Few people know that the United States is the only country (besides Eritrea) that taxes its citizens who live and earn money abroad. American expats have been required to file taxes for decades. However, since 2010 the Internal Revenue Service (IRS) has pulled foreign banks on board to enforce this. In 112 countries worldwide, banks have agreed to report the accounts of American citizen’s to the IRS. If you’re an American living abroad it’s now more important than ever to keep up with your tax filing.
In Austria, the change has not only meant an increased workload for banks, but also confusion over the requirements for Austrians with green cards, dual citizenship or shared accounts with an American spouse.
So what does this mean for me?
3 tax tips for Americans living in Austria
- You have to declare joint accounts on your FBAR, even if the joint account holder is a nonresident alien. And you must disclose the identity of the joint owner.
- If you are a U.S. citizen or green card holder, and your minor children are as well, remember that your minor children have an FBAR filing requirement if their foreign accounts had a balance of $10,000 or more. Also, if you sign on your children’s foreign accounts, their account balances go toward your $10,000 ling threshold, and you must disclose their accounts on your FBAR.
- Many Americans resident in Austria have invested in various Fonds through their banks. Fonds are considered Passive Foreign Investment Companies (“PFIC”) by the U.S. and require the ling of Form 8621 with your tax return. Additionally, if certain elections aren’t made, PFIC taxation can be so harsh that it could easily wipe out any gain on the sale.
If someone hasn’t been filing their taxes what can they do?
The IRS has developed several amnesty programs over the past few years to help people get back in to compliance. They have developed programs to fit most everyone’s needs. Programs range from those that carry no penalty for people who non-willfully failed to comply, to programs that carry a stiff penalty for those who will fully failed to comply. Even the programs with penalties are generally a better option than waiting around for the IRS to come af- ter you. Once found, you generally become ineligible for any of the amnesty programs. You are almost always better off getting into compliance voluntarily rather than having the IRS force you. With banks, and other foreign financial institutions now reporting U.S. account holders’ information to the IRS pursuant to FATCA, it is no longer a question if you will get caught, but when.
What are the risks of expatriating and not being tax compliant?
Many non-tax compliant U.S. citizens rush to expatriate i.e. renounce or relinquish their U.S. citizenship or abandon residence status, thinking this will solve their tax problems and failure to comply. This creates two problems. First, they were still a U.S. citizen prior to expatriation and it doesn’t retroactively alleviate them of their tax responsibilities to the IRS. Second, not being tax compliant for ve years prior to expatriation causes you to be classified as a covered expatriate. This has some very negative tax consequences; there is an exit tax and your U.S. heirs will be subject to gift and estate tax at the highest rate on any gifts or inheritances received from you.
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