All Americans, including expats, are required to file US taxes, reporting their global income.
Many US expats either aren’t aware of this requirement, or they may believe that a tax treaty prevents them from having to file. The truth though is that tax treaties don’t prevent expats from having to file, and minimum filing thresholds for expats are the same as for Americans in the US - $12,200 for 2019 tax year, or just $400 of self-employment income, globally (and regardless of currency). Expats often have to report their foreign financial accounts and assets too, and those who don’t can face steep penalties, as the IRS is receiving foreign tax information from foreign governments and expats’ financial information from foreign banks. Thankfully, there’s an IRS program called the Streamlined Procedure that lets US expats catch up with their US taxes without facing penalties. To qualify, expats have to file their last three federal tax returns, and their last up to six Foreign Bank Account Reports (FBARs), and self-certify that their previously not filing wasn’t willful avoidance of their responsibilities. When expats file their federal tax returns under the Streamlined Procedures, they can claim one or more IRS provisions such as the Foreign Earned Income Exclusion and the Foreign Tax Credit that mean most expats won’t end up owing any US tax. The primary merit of the Streamlined Procedure is that it allows expats to become compliant without facing any penalties, and, in most cases, owing any back taxes. As penalties for not filing FBARs reporting qualifying foreign bank and investment accounts start at $10,000 a year, this is a significant benefit. Furthermore, the IRS can prevent expats whom they consider to owe back taxes from renewing their US passports, so the potential disadvantages of not being compliant are substantial. The primary demerit of the Streamlined Procedure is that it doesn’t protect expats from future investigation of their past finances, which is to say that it doesn’t guaranty immunity from future prosecution. Furthermore, the program is only available voluntarily, so expats who sit back and wait until the IRS contacts them aren’t able to participate and avoid late penalties. For the majority of expats who haven’t been filing because they weren’t aware that they had to (rather than because they were willfully avoiding filing or paying US taxes), the Streamlined Procedure is a good opportunity to avoid future problems by becoming compliant without facing any penalties. Filing US taxes from overseas is more complex than from in the US, and expats should always seek advice from an expat tax specialist CPA to ensure that they file in the most tax efficient way possible.
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