Expat Streamlined Tax Filing

Catching Up: What You Need to Know About Streamlined Filing Compliance Procedures and FBAR Penalties

If you’re an American living abroad and haven’t filed annual U.S. income tax returns, maybe ever since moving abroad, Accutax Expat Tax Services can help. Understanding streamlined tax filing requirements in the U.S. and your host country can be overwhelming, but we’ll get you back on track.

It’s common for U.S. expats to overlook or misunderstand their tax duty, thinking they only have filing obligations in their foreign tax jurisdiction. In the face of honest mistakes, the IRS has historically shown lenience, however you could face serious penalties for things like failure to file foreign bank account reports (FBAR filing).

Accutax U.S. Expat Tax Services helps expats decipher their options. The IRS has extensive choices, like Streamlined Filing Compliance Procedures, for Americans who need to catch up with-filing prior year tax returns and foreign account reports.

Offshore Streamlined Filing Compliance Procedures

Offshore Streamlined Filing Compliance Procedures are an option for U.S. taxpayers abroad. The program accommodates expats who were unaware of their obligations, and helps them become compliant with prior year filings while minimizing penalties. To qualify for the Offshore Streamlined Filing Compliance Procedures, you must:

1. Have lived in a foreign country for at least 330 days during one of the last three years and not maintained a U.S. abode.

2. Confirm that your failure to file U.S. tax returns and FBAR was due to an honest misunderstanding of your responsibilities.

If you do qualify for Streamlined Filing Compliance Procedures, you will need to:

1. File income tax returns for the prior three tax years.

2. File an FBAR for the prior six tax years.

3. Complete a statement of explanation detailing why your tax returns and FBAR weren’t filed.

4. Pay the tax and interest due for the last three years.

Delinquent FBAR and Information Report Procedures

If you’ve been filing your tax returns annually and reporting your income, but were unaware of your foreign bank account reporting requirements and the associated FBAR penalties, or other informational reports, a different procedure may secure your amnesty.

Delinquent FBAR and Information Report Procedures allow you to file and amend tax returns to include omitted information reports. A detailed explanation is required with each report to make sure your failure to file was an honest mistake.

Get Started with Virtual Tax Prep

If you’re a U.S. taxpayer, and you honestly made the mistake of not fulfilling your U.S. tax and FBAR filing requirements, Accutax U.S. Expat Tax Services can help. While your process does require a few more steps, it’s nothing we haven’t seen. Want help? Visit our Virtual Expat Tax Preparation page to learn more about our virtual tax preparation service and to get started with your return.

Warning! The programs listed above are for U.S. taxpayers who have honestly overlooked their past U.S. tax responsibilities. Severe civil and criminal disciplinary action and penalties, such as FBAR penalties, can be assessed against taxpayers who have willfully avoided U.S. tax. Accutax does not provide legal services. If you are concerned that your failure to file was willful, consult an attorney.

FBAR & FATCA Filing Information

Understanding required disclosures and filings related to financial assets held outside the U.S. is imperative to ensuring you’ll be ready to fill out forms the right way and remain compliant with the IRS. We can help.

Visit the Virtual Expat Tax Preparation page for more instructions and to get started filling out your FBAR and other forms.

FBAR Filing Requirements and FinCEN Form 114

By law, you must file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts, or "FBAR") if both of the following are true:

• You're a U.S. citizen or resident taxpayer or domestic business entity
• You own, control, or have signature authority over foreign bank and financial accounts with a combined value over $10,000

FBAR Filing Deadline

The FBAR is filed separately from your tax return and does not go to the IRS. Your FBAR is filed online through the BSA E-Filing System. The deadline for FBAR filing is April 15 to coincide with Tax Day, but an automatic six-month extension to October 15 is available if your FBAR is filed after the initial tax deadline.

Who Should File an FBAR?

You're probably required to file an FBAR if you're:

• A U.S. citizen or green card holder living abroad
• Using personal or business foreign accounts for everyday activities

The reporting requirement covers many types of foreign accounts maintained outside of the United States, including:

• Bank accounts
• Securities accounts
• Certain foreign retirement arrangements

The FBAR filing requirement isn’t new, but expats often overlook it. Recent international enforcement efforts have raised awareness of the requirement.

Don't worry. Your FBAR is only an informational document. No additional tax will be added. However, penalties can be levied if you don’t file or file late. It’s important to work with an expat tax advisor who understands your obligations.

FATCA Filing Requirements and Form 8938

The Foreign Account Tax Compliance Act (FATCA) is a part of the government’s efforts to combat offshore tax evasion. American expats of all income levels with foreign accounts and assets should know about it. FATCA filing requirements impact U.S taxpayers and overseas financial institutions: * 

• U.S. taxpayers with foreign accounts and assets may need to file Form 8938 : Statement of Specified Foreign Financial Assets with their annual U.S. Income Tax Return
• Foreign financial institutions must disclose information about U.S. citizens who hold accounts overseas

Form 8938 is the same as an FBAR in many ways. However, it has lower reporting thresholds and requires you to disclose certain "non-account" assets such as:

• Business and trust ownership
• Certain contractual investments with foreign parties

FATCA Due Dates

As Form 8938 is filed with your U.S. income tax return, due dates applicable to Form 1040 apply. Automatic extensions for expats living abroad or additional extensions to October 15 can provide more time to collect needed information from foreign financial institutions and determine your filing requirements.

Form 8938 Filing Thresholds

Filing thresholds differ depending on where you lived during the tax year. If you live within the US the entire tax year, you must file Form 8938 if the value of your reportable foreign assets exceeds either of these levels:

• More than $50,000 (or $100,000 if married filing jointly) at the end of the year, or
• More than $75,000 (or $150,000 if married filing jointly) at any time in the year

Expats living abroad have an increased reporting threshold. You don’t need to complete this form unless your foreign assets exceed either:

• $200,000 (or $400,000 if married filing jointly) at the end of the year, or
• $300,000 (or $600,000 if married filing jointly) at any time during the year

Financial Institution Reporting

Many foreign financial institutions must report their U.S. citizen and resident clients’ accounts worth more than $50,000. If you’re an expat who hasn’t been filing returns and FBARs, this could affect you.

Example: The foreign banks you use might be required to obtain additional information about you. They would report this information to the U.S. government. The IRS can then determine if you’re not in compliance before you report yourself. In that case, many preferential disclosure options will be unavailable to you. You might face additional tax, penalties, and interest.

Foreign Earned Income Exclusion for US Expats

If you're an expat, you might qualify for a foreign earned income exclusion from your 2021 U.S. taxes, up to $108,700 or even more if you incur housing costs. (Exclusion is adjusted annually for inflation) The foreign earned exclusion from your 2022 U.S. taxes can be up to $112,000. 

Let our experienced expat tax advisors help prepare your tax return this year to ensure the foreign earned income tax exclusion is elected when it is most beneficial to you. Visit the Virtual Expat Tax Preparation  page to get started claiming your foreign earned income exclusion today.

What Can You Exclude?

The foreign earned income exclusion can help reduce or eliminate U.S. tax on compensation that is earned while working abroad.

This exclusion is only available for earned income and doesn't apply to investment income such as interest and dividends.

Note: You might qualify for the foreign earned income exclusion even if the country in which you're working doesn't assess income tax on compensation.

Who Can Benefit

The exclusion usually applies to those who have lived abroad for at least one full year. However, partial-year exclusions are available if you've recently moved to a foreign country or returned to the U.S. mid-year.

The foreign earned income exclusion is available to expats who either:

• Work outside the U.S. as employees, whether for a U.S. or non-U.S. employer
• Work outside the U.S in a self-employed or partner capacity

Employees of the U.S. government can't claim the foreign income exclusion. However, an employee of a private company under contract with the U.S. government might still be eligible.

Foreign Tax Credit vs. Exclusion

It's important to choose between the foreign income exclusion and tax credit wisely. If you claim the exclusion and then change back to the foreign tax credit, you can't easily claim the exclusion again for five years. The only way to claim the exclusion again involves a costly process with the IRS. Working with an expat tax advisor can help you understand your options.

Claiming the foreign tax credit might be the better option if any of these apply:

• You're paying foreign tax at a higher rate than your U.S. tax rate
• You wish to participate in an individual retirement arrangement (IRA) 
• You qualify for certain family-related breaks based on non-excluded income

The foreign tax credit might also be a better choice for expats with small business operations that use capital or inventory as an important part of their business.

Expat Tax Extensions

Even if you haven't been out of the country long enough to claim the exclusion by your filing date, you can request an extension to file until you've met these time requirements. (Link to due dates)

Late Elections to Claim the Foreign Earned Income Exclusion

You generally must claim the exclusion either:

• Within one year of the due date of your return
• By amending a timely filed return

However, you may claim the exclusion if:

• The IRS hasn't discovered your failure to file your return claiming the exclusion, or
• You owe no tax after taking the exclusion into account

If you haven't filed returns in prior years, you still might be able to exclude your foreign earned income from U.S. tax. This could have the effect of eliminating your tax liability and any penalties and interest that would be assessed.

Foreign Housing Exclusion or Deduction

If you’re an expat and you incur foreign housing expenses, you might be able to exclude or deduct them. The exclusion is available for expats working as employees with either:

• Out-of-pocket housing expenses
• Employer-provided housing amount included in their wages

The tax deduction is available for self-employed expats paying foreign housing expenses. The amount of your housing exclusion or deduction is based on the difference between the following:

• Your actual foreign housing expenses
• A base amount for your foreign country of residence

File Your Foreign Earned Income Exclusion with Accutax Business Center

Filing taxes while living and working abroad can be overwhelming and stressful. As an expat, your tax situation is very different and requires specialized expertise. Visit our Virtual Expat Tax Preparation page to learn more and get started with your U.S. tax return today!

State Filing

As an expat, you’re consistently reminded that you need to file a Federal Tax Return each year in order to stay compliant with the IRS. However, there is an equally important requirement for some expats that can easily be overlooked – filing state taxes. Because each state has its own governing body (and with that, different laws and regulations), requirements differ based on where you lived before you moved abroad. Here are a few things you should know about state tax for expats if you’re living overseas.

When Would I Need to File a State Tax Return?

There are specific rules you’ll need to be aware of, depending on your home state. In some cases, you won’t need to file state tax for expats if you’re living abroad; in fact, a few states don’t even have state income taxes at all. Here’s how to know if you need to file:

1. Determine if you’re a resident of the state, or if the state considers you a resident for tax purposes. This would be determined by the following:

• You lived in the state at any point during the tax year.
• Your immediate family lives in the state while you’re overseas.
• You return to the state each time you return to the US to live.
• You maintain an abode in the state (a permanent place of residence).
• You keep your driver’s license or ID card or voting rights in the state.

2. Determine if you have income in the state:

• Income earned from working in the state is almost always taxable in the state.
• Other income generated from a state source – like pension/retirement income or government benefits – may be taxable if you’re a resident of the state.
• Residency requirements are determined by the individual state, but most states consider you a non-resident if you live outside the state for more than half a year.

Which States Are Income Tax-Free?

Fortunately, for some US taxpayers, state income taxes don’t exist. For expats, this is great news, because it means it doesn’t matter if you’re a resident of the state and receiving income generated in that state won’t be subject to state tax for expats. It’s important to note that despite the fact they don’t have income tax, these states still get their revenue through other sources, like property tax and sales tax. These states are:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington State
• Wyoming

Also note, New Hampshire and Tennessee only assess income tax on dividend and interest income.

Which States Require Expats to File Income Taxes?

Generally, most states only require you to file a state tax return if you lived in the state during the year and usually only tax income generated within the state (click here for links to the specific state website to learn more) . Sometimes, income from sources received while living abroad may be taxed in the state, such as retirement payments or investment income (interest and dividends). Be mindful of state sourced income when

planning your tax for expats, since that income could create a tax-filing requirement for you.

There are, however, four states with less clear rules – these are called “sticky” states because the requirements for filing a state tax return as an expat can be complicated and small nuances related to ending your formal residency can lead to a filing requirement. California, South Carolina, New Mexico and Virginia consider you a resident of the state if you have one or more of the following ties to the state:

• Property ownership
• State driver’s license or ID card
• Bank accounts or investment accounts held in the state
• Voter registration (even absentee ballots)
• Mailing address in the state (P.O. box or a relative’s house)
• Dependents remaining in the state (spouse or children)

All four of these states have very stringent residency definitions in comparison with other states and they tax worldwide income. You would need to report all income on your state tax return and pay taxes to the state, even if you didn’t live in the state during the year!

These four places consider moving abroad as a temporary leave of absence unless you can remove your ties to the state. That’s why it’s critical to properly sever ties before moving abroad, since these states only recognize a change to another state (not another country) as a change in residency. Things like closing or moving bank accounts, selling property and changing driver’s licenses to another state can help ensure you won’t end up paying state tax for expats on your income in these sticky states. There are certainly benefits of maintaining things like a US bank account when moving abroad, so moving it to a different state can help you avoid paying state taxes while enjoying the benefits of keeping a US bank account

As you can see, state tax planning can be complicated, so taking necessary precautions before moving abroad is important. Doing things like making state residency changes, moving your whole family with you and cutting as many ties to your state as possible are all ways to help prevent the need to file state taxes while living abroad. Because state taxes for expats can be complex, it’s a good idea to consult with an expat tax professional to get the expatriate tax assistance you need for determining your requirements.

Streamlined Certification Letter

The streamlined package consists of 3 tax returns, 6 years FBAR, and a personal affidavit (certification letter)

We are going to prepare the streamlined package for you, which consists of 3 years tax returns and 6 years FBAR. The final part of the streamlined package is a certification letter.

This certification letter is not included in our package because it is a personal affidavit and does not require tax calculations. It is the final part of the program and is instrumental in the IRS determining that your failure to file was not willful.

You can prepare it yourself, although we recommend using professional help. Our fee for preparing it is $300. Please let us know if you would like our assistance to prepare this.

Form 14653 

You can review the form here: Certification by US Person Residing Outside of the US.  In the last year, the form has become very personalized, so we ask that you write a paragraph covering the following:

• Provide a complete story about your foreign financial account/asset.
• Your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs.
• Explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it.
• And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions.

We will then tailor your story to comply with the IRS streamlined procedure guidelines for successful entry into the SP program. 

If you are participating in the Foreign Domestic Offshore Procedure, you will require form 14654. Our assistance with this form is $500.

Note - we do not assist with these forms if we are not preparing the rest of the tax package for you.