Tax Filing for Americans Living Overseas

Last updated on December 16, 2013

Americans living abroad will now need to take extra care with their tax responsibilities because the IRS is focused on tax compliance of American taxpayers living overseas, as well as foreign financial institutions (FIIs) in countries with which it has struck a FATCA agreement. Taxpayers living overseas will need to report their income from all sources to the IRS and pay taxes on it. If the aggregate of their foreign accounts is more than $10,000 any time during a tax year, they are also required to file an FBAR. The IRS is interested in the sum total amount of all accounts. For example, if you have four thousand dollars each in three accounts, the total will be $12,000, making it necessary for you to file an FBAR.

FIIs will also need to register with the IRS and share certain information about the financial activities of their American clients with the IRS. The FIIs will be directly dealing with the IRS and not through their clients.

The IRS has been targeting tax evasion through FATCA for years, but its full impact will be seen in 2014. Every FII in countries with FATCA agreements will be required to begin reporting to the IRS starting next year. American taxpayers living overseas may also expect audits and reviews by the IRS.

Now is a good time to get back into tax compliance if taxes were not paid in the past. The IRS is running the Offshore Voluntary Disclosure Program (OVDP) that allows American taxpayers to get back into tax compliance with lower penalties and reduced possibility of imprisonment for tax evasion. When considering applying for OVDP, it is advisable to seek help from a tax professional.