 2010, $92,900 for 2011, $95,100 for 2012 and $97,600 for tax year 2013.
In addition, you can exclude or deduct certain foreign housing amounts according to www.irs.gov. You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer. Refer to Exclusion of Meals and Lodging in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, and Publication 15-B, Employer's Tax Guide to Fringe Benefits for more information.
In 2013, Various Tax Benefits Increase Due to Inflation Adjustments such as:
- The annual exclusion for gifts rises to $14,000 for 2013, up from $13,000 for 2012.
- The amount used to reduce the net unearned income reported on a child’s tax return subject to the “kiddie tax,” is $1,000, up from $950 for 2012.
- The foreign earned income exclusion rises to $97,600, up from $95,100 in 2012.
New Program for Expat Americans with Delinquent Taxes
On September 1, 2012, a new streamlined procedure was announced by the IRS for delinquent taxpayers living abroad. The opportunity is not only limited to tax filing; relief is also offered for late compliance with FBAR (Reports of Foreign Bank and Financial Accounts). Additionally, this program may be used for filing amended returns to claim retroactive relief on qualified foreign pension plans eligible for tax deferral.
In order to qualify, you must have:
- Resided in a country outside the US since January 1, 2009;
- Not have had significant monetary activity in the United States;
- Filed all required tax returns or other reporting information in your host country; and
- A balance of less than $1,500 owed to the IRS for each of the previous 3 tax years.
Participation in the program will entail:
- Taxpayers will be required to file all back taxes and relevant documentation for the previous 3 years and FBAR reports for 6 years.
- All submitted tax documentation and FBAR forms will be reviewed by an IRS representative and assessed whether to be low, moderate, or high risk for compliance. Individuals who are deemed to be low risk will be on an automatic fast-track for approval, no penalties will be assessed, and no further action will be required of the taxpayer.
- If there is a justifiable reason why you were unable to file on time or you are requesting a deferral on a retirement account you may be asked to provide a written explanation.
In addition to the qualifications listed above, the IRS is taking other facts into consideration. Even if you meet the aforementioned qualifications, you may still be considered “high risk” and will, therefore, be ineligible for the program. Please see the article Streamlined Program Qualifications for more details.
What does it mean to be Low Risk?
Since ‘Low Risk’ participants will be free of additional penalties, it’s hard not to wonder what constitutes as ‘low risk.’ The IRS views returns with a minimal amount ($1,500) of taxes or no taxes due at all to be low risk. The less tax liability, income, assets, and complexity of the return the lower the risk it poses to the IRS. Conversely, the higher the tax liability and more complex of a return generally lead to a higher assessment of risk. More details will be available in time, and a somewhat deeper explanation can be found on the IRS website.
How We Can Help You Join This Program
We have already helped hundreds of expats file overdue tax returns and become compliant with the IRS. Currently we average about 10 clients a month who engage us for this service, without any of them incurring problems.
Go To Tax For Expats for more info.
