We live in a world where globalization is more and more pushed for. We might not care about moving from one country to live to another, but the bank accounts we leave in the former country of residence are more important than to simply not care.
As a US citizen, you couldn’t care less about your bank account in Canada or various other things that you have in other countries. But you should care, and we are going to tell you why.
Namely, tax plays a huge part if you have any kind of property in another country. If you happen to be a person that truly does, here are the things you should know regarding taxation on an international scale.
1. Filing for FBAR
A lot of US citizens happen to have a bank account in a foreign country. The United States doesn’t care why you have a bank account; all that matters is that you electronically file an FBAR.
FBAR stands for FinCEN Form 114 Report of Foreign Bank and Financial Accounts, and it has no minimum age for opening.
An FBAR is also required if a foreign citizen decides to live in the United States. This will determine and report on any accounts that the person has in the previous country of residence.
However, there are far more reasons as to why a US citizen would need to file FIBAR. Some of those include:
- If the person has previously resided in a foreign country and has not closed his/her bank accounts.
- If the person has previously worked in a foreign country and receives foreign pension income.
- If the person has happened to inherit an account from a relative from a foreign country.
- If the person has been granted access to a foreign account from a former foreign client, relative, and even an employer.
- If the person has invested money into foreign businesses.
There are many other laws regarding FBAR and this is just a general rundown.
2. Reporting Income and Assets
If you happen to have invested in assets or are receiving any income from any foreign countries, then you need to report those. This should be done on your annual tax return, and it is important that you don’t skip it.
Even if you own an asset work $1 or receive an income of $1, you have to report it here in the US.
People usually don’t report incomes from other countries because of fears of double taxation. Let us be clear on this, double taxation will not happen in most cases. If the foreign country happens to have the first rights to tax your foreign income, then you will receive a credit for any taxes you have paid.
While the case is generally very simple when reporting income from let’s say real estate, things get quite complicated in the case of ownership of foreign companies.
If you happen to fall into this category, then we highly suggest you contact international tax accountants Sanjay Gupta CPA.
3. You Have to File Taxes Even if You Don’t Live in the United States
If you’re a US citizen, it doesn’t matter if you live temporarily or permanently outside the US; you still have to report your income to the IRS.
This is because the US has a very, very, unique system of ownership taxation that disregards the location of where you live. Truth be told, it doesn’t matter if you live in Europe, Australia, and even Africa, you still have to report all of your worldwide income to the US IRS in the 1040 form.
Any US citizen living outside the US is subjected to the same tax reporting as any US-living citizen. However, there are some things that you should know in regards to this.
- All worldwide income is exempt from taxation if the person lives outside the US and if the person is paying his/her taxes in a foreign country. In this case, the person will get a credit for taxes paid in the set foreign country.
- Earned Income Credit cannot be claimed by a US person that lives outside the US.
- Any citizen that happens to marry a US citizen and lives in the person’s country cannot use the “single” filing status since the person is considered as “married for US purposes”.
- Any US citizen that receives more than $400 of freelance income per year might be subjected to pay taxes related to both Social Security and Medicate in the US as well as the country of residence.
- If a US person living in a foreign country comes to terms with the country of residence, then the person might be exempt from taxation.
- In the case of a child tax credit, US citizens are still eligible to receive it even if they don’t reside in the US. If you happen to not be aware of this, then you should contact your accountant immediately and start getting your child tax credit.
These are some of the laws regarding US citizens living abroad. However, things might soon change as new laws are going to be introduced by the President of the United States regarding international tax.
With these changes to the system comes a complete change to the system as well. Instead of the current ownership tax system, the US is predicted to move towards a residency-based taxation system, that the rest of the world happens to run on.
If this new system happens to take full force, then there will be new laws regarding international tax. Also, if this system happens to take into effect, US citizens residing outside the US will mostly have to pay taxes to the residing country.
The current taxation system is taking a toll on US citizens residing outside the US, so things are expected to change in the coming years.
Again, there are far more gray areas when it comes to US citizens living abroad. If you happen to be one, then we highly suggest you consult with a professional regarding the matter.