Keeping up with the ever-changing tax reporting laws can be overwhelming. And if you are either a United States taxpayer who has retired overseas or are one who is contemplating retiring outside of the country, you need to know that there are additional IRS obligations to meet. If you fail to understand and meet these additional obligations, you could make errors resulting in substantial penalties.
A Washington DC tax lawyer can be helpful in breaking down the important information you need to know about offshore banking before you file that first tax return while living abroad.
Pick a Bank That Complies With the Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act, often referred to as FATCA, is something anyone who has bank accounts both in the U.S. and abroad should be aware of. Under this law, the overseas bank is required to report the existence of any accounts held by U.S. taxpayers that have at least $10,000 in deposits to the U.S. tax authorities.
Being required to provide this type of accounting can be a headache for the foreign financial institution. The hassles of meeting FATCA requirements can create a chilling effect for some foreign banks to the extent that they might even refuse to do business with Americans living abroad. Be sure to ask any bank you might do business with abroad if they have FATCA reporting protocols in place. And make sure you are set up to report the account as well, as required by law.
Additional U.S. Taxpayer Reporting Requirements
The U.S. government requires that anyone maintaining $10,000 or more in an offshore account must also disclose information about the account by filing a Report of Foreign Bank and Financial Account every year. This is not optional and the failure to make the required disclosure could result in large penalties.
Read the IRS Tax Forms Fine Print
All U.S. taxpayers are required to file tax returns with the IRS every year. Many people go the do-it-yourself route by either filling out the forms manually themselves or using an off-the-shelf computer program.
One of the problems with the DIY approach is important details can get missed. For example, the most popular online and computer-based IRS tax filing programs are set to default to “no” on the Schedule B question inquiring if you maintain a foreign bank account. It’s very easy to miss this and just leave the answer at the default. Even though this seems like a minor thing, it constitutes false reporting to the IRS and could cause you to incur significant penalties.
Talk to a Qualified Washington DC Tax Lawyer Before You Go
Before you formalize plans to live abroad as a U.S. taxpayer, it is advisable to talk to a Washington DC tax lawyer to make sure you set up systems to make all the required financial reports correctly. For a consultation, contact Kevin E. Thorn, Managing Partner, at email@example.com or (202) 349-4033 today.