Retirement is probably every working taxpayer’s dream to be but the idea of a perfect retirement can be a little complicated if you want to live overseas. Although it’s natural for those who have millions of dollars to hide and keep their money overseas the laws are stricter now. The government used to not take tax evasion seriously until the financial crisis and the Congress passed the 2010 Foreign Account Tax Compliance Act commonly referred to as FATCA right after. It works by submitting two reports: the foreign country report on the assets that the U.S account holders have and the account holders, in turn, report to the IRS the money they have in their foreign bank accounts every year when filing their tax return. Some people are not happy with FATCA but whether they like it or not, the main goal is to eliminate big-league tax evaders hiding their money offshore.
Failing to perform due diligence before moving overseas especially when you’re already aware of the tax laws but choose to ignore them, can cause you some serious tax repercussions. It’s a good idea to learn more about the countries where you’re planning to retire in order to find out about the tax implications before you make any decision.
Consider some of these key points when deciding to retire abroad to avoid IRS penalties.
Small or Big Accounts Has To Be Reported
It’s usually the ones who are not doing anything wrong that get caught and suffer IRS consequences because of how wide the scope of the law is. There have been individuals who faced IRS audit and faced stiff penalties for neglecting a small but significant part of their tax return. Regardless of how much you have in your foreign bank account, it must be reported. There are tax programs that automatically enter “NO” to Schedule B when asked whether you have a bank account in a foreign country. The government must know if you have this account no matter how small. Here’s a quick fact: having an account is not a problem, not disclosing it is. Once you encounter problems with the IRS and face massive penalties, the issue can only be solved with the help of a lawyer experienced in resolving tax problems for people living overseas.
Americans Living Abroad Must File
The requirements needed to file your tax return depends on how much income you earn and how much assets you possess. It doesn’t matter where you live, if you pay foreign taxes or if the U.S has a tax treaty with your country of residency, all Americans living overseas must file a U.S tax return.
.
You will be required to submit forms for foreign earned income exclusion or foreign tax credit form aside from your Form 1040.
For single taxpayers residing in New Jersey for example, and has a U.K bank account worth more than $50,000, a Form 8938 and the FBAR disclosure must be filed for foreign bank and financial accounts.
It’s always best to be scrupulous when reporting your tax and the requirements you need. If some of the reasons why you’re returning overseas are the expensive cost of healthcare in the U.S, taxes and other costs, then you definitely don’t want to deal with penalties from the IRS living abroad.
Find a Trusted Tax Professional
It’s best to get help from a tax professional who is experienced with FBAR rules. With a professional’s help, you can decide what you need to disclose to the IRS to make sure you don’t get in trouble. A U.S citizen should not keep their worldwide income a secret. Everything must be disclosed. If you inherited a large bank account somewhere and you didn’t report it, you’ll soon end up paying a fortune of penalties even if you use a good law firm. The IRS will never think anything is too small as the form needs your report of any assets and not any amount of assets.
Almost all developed countries agreed to comply with FATCA. You may want to check if the country you live in participates in it for a heads up.
