AS A US CITIZEN earning more than $5,000, you should file an individual tax return reporting your worldwide income every single year. This applies to all U.S. Citizens living anywhere in the world…US or abroad.
The United States is the only country that has a tax filing requirement based on citizenship. All the other countries base tax filing and payment on residency. This is the basis of all the global tax filing confusion.
If you are one of the many, who have not filed since they moved offshore, there is a 6 year statute of limitations for those who owe no tax, which increases to 10 years if you owe money and have not paid. A statute of limitations is basically and IRS regulation that limits the time the government has to request filing and payment of taxes. So if you owe the IRS tax dollars from the year 2003 or prior…you are off the hook. Anything after that, they can and will use all their powers to collect.
Filing does not always generate tax. Most American Expat Tax Returns are informational and report zero taxable income. How is that possible? Simple…the first $95,000 (depending upon the year in question) comes to you federal income tax free, whether or not you paid tax in your “home” country.
If you paid tax in the country you reside, you are also entitled to a foreign tax credit…so that you will usually not pay tax twice on the same income.
To receive the foreign income exemption, you must meet a physical presence test of 330 consecutive days off shore, within the time frame that the tax returns are due, which includes the extensions.
Although April 15th is the normal tax due date, if you are an American Expat you have an automatic extension to file until June 15th. If you owe money, however, interest starts accruing as of April 15. The extensions only relate to filing, not paying …so you may consider filing the extension and paying something to the IRS by April 15. If you owe no tax and need longer than June 15 to file, you can extend to the October 15th final due date by filing a form 4868. If you need to extend later than that to meet the physical presence test, file a form 2350 to have until the end of November to file.
Our US tax laws are not easy to understand. Make sure you are following the letter of the law by seeking out professional help and contacting us today!