If you’re an American living abroad, you may very not have known (or forgotten) about your obligation to file your annual stateside taxes. Along with 1040s, expats may have other obligations - filing FBARS for foreign bank accounts which exceeded $10,000, FATCAS (with 1040s) for financial assets exceeding $200,000, as well as if you own your own corporation abroad, the crucial form 5471.
Getting into expat tax compliance can be intimidating. But don’t freak out, there are many avenues of relief:
- Foreign Earned Income Exclusion (FEIE) - The FEIE of 2022, excludes $112,000 of your income - a big chunk that won’t be taxed in the U.S.
- Foreign Tax Credit (FTC) - If you are in the upper income bracket, north of the FEIE amounts above, you will also avoid double paying taxes in US with some limitations by using the FTC.
Penalties for late filing?
1040s with no balances due won’t be penalized (if you have balances we can do a penalty waiver or try to get you a settlement!). But be aware, late FBARS and 5471s could incur penalties.
We have two approaches to late filing penalties for FBARS and 5471s:
- Just do them! Most people who file the six years of FBARS usually avoid owing penalties entirely if they indicate that they were “ignorant of the law.”
or
- Streamline Filing Compliance. Filing late 5471s are notoriously ridden with big penalties (like five figure amounts $!) and due to this, the streamline procedure is the most prudent one. You will file six years of FBARS, three 1040s and three 5471s within this program. And in most instances, you will be free of penalties as long as you demonstrate no willful neglect and ignorance of the law.
