Greenback's expatriate tax accountants have developed this library of info to provide you with important US expat tax advice and insight. Expert US Expat Tax Preparation. Simplified. Resolved. Designed to save you time and money.
Editor’s Note: This post was originally published in 2016 and has been updated for accuracy and comprehensiveness.
The first tax deadline for 2017 expatriate taxes will be here before you know it on April 17, and if you’re like most expats, you’re hoping to get everything wrapped up promptly. Regardless of where you are in the process, one important task to remember is to back up your important tax documents and records.
Why Backup is Important
As you’re likely aware, you need to keep track of your important tax records in order to file your taxes each year. If you don’t hold on to these documents and keep them in a safe place, you might find it challenging to find the information you need when tax time rolls around, whether you’re filing on your own or having a tax professional help you. In the event there is a natural disaster, emergency, or simply a misplacement of the items if you’ve moved into a new home – having your important files saved in more than one place is a good idea.
Backing Up Your Documents
Not long ago, backing up your documents might have meant making paper copies and storing them in a safe or file cabinet. Thankfully, we now have much simpler means of storing important information using digital technology, such as our computers, flash drives, or external hard drives.
You will want to scan your bank statements, tax returns, insurance policies, birth certificates, citizenship documents, and other important documents and save the copies electronically. Most financial companies also offer online account information, which you are able to download as you see fit. If you work with Greenback on your US taxes, you know that we offer the Greenback Tax Companion, which keeps all of your information tidily stored in one place for 6 years.
Creating at least two backups is a good idea – one stored electronically and one as a paper copy – which you can keep in a safe place in your home.
Hold on to Multiple Years’ Documents
The IRS has specific guidelines in place for how long you should keep which documents. Here are a few tips provided for taxpayers:
With the increase to the audit period from three to six years, holding on to tax records for the full six years is a good idea, just in case.
Records related to a home purchase or sale, stock transactions, IRA, and business rental property should be kept longer.
The IRS doesn’t necessarily require you to keep records in any special manner, but we recommend that you keep any and all documents that might impact your expatriate taxes.
Records you should keep include: bills, credit card and other receipts, invoices, mileage logs, cancelled, imaged, or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return (including foreign country tax returns).
You can also find more information about important tax documents by downloading a US expat tax guide for your specific tax situation.
Don’t Forget to Protect Valuables
While not directly related to expatriate taxes, being prepared all around is a good idea because you never know when disaster could strike. Take photos or videos of the belongings in your home, especially those of high value. Visual records can help you in the event you need to prove the market value of your items for insurance and casualty loss claims. The IRS offers a disaster loss workbook, called Publication 584, which can help you compile a room-by-room list of your belongings.
While we never want to think of worst-case scenarios, it doesn’t hurt to be prepared, and it can save you from a quite a headache! Fortunately, if you do lose track of past federal taxes, you can request back copies of previously filed returns and attachments by filing Form 4506.
Have More Questions About Which Tax Documents Need to be Saved?
Greenback can help. Our team of expat-expert CPAs and IRS Enrolled agents can provide the expat tax advice you need. Schedule a consultation today!
The IRS recently published the official total of 2017 citizenship renunciations, and the numbers are noteworthy. Fourth quarter numbers of those renouncing US citizenship were finalized and showed a drop-off – something a bit different from the past several quarters. Below, we’ve answered some common questions about citizenship renunciation and US taxes living abroad.
Why Do Expats Renounce Their Citizenship?
For one, expat taxes can have a lot to do with decisions to renounce. Filing expat taxes year after year can wear on an expat, particularly because the perceived or actual benefit from the taxes is very low. And the only way to permanently rid yourself of the reporting requirement for US taxes living abroad, if not the payments, is to renounce your citizenship.
For other expats, renouncing can be symbolic of cutting ties with America or of loyalty to their new resident country.
What Are the Consequences of Renouncing US Citizenship?
Renouncing US citizenship is often easier said than done. You will be subject to a renunciation fee of $2,350. Some expats will be required to pay an exit tax the year that they renounce depending on their income tax liability. Also, once your citizenship has been renounced, it cannot be regained, so you will have permanently given up all of the rights that pertain to your US nationality.
What Has Been the Trend in Citizenship Renunciation?
For the past several years, citizenship renunciations have been on the rise. In 2016, the total was a record-breaking 5,410. But the 2017 total marks the first year without an overall increase in quite some time. The 2017 quarterly breakdown is as follows:
Total Renunciations = 5,132
As you can see, the renunciations fell to less than half of what they were during any other quarters. However, as recent as a decade ago, renouncing US citizenship was a somewhat rare decision. In fact the 4th quarter total of 685 represented more citizenships that were renounced than the total for 2007 and 2008 combined.
Why the 4th Quarter Drop-Off?
The drop-off could be attributed to many things, like the delays at the embassies processing the requests. Future forecasts still predict high renunciation numbers in 2018.
Considering Citizenship Renunciation?
Greenback expat tax experts can help answer your questions about the process. If you decide renunciation is the right decision for you, we can also help you complete the proper forms. Contact us today!
Friday means different things for different people, but for us here at Greenback, it means it’s time to brief our expat community on what happened in the news this week. Whether or not you’ve reached the end of your workweek, let’s dive into the stories that are relevant for you. This week, those cover how to prepare before calling the IRS with questions and a complete guide to 2018 US expat tax preparation.
Have a Question for the IRS? Get Ready Before You Call
The IRS reminded the public of the list of documents to have ready before calling with any questions about their taxes – and that list is extensive. The identity verification process is in place to help keep fraud to a minimum, and if you don’t have these documents on hand before you place the call, the IRS warns that you may need to call back. The list includes your social security number or ITIN, filing status, prior year’s return, a copy of the return about which you have questions, and any notices or letters you’ve received from the IRS.
2018 US Expat Tax Preparation Info
If you’re like a lot of expats, you’re gearing up for the American tax deadline in April. Though expats receive automatic extensions until June, if you owe any taxes, you’ll want to get those paid by the April deadline to avoid any interest accrual. Do you have all the information you need to get started on your US expat tax preparation this year? Our guide to this tax season simplifies those details for you.
Until Next Time
We’ll keep our ears to the ground for more expat news and report back next Friday. If you want to talk taxes before then, just reach out to our experts who are always ready for your questions!
Tax season is upon us again, so now is the time to start pulling together your information and getting your forms prepared and filed. With the excitement of expatriate life comes the added burden of tax forms that you wish you never knew existed. Some expats have the added struggle of trying to collate information in an exotic location with a difficult mail system! You may feel like you have lost before you ever got started. Never fear! With the clever use of extensions and the other tips below, your 2018 tax season can be painless.
Filing US Expatriate Taxes
What comes as a surprise to many is that if you’re a US citizen or permanent resident, you’ll need to file US taxes on your worldwide income regardless of where you are living. US tax filing obligations can easily be put on the backburner or forgotten about completely while overseas. Without constant reminders, the tax scenario can be “out of sight, out of mind.” As tedious and painful as taxes can seem, keeping on top of them and filing on time will keep you in the IRS’ good graces and away from the nasty world of interest and penalties.
Reporting Foreign Financial Accounts
Part of living and working in another country can mean having to set up a local bank account and/or other financial account to deal with your day-to-day living expenses. Did you know that you may have some reporting obligations to satisfy for those accounts? Chances are, you have heard of Foreign Bank Account Reporting (FBAR) as well as FATCA reporting (using Form 8938), but do you know when you have a filing requirement? Let’s take a closer look at both.
If you had any financial accounts located outside the US with a total balance that exceeded $10,000 at any point during the year, you must file an FBAR. This applies to any individual who is a US person, regardless of age or circumstance.
FATCA Form 8938
Form 8938, Statement of Specified Foreign Financial Accounts, must be filed by US citizens with foreign financial accounts exceeding a specified amount, and is used to satisfy FATCA reporting obligations. Types of accounts that must be reported include everything from bank accounts to stock of foreign issuers and others in between.
If you’re single or married but filing separately, you will need to file Form 8938 if the total value of your foreign assets is greater than $200,000 on the last day of the tax year or more than $300,000 at any point during the year (while living outside of the US).
If you’re married and filing jointly, you’ll need to file if the total value of your foreign assets owned by you and your spouse is greater than $400,000 on the last day of the year or more than $600,000 at any point during the year (while living outside of the US).
Something that expats may not realize is that this obligation to file Form 8938 does not just disappear once you have returned home to the US. If you maintain these financial accounts, you need to be aware of the following filing thresholds:
If you’re single or married but filing separately, you will need to file Form 8938 if the total value of your foreign assets is greater than $50,000 on the last day of the tax year or more than $75,000 at any point during the year (while living inside the US).
If you’re married and filing jointly, you’ll need to file if the total value of your foreign assets owned by you and your spouse is greater than $100,000 on the last day of the year or more than $150,000 at any point during the year (while living inside the US).
2018 Deadlines for US Taxes for Expats
One of the main challenges when it comes to filing US taxes for expats is meeting the filing deadline. Most Americans are familiar with Tax Day, which rolls around every April – but US expats actually receive an automatic extension if living abroad on Tax Day. Below are the important dates you should know:
April 17, 2018: Federal Tax Deadline
This is the federal filing deadline for US citizens who are not currently living abroad. If you moved back to the US prior to this date, you will need to file your taxes by this date. As mentioned above, if you are living abroad on this date, you’ll receive an automatic two-month extension to June 15. Note that any taxes owed will begin accruing interest if not paid by April 17.
April 17, 2018: Foreign Bank Account Report (FBAR) Filing Deadline
The due date for Form FinCEN 114 now falls on Tax Day. It must be filed online using the BSA e-filing system, and extensions are available until October 15, 2018.
June 15, 2018: US Expat Tax Deadline (without extension)
This is the deadline for US expatriate taxes and also the deadline to file an additional extension until October 15. Remember, if you are required to file FATCA Form 8938 it must be filed along with your US expat tax return. If you file for an extension, the extension applies to Form 8938, as well.
October 15, 2018: Final US Expat Tax, FBAR, and FATCA Deadlines
If you filed an extension prior to June 15, this is the final deadline for your US expatriate taxes, FBAR, and FATCA filing.
Ways to Save on Your Expat Taxes
Since you’re required to file taxes in the US even if you must also pay taxes in your host country, the US does provide special provisions to help protect expats from double taxation.
Foreign Tax Credit: This allows you to offset on your US expat taxes the taxes you paid in your host country dollar for dollar.
Foreign Housing Exclusion: This allows you to exclude certain household expenses that are incurred as a result of living abroad.
If you plan ahead for the upcoming tax season, you’ll be able to take advantage of all the savings available to you and avoid penalties by filing on time. Now is a great time to begin preparing so you can get ahead of the curve! To learn more about expat tax tips and savings, download our guide for Americans working overseas.
Ready to Begin Your US Expatriate Taxes?
Our team of expat-expert CPAs and IRS Enrolled Agents are here to help make filing your US expat taxes a hassle-free process, so you can get back to what you do best: enjoying your adventure abroad. Get started today!
Editor’s Note: This post was originally published in 2012 and has been updated for accuracy and comprehensiveness.
Thousands of American expatriates live in Germany, but how does living there affect their expat taxes? Germany has long been seen as a business friendly country, since it is the location of several international headquarters. When you include the large US military presence, thousands of American expatriates live in Munich, Berlin, Essen, and other German cities.
Wherever you live in Germany, understanding your German tax obligations without forgetting your US expat taxes is important – and so is understating how the German tax system will affect them. In all likelihood, you will pay both US expat taxes and German taxes.
US Taxation of Expatriate Americans
If you are a citizen or permanent resident of the United States, then you are obligated to file US expat taxes with the federal government each year. US expats have more filing requirements than a typical US citizen does. You could be required to file an informational return on your assets held in foreign bank accounts. While the US is one of the few governments that taxes the international income of its citizens and permanent residents, it does have special provisions to help protect expats from double taxation, including:
The Foreign Earned Income Exclusion, which allows you to decrease your taxable income on 2018 US expat taxes by the first $104,100 earned as a result of your labor ($102,100 for 2017) while a resident of a foreign country;
A foreign tax credit that could lower your US expat taxes on your remaining income by certain amounts paid to a foreign government; and
The Foreign Housing Exclusion, which allows an additional exclusion of income for certain amounts paid for household expenses that occur due to living overseas.
With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your US expat taxes. Please note that even if you do not believe that you owe any US income taxes, you will, most likely, still be required to file a return.
Who is Considered a German Resident?
You are considered a resident of Germany if you arrive with the intention of staying for a period longer than six months. Residency can be proven by establishing a residence within the country or having a presence in the country that indicates that you will be staying long term. You will be required to file an unrestricted tax return if you have a residence or abode in Germany. Otherwise, you will need to file a restricted tax return if your employer had no obligation to withhold your German taxes.
Likewise, departure from Germany without any ties (a primary residence, financial or other connections) is enough to end tax resident status. Even German nationality is not enough to establish tax residency – if you leave the country, you are not a resident for tax purposes.
German Income Tax Rates
Germany has a relatively high tax rate when compared with the tax rates applied on US expat taxes. While you pay more to German tax authorities up front, the benefit is saving on your US expat taxes when it comes time to file with the IRS.
In Germany, taxable income is employment income after the allowable and standard deductions have been taken. The threshold for taxation is currently EUR 8,820 if you’re single; in the event that you’re married, the joint filing threshold is EUR 17,640. The tax rate is progressive, based on income, reaching the first cap of 42% at EUR 54,057. This rate will then be applied until the second threshold, EUR 256,303, is reached. Income surpassing EUR 256,303 is taxed at 45%.
As you can see, these rates are higher than those for US expat taxes.
Deductions from your income will include a standard deduction of EUR 1,000. If you have unreimbursed business expenses (which need to be proven with receipts), you can itemize the deductions from your income. Personal deductions (obligatory future care) are capped at EUR 6,591. Monthly deductions for allowances paid to children start at EUR 190 per child (two children) and cap at EUR 221 (four or more children). There is also a basic child deduction of EUR 3,624 per dependent child for a single parent. That is doubled to EUR 7,248 if a married couple is filing jointly.
There are no regional taxes; however, a church tax is applied to registered members of an official church. The church tax varies but is typically 8-9% of your income tax.
German taxpayers are also subject to a solidarity surcharge of 5.5% of taxes paid, making the actual highest rate of income tax 50.5%.
German Tax Due Date
Germany’s tax year is the same as the United States: January 1 through December 31. This timeline should make filing easier and may reduce the amount of time and effort put into filing taxes for both countries.
Taxes are to be filed by May 31 of the year following the tax year. There is an automatic extension to December 31 if the return is prepared by a tax professional. Further, an additional extension is available that can be filed for February 28 of the subsequent year, but it does require a written application.
Payment will be due one month after the German Ministry of Finance has issued the German income tax assessment notice. Penalties for filing late are limited to 10% of the assessed German taxes but cannot exceed EUR 25,000. There is a late fee of 1% of the taxes due for each month the taxes have an outstanding balance. In addition to the late filing penalty, interest is assessed on the taxes due at the rate of .5% each month.
US – Germany Social Security Agreement
The US-Germany Social Security Agreement describes to which country social security is payable when working in Germany. If you are assigned by a US company to work in Germany for five years or less, you will pay into US Social Security. If the assignment is for more than five years, you pay into German Social Security. If you are working for a non-US employer in Germany, you will pay into German Social Security. You are automatically entered into the German Social Security program as soon as your employment begins in Germany. This does not apply for those who are working in Germany for a company located outside of Germany.
Is Foreign Income Taxed in Germany?
For anyone who is considered a tax resident of Germany, worldwide income is considered taxable. Germany does have tax treaties with a number of countries which determine where taxes are to be paid. If you are earning income outside of Germany in a third foreign country, you will need to review the tax treaty between Germany and the third country or talk to a tax expert.
US-Germany Tax Treaty
The US-Germany tax treaty is helpful in situations where it is unclear to which country taxes should be paid. Generally speaking, most tax matters are resolved based on the resident status of the individual: Are you a resident of the US or Germany? Where do you work? Where was the income paid? Which country is the employer from? All of these factors will go into consideration when deciding where taxes should be paid.
Investment Taxes in Germany
Germany does have an investment and capital gains tax, which is a flat rate of 25%. Losses on investments and sale of assets can be deducted from the income earned on other investments or assets. The system is set up so that the taxation is deducted at the source. For example, if you have a German savings account, the German bank will deduct the taxes payable from the income you have earned on your investment account. If the income is coming from outside of Germany, it will not automatically be deducted, but taxes are still due to the German tax authorities.
An inheritance tax is calculated using graduated rates from 7% to 50%. However, no wealth tax is assessed in Germany.
Capital gains taxes on real estate are levied only if the property was not self-occupied and held for less than 10 years. In Germany, rental income is to be taxed by the country in which the rental income is located.
Saving on US Expat Taxes
Since Germany is a country with a relatively high tax rate, being aware of the filing requirements, obligations, and taxation levels is important in order to plan appropriately. This will also allow you to better prepare for your US expat taxes when it comes time to pay your home country.
Need Help With US Expat Taxes in Germany?
If you have any other questions or would like to learn more about our expat tax services, please contact us.
It’s time for the weekly expat tax news roundup – your full service tax news station. This week we’re bringing you up to speed on Greenback Co-Founder David McKeegan’s article published in CPA Practice Advisor about how the tax reform could affect US tax returns and reporting for expats, how to decipher the subtle nuances of foreign bank account reporting, and myths that the IRS has debunked about tax filing!
Greenback Co-Founder David McKeegan Featured in CPA Practice Advisor
David McKeegan enumerates what expats can expect from the tax reform – and how it may affect US tax returns – in his article in CPA Practice Advisor.
Foreign Financial Account Reporting
The need to file US tax returns has come as a surprise to many expats. Knowing how to report your foreign financial accounts can be even trickier! The differences between FBAR and Form 8938 (FATCA) are slight, but we have outlined the distinctions so you know exactly what you need to know in order to be compliant. Read our handy guide to help understand the reporting requirements!
Debunked: Early Tax Filing Season Myths
The IRS recently came out with a list of tips to help taxpayers avoid some of the early tax-filing season misconceptions. For instance, they recommend not ordering a tax transcript in order to find out when you can expect a refund from your US tax returns. The IRS says there’s a better way to find out when your refund will reach you! Read the full list of myths on the IRS website.
Have a great weekend!
That’s all the expat tax news for this week. We’ll meet you back here next Friday with more info, but between now and then feel free to reach out to us with any questions that come up!
Editor’s Note: This post was originally published in 2012 and has been updated for accuracy and comprehensiveness.
Sweden offers its citizens some of the finest social programs that exist: universal health insurance, unlimited sick days, subsidized childcare, and free university tuition. These luxuries do not come without a cost, however, and Sweden’s tax rates are among the highest in the world. In addition to Swedish taxes, Americans living abroad cannot forget their US expatriate income tax return obligation or other reporting requirements, like FBAR. If you are considering a move to Sweden, you will want to examine what effect it could have on your expat income tax return, as well as the Swedish tax rates and deadlines.
US Expatriate Income Tax Returns While in Sweden
If you are a citizen or permanent resident of the United States, you are obligated as an expatriate to file a US income tax return with the IRS while living in Sweden – whether or not you have any US sourced income. While the US imposes tax on all of the income of its citizens and permanent residents, listed below are the special provisions available within the IRS tax code that help to protect expatriates from double taxation.
The Foreign Earned Income Exclusion allows you to exclude the first $102,100 of your 2017 earned income as a result of your employment while a resident of a foreign country (the 2018 exclusion amount is $104,100)
A foreign tax credit can be used to lower your US tax liability on your foreign sourced income by certain amounts paid to a foreign government.
The Foreign Housing Exclusion allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.
Additional filing requirements may be necessary for foreign financial assets located overseas, including filing FBAR (FinCEN Form 114) with the U.S. Department of the Treasury and FATCA (Form 8938) with the IRS as part of your US income tax return. These must be filed whether the foreign financial assets are owned separately or jointly, or if you have signature authority of bank or financial accounts that have balances higher than the respective thresholds.
Swedish Tax Rates
The fact that Sweden has some of the highest tax rates in the world is worth reiterating. You can deduct a basic allowance for 2017 of SEK (Swedish Krona) 13,200-34,500. The following taxes then apply to taxable earned income:
Municipal Tax – between 29-34%
Church Tax and Burial Charges – 1-2%
National Income Tax Rate – 20% if you earn more than SEK 439,000 for 2017, but 25% if you earned more than SEK 638,600 in the tax year
In addition, capital gains are taxable at a flat rate of 30%.
Limited concessions for expatriate employees living in Sweden are granted by Forskarskattenamnden (the Swedish Tax Commission) if certain requirements are met. These expatriate employee concessions will exempt 25% of gross remuneration, reimbursed moving expenses, and some schooling fees. It also provides that no social security is levied on exempt amounts for the first 3 years of a temporary stay in Sweden. The conditions related to these concessions include not being a Swedish citizen, working for a Swedish employer, the assignment not lasting than 5 years, and having not resided in Sweden for 5 calendar years prior to starting your temporary assignment.
If you have a home or dwelling in Sweden, regularly reside in Sweden for a continuous period of 6 months or more, or have essential ties to Sweden (such as maintaining a home in Sweden), you are considered a Swedish resident for tax purposes. If an individual was considered a resident and leaves Sweden, he or she will still be treated as a resident for tax purposes (for up to 5 years) if ties, such as a home or family, still exist in Sweden. Therefore, knowing if you are a resident is important because only residents of Sweden are taxed on worldwide income in Sweden.
Is Foreign (Non-Swedish) Income Taxed in Sweden?
You are taxed on your worldwide income if you are considered a resident in Sweden. Non-residents are only taxed on income sourced within Sweden, including capital gains and pensions. The Swedish tax rate on employment income for non-residents is a flat 20%.
Social Security in Sweden
Part of the reason taxes are so high in Sweden is due to the extensive social insurance programs that the country has in place. Benefits offered include universal health care, old age and unemployment benefits, free university level education, and extensive maternity leave. So, while your tax payments will seem very high at first, acknowledging what you are getting in return will help the transition.
Social security contributions are levied at 31.42% of the total taxable remuneration paid by employers, except for the pension insurance fee of 7% on employment income up to SEK 496,000. The maximum social security charge is SEK 34,700 and may be fully credited against other income taxes.
Swedish Tax Due Date
One aspect of your expatriate income tax return that won’t change with a move to Sweden is the tax year; Sweden also uses the calendar year for individual tax returns. For 2017, tax returns must be filed if individuals earned more than SEK 18,900. These returns must be delivered to the Swedish Tax Agency by May 2nd of the following year.
US – Sweden Tax Treaty
Individuals filing an expatriate tax return will be relieved to know that there is a US-Sweden tax treaty. The treaty is useful for determining how your income will be treated by both the United States and Sweden if you pay taxes to both countries.
Other Taxes in Sweden
There are other forms of taxation in Sweden of which individuals residing in the country should be aware. The Value Added Tax (VAT) is levied on all goods and services in Sweden, including those crossing borders within the EU. The standard rate for the Swedish VAT is 25%, with reduced rates of 12% for foodstuffs and certain tourism industries, and 6% for newspapers and passenger transport.
There is no wealth, inheritance, or estate tax in Sweden.
Saving on US Expat Taxes
Sweden’s tax structure has tax rates that are much higher than what you may be used to paying in the United States. However, bear in mind that paying higher taxes to Sweden will translate into a lower tax liability with the United States since the Foreign Tax Credit will allow you to reduce your US tax liability on a dollar-for-dollar basis against any taxes paid to Sweden. The tax rates in Sweden are high enough that the Swedish tax liability is nearly guaranteed to eliminate your US tax liability on your US expatriate income tax return.
For more details about how a move abroad will affect your expatriate tax return, be sure to check out our guides for Americans living abroad.
Need More Information About US Expat Taxes in Sweden?
Our team of dedicated CPAs and IRS Enrolled Agents can help! Contact us today and we’ll be happy to assist you with all of your expat tax questions.
FBAR; FINCEN; FATCA– these are all part of the alphabet soup taxpayers are faced with when trying to decipher their US tax filing obligations. Many expats are left scratching their heads – wondering what each acronym means and if they need to file FBAR, FATCA, or both. Let’s unravel the acronyms together!
What is FBAR?
Foreign Bank Account Reporting (“FBAR”) was introduced by the Bank Secrecy Act of 1970 with the intention of discouraging and preventing tax evasion. While largely ignored for many years, FBAR has been in the forefront in recent years, with the US Government now placing a lot more emphasis on the importance of compliance. The threat of harsh penalties has prompted a massive increase in reporting lately, and many people taking advantage of the voluntary disclosure programs the IRS has in place once they realize they need to file FBAR.
What is FINCEN?
FinCEN is simply the Treasury Department’s Financial Crimes Enforcement Network, and it is the organization that enforces FBAR compliance. Their mission is “to enhance U.S. national security, deter and detect criminal activity, and safeguard financial systems from abuse by promoting transparency in the U.S. and international financial systems.” FinCEN Form 114 is another name for the FBAR!
What is Form 8938?
The Foreign Account Tax Compliance Act (“FATCA”) was enacted in 2010 as part of the HIRE Act, and requires that foreign financial institutions report on foreign assets held by their US account holders or be subject to withholding on certain payments. The HIRE Act also includes legislation requiring US persons to report their foreign financial accounts and assets, which is where Form 8938 comes in. US taxpayers now use Form 8938 to satisfy their FATCA reporting obligations by submitting the form with their annual federal income tax return.
Is there a difference?
In short, yes. While both forms may seem to be collecting the same information, there are some subtle – and not so subtle – differences of which every taxpayer needs to be aware. The requirement to file one form does not automatically mean you are required to file the other. The differences and similarities between Form 8938 and FBAR are highlighted below.
Who must file?
Specified individuals (U.S. citizens, resident aliens, and certain non-resident aliens) and domestic entities that have an interest in specified foreign financial assets and meet the reporting threshold.
U.S. persons (U.S. citizens, resident aliens, trusts, and estates) that have an interest in foreign financial accounts and meet the reporting threshold.
For specified individuals living in the US:
– Unmarried individuals (or those who file MFS): total value of assets more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.
– Married individuals: total value of assets more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.
Those living outside of the U.S.
– Unmarried individuals (or those who file MFS): total value of assets more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.
– Married individuals: total value of assets more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year.
The aggregate value of all foreign financial accounts exceeds $10,000
What is reported?
Maximum value of the specified foreign financial asset
Maximum value of the foreign financial account
When is the form due?
The form is due with your federal tax return, including extensions.
The form is due April 15 (April 17 in 2018), with an automatic extension to October 15 available.
Where is it filed?
With your federal income tax return
Filed electronically through FinCEN’s BSA E-Filing System
Up to $10,000 for failure to disclose and an additional $10,000 for each 30 day period of non-filing for a potential maximum penalty of $60,000. Criminal penalties may also apply.
Civil monetary penalties are adjusted annually for inflation. The current penalty for non-willful failure to file is $10,000. A willful failure to file penalty is the greater of $100,000 or 50% of the account balances. Criminal penalties may also apply.
Remember, not all accounts and/or financial assets need to be reflected when determining your filing obligation for each form. A financial asset that is reported on Form 8938 does not necessarily need to be reported on your FBAR form and vice versa. The table below outlines what needs to be considered for each when verifying your obligation.
Financial accounts held at a foreign financial institution
Financial accounts held at a foreign branch of a US bank
Financial accounts held at a US branch of a foreign bank
Foreign financial account for which you have signature authority
No, unless you have an interest in the account as described above
Foreign stock held in a foreign brokerage account
The account is reportable; however, the stock within the account does not need to be reported separately
The account is reportable; however, the stock within the account does not need to be reported separately
Foreign stock held outside a foreign brokerage account
Foreign partnership interests
Foreign mutual funds
Domestic mutual funds that invest in foreign stock
Foreign accounts non-accounts investments held by foreign or domestic grantor trusts where you are the grantor
Yes for both
Yes for foreign accounts
Foreign-issued life insurance or annuity with cash value
Foreign hedge and private equity funds
Foreign real estate held directly
Foreign real estate held through a foreign entity
No; however, the foreign entity is a specified foreign financial asset and its value will include the value of the real estate
Foreign currency held directly
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Welcome to the weekly news roundup, your one-stop shop for expat news. In honor of tax season having begun on Monday, we’re featuring information about how the Tax Cuts and Jobs Act will affect foreign earnings, answers to the most common expat questions, and up-to-date US income tax reporting requirements for foreign businesses. With any luck, this briefing will make your 2018 expat taxes a little easier.
The IRS and Treasury Department Issue Clarification on “Transition Tax”
One month into 2018, expat taxes have certainly changed, though the Tax Cuts and Jobs Act did not drastically alter the course of expat tax preparation in general. If you are an expat who owns a US company with a foreign subsidiary, you may be interested in the additional information on how the “transition tax” will be computed for the untaxed foreign earnings of your company. The IRS has mentioned that more updates will likely follow, and we will be sure to keep you posted along the way.
2018 Expat Taxes: Your Questions Answered
If you’re ready to tackle your taxes this year but want to make sure you have the most current information, why not read up on our answers to the most common expat questions? We’ve covered deadlines, suggestions on how to prepare in advance, and when you can expect a refund.
US Income Tax Reporting Requirements for Foreign Businesses
If you have a foreign business, then you may already know that each foreign entity classification comes with different reporting requirements. The process for reporting on foreign businesses can be tricky, so make sure you know which forms will be required of you. Our handy guide makes it easy!
That’s all, folks!
We will be back next Friday with more news tailored specifically for expats. But in the meantime, we’re always here to answer your questions!
Yes, that time has come again – tax season officially began Monday. Now that the IRS opened the tax filing season, gathering tax documents is likely at the top of many expat’s to-do list. The IRS has provided details regarding important dates to mark on the calendar as well as information regarding the issue of refunds. Below, we’ve answered all your questions about filing 2018 expat taxes.
How Should I Prepare?
It is never too early to start gathering your tax information. Filing your tax return early in the tax season will not only reduce your to-do list, it can also save you money! Plus, there is a good chance that it will be completed faster, particularly if you are having a tax professional assist you. If you can beat the deadline rush, you will find yourself stress-free – in terms of your 2018 expat taxes, anyway.
Being prepared can go a long way toward making the filing process easier and less rushed. Here are a few tips:
Have your year-end tax statements ready to go so you won’t be searching at the last minute. If you haven’t received all of them yet, don’t panic! Forms 1099 do not have to be issued until January 31, so you can expect the remainder shortly.
Keep six years of prior tax returns in case you are audited. The previous year’s return is also a helpful reference when beginning a new tax return.
File early, even though US expats have until June 15 to file. Not only will you cross it off your to-do list, but also if you pay what you owe the IRS by the April tax deadline (in 2018, it’s April 17), you won’t accrue any interest.
When are the Deadlines?
Since April 15 occurs on a Sunday in 2018, and Emancipation Day (a legal holiday in Washington, DC) falls on Monday, April 16, the April filing deadline will be Tuesday, April 17, 2018. Any tax due for the 2017 tax year will also be due on this date and will begin to accrue interest if paid at a later date.
US expats living outside of the US on April 17, 2018 receive an automatic two-month extension to file taxes, making the deadline June 15. There is also the option to request an additional extension until October 15, which is the final deadline to file your 2017 Federal Tax Return.
The Foreign Bank Account Report (FBAR) deadline has settled into its new time slot and again will fall on Tax Day, April 17. However, US expats will receive a two-month extension automatically and can request an additional extension to October 15 for filing FBAR. Please note: October 15 is the final deadline for filing FBAR. The penalties for not filing your FBAR are quite severe, so be sure you’re aware of your requirement to file and that you gather the necessary documents ahead of the deadline.
When Will I Receive My Refund?
As was the case in previous years, e-filing and direct deposit continue to be the fastest and safest way to file your expat tax return accurately and receive a timely refund. The IRS anticipates it will issue more than 9 out of 10 refunds within 21 days, though certain factors will affect the process for some individuals.
By law, the IRS is required to hold refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15. Due to processing times, weekends, and the President’s Day holiday, affected taxpayers likely won’t have access to these refunds until the week of February 26.
In general, once the IRS releases refunds, additional processing steps are required and financial institutions may take some time to accept and deposit the refunds in your bank account(s). Most financial institutions do not process payments on weekends or holidays, which may affect when you receive your refund. Once you’ve filed your US expat taxes, you can visit the Where’s My Refund tool on the IRS website to get an estimate of when you can expect your refund.
Have More Questions?
We can help you with any of your questions about filing expat taxes in 2018. Contact Greenback today!