Living Abroad And Haven't Filed Your US Expat Tax Return in a ...

You Gotta Know

Bottom line is, you have to comply with US tax filing obligations. As far as the IRS is concerned, ignorance is not an excuse not to comply with all their convoluted requirements. If your only problem is simply not filing your expatriate tax returns, that?s merely an administrative issue, and you can recover from it pretty quickly.

First off, know your advantages. If you pay income taxes abroad, you may be able to get a Foreign Tax Credit. Since whatever you pay abroad can be subtracted from whatever you owe to the US, it?s possible to end up not owing any US income tax at all!

But there are a bunch of penalties and interests you can accrue as well. Here?s how to avoid getting in trouble, and how to minimize the damage if you do.

The earlier, the better!

File your US expat tax returns ASAP! Not paying is only a civil offense, but not filing is a criminal offense.

If it?s been a while, there are a few things you might have to worry about:

- How available is your information to the IRS?

- What are the potential interest and penalties?

- How much am I going to have to pay a tax pro to fix all this?

Please note that if you intentionally evade US taxes by withholding information, go directly to a tax attorney rather than a tax preparation firm.

Too late, I?m late?

You may be subject to IRS penalties if:

- Your foreign income was more than what you?re allowed to claim under the Foreign Income Exclusion

- You don?t earn that much foreign income, but have other income sources, which tip you over the exclusion limits

Here are some of the penalties you may be stuck with:
? Late filing penalty: 5% of your unpaid balance per month, for every month the return is late, up to 25%

- Late payment penalty: monthly penalty, up to 0.5% of unpaid balance, up to 0.25%

- Additional interest: Recent rates have hovered between 4% and 8%

How long does the IRS remember?

Usually, the IRS looks at about 6 years of past tax returns. So if you call them up and ask, they?ll tell you to file 6 years back. Sounds easy enough right? Actually, you have to file every year that your income was over about $4000 (or $400 if you?re self employed). But watch out, the IRS is being tricky here!

First, consider the Statute of Limitations. This is how long the IRS can audit you, inquire about your tax return, charge taxes, penalties, or interest, and so forth. (These rules are outlined in Tax Code section 6501(a).)

And what about the Statute of Limitations?

The statute of limitation kicks in from whenever your tax return is due, or when you actually file, whichever comes later. If you report all your income, it?s 3 years. If you under-report by 25% of more, its 6 years. (Note: if you intentionally file a fraudulent return, there is no statute of limitations, and the IRS can come after you at any time.)

While it might reduce your professional fees, it?s probably not a good idea to follow the 6 years back suggestion. You?re better off to file us taxes abroad like the code calls for. But if you guess you owe any more back taxes beyond 6 years, filing now opens the door to the IRS poking around your expatriate tax returns indefinitely because the statute of limitations gets reset!

Source: http://feusab.com/?p=85204

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