It's that time of year again- tax time. I have heard odd excuses for why US citizens don't have to file tax returns. Here are a few myths I have heard:
"Because I pay more Canadian Tax I don't have to file a US tax return"
BUSTED- almost everyone living outside the US needs to file a US return. If you live in Canada, or the UK, the tax you pay to the CRA, or HMRC will be greater than the tax you pay to the IRS. Generally this means that you wont have to pay anything to the IRS. But, you still have to file.
"If I earn under $100,000 outside the US, my income is exempt from tax, so I don't need to file"
BUSTED- There is the Foreign Earned Income Exclusion which excludes approximately $100,000 of income on your US tax return. This exclusion is good for people who pay less tax abroad than they do in the US, one good example country here would be the United Arab Emirates. If you don't live in a gulf state, or a country with very low income tax, a better way to take care of your US tax obligation would be to claim the foreign tax credit.
I have been travelling for the US with unfilled returns for years with no problems at the border.
BUSTED - The IRS is more frequently using the US State Department, as well as Customs and Border Protection (CBP) to help enforce tax laws.
How the IRS uses the State Department:
The IRS is using the State department to assist IRS auditors, and collectors in locating difficult to locate taxpayers. Through the State department, the IRS can retrieve port of entry information from passports to aid agents in locating US citizens abroad.
How the IRS uses Customs and Border Protection:
If you are considered "Seriously Delinquent" with your US taxes, the IRS can have CBP flag your passport, and you may have your US passport revoked. View the blog: "Can the IRS revoke my passport?" for more information.
If you have unfilled returns, no need to worry- at US tax resources we have you covered. If you qualify, you may be eligible for the IRS’ Streamlined Foreign Offshore Procedure. No matter how far you are behind – you only need to file three years of past due tax returns and six years of Foreign Bank Account Reporting (FBAR) forms. No penalties will be assessed for the late filing of the tax returns and FBAR’s.
Contact us to get the process started to get you back into Uncle Sam's good graces.
About the author: Ian Davis is currently Canada’s only former IRS auditor; and Founder and President of US Tax Resources Inc. A Canadian firm whose mission is to provide stress relief from US tax through simple and affordable tax preparation and advisory services.
Ian is a dual US/Canadian citizen living with his family in Canada.