Are you required to file for US tax returns and FBAR?
Whether you are a US citizen who lives at home or abroad, you may be obliged to file a Federal income tax return by the deadline (15th April) if you earned more than the threshold income for the year. These thresholds are the same for citizens who lived in the US and abroad during the tax year.
The thresholds for 2016 are:
|Under 65||65 or older|
|MFJ (Married Filing Jointly)||$20,700||$23,200|
|MFS (Married Filing Separately)||$4,050||$4,050|
|Head of Household||$13,350||$14,900|
(If you are self-employed, the threshold for filing a return is $400)
Expats are required to file an FBAR (Foreign Bank Account Report) for the year if they held more than $10k across all their bank accounts outside the US during the year.
The Streamlined Procedure
There are many expats who are unaware that they are obliged to file a US tax return and have therefore failed to meet the filing deadlines. In 2012 the IRS created the Streamlined Procedure specifically for these people, in order to bring them back within the US tax filing system.
One of the biggest incentives of this program is that the IRS will waive any late penalties, incurred in filing late tax returns and FBARs, for those who qualify to submit their returns under this program.
In order to be eligible to submit returns under the Streamlined Procedure, there are certain conditions that need to be met
- A failure to file was due to non-willful conduct (e.g. the taxpayer was unaware that there was an obligation to file)
- The taxpayer must not be under investigation by the IRS Criminal Investigation
- The IRS must not have launched a civil examination of the taxpayer’s returns for any taxable year.
What does the Streamlined Procedure entail?
The taxpayer needs to:
File the last three overdue tax returns
File the last six overdue FBARs
Submit a disclosure stating that the failure was non-willful
Pay any tax due with interest with the submission of their streamlined tax returns.
After all returns and FBARs have been submitted under the Streamlined Procedure, the taxpayer will be expected to file their tax return and FBARs (if required) annually.
Avoid the penalties
The current penalty for failure to file a US tax return is 5% of the taxpayer’s unpaid taxes per month, up to a 25%maximum penalty. If you file more than 60 days after the deadline you will pay the smaller of $135 or 100% of your unpaid tax.
The maximum penalty for the non-willful failure to file an FBAR is currently $10,000. Therefore, it is in the interest of those taxpayers who have fallen behind with their tax returns and FBARs to utilize the Streamlined Procedure offered by the IRS in order to avoid these heavy penalties.
The IRS has the power to end the Streamlined Procedure program at any time, without notice. Therefore, anyone looking to take advantage of the IRS’ offer should submit their late returns under the program as soon as possible.
This is one of a series of articles from Bambridge Accountants who with thousands of happy clients and over 10 years experience have US expats choose Bambridge Accountants.