Our CPA’s are here to answer your questions

Tax Questions

1. I earned less than the foreign income exclusion ($101,300 for 2016), do I still need to file a tax return?

Yes, you must file a tax return showing your earned income. You can then use the exclusion for that amount. If you do not file a tax return and the IRS contacts you requesting that you file, they may disallow the exclusion when you do file. Let Vagabond file your return, guaranteeing you don’t pay unnecessary tax.

2. Am I required to file state taxes?

Maybe. Vagabond can help determine whether or not you need to file a state income tax return and can calculate and file it for you.
When moving abroad, you should take the steps necessary in your previous home state to terminate your tax residence. If you do, no state income tax return is required and no state income tax is owed.

The requirements to terminate your tax residence vary by state. Virginia, New Mexico, South Carolina, Massachusetts, and California make it particularly difficult to terminate your tax residency. Be sure to check with your home state or discuss it with your Vagabond accountant.

3. Can I file a joint return with my non-resident, non-U.S. citizen spouse?

You can but you will subject your spouse’s worldwide income to U.S. income tax. Often it is advantageous to file “married filing separately”. Your Vagabond accountant can compare both scenarios and can explain which will work better for you.

4. Do I get an automatic extension of time to file my U.S. income tax return?

If you are a permanent resident in a foreign country on December 31, you receive an automatic extension of time to file your U.S. income tax return until June 15. However, any tax you owe is still due by April 15.

5. I am very behind in filing my U.S. income tax returns. What should I do?

Let Vagabond help you catch up. It is always advantageous to come forward voluntarily to file your tax returns and pay the tax that you owe. You may owe additional penalties and interest for late filing and late payment.

Expatriates often fall behind in filing their returns. The IRS offers many options to help you come back into compliance. Your Vagabond accountant can discuss each of these with you.

6. How many years of late returns am I required to file?

The answer varies but typically 3-6 years of returns will get you “caught up” with the IRS. It may be longer if you are trying to sponsor a spouse for U.S. citizenship.

You should discuss your goals with your Vagabond accountant. Your accountant can determine the number of years that you need to file and how to go about it. Some common methods are:

  • IRS Streamlined Program – 3 years of Federal Returns and 6 years of FBARs
  • Offshore Voluntary Disclosure – 6-8 years of Federal Returns and 6-8 years of FBARs
  • “Quiet Disclosure” – 3-6 years of Federal Returns and 3-6 years of FBARs

7. Do I qualify for streamlined filing?

The IRS has a program specifically for American expats who are behind on their tax filings. This new program allows taxpayers to get caught up by filing only the last three years of expat tax returns, as well as six years of Foreign Bank Account Reporting (FBAR) forms. All forms must be filed together with the Department of the Treasury.

Streamlined filing is intended for what the IRS deems “low risk” taxpayers. The IRS definition of “low risk” taxpayers is individuals who owe less than $1,500 in taxes each year and have no indication of significant tax planning, in addition to some other requirements.

This program is an amnesty for expat taxpayers to allow those that are delinquent to catch up. The program may not be permanent. Although there is not yet an end date for this program, we recommend that you take advantage of it now as the future is not certain. Our Vagabond experts will review with you to confirm that you meet the definition of low risk and will ensure that you have all of the required documentation to comply with the streamlined process. Let Vagabond help you get caught up now!

8. I keep hearing about FATCA and FBAR in the news. What do these terms mean?

FATCA stands for Foreign Account Tax Compliance Act. The act’s objective is to update U.S. taxpayers’ foreign financial assets. It targets taxpayers with foreign accounts who are not reporting their assets or not reporting them correctly. It requires U.S. taxpayers to report their foreign financial assets or face stiff penalties. It also compels foreign financial institutions to report financial accounts held by U.S. taxpayers. Your Vagabond accountant can help you determine if and what you need to report.

FBAR stands for Foreign Bank Account Report. U.S. persons are required to file FBAR if:

a U.S. person had a financial interest in or signatory authority over at least one financial account outside of the U.S.
AND
The aggregate value of all foreign financial accounts exceeds $10,00 at any time during the tax year being reported.

The U.S. government has become particularly vigilant in recent years and is pursuing taxpayers around the world to enforce compliance. The penalties can be high so let Vagabond help you determine what to file and to help you avoid paying unnecessary penalties.

9. Can I renounce my U.S. citizenship to avoid paying taxes?

Renouncing your citizenship may help you to avoid a future U.S. income tax liability, however this process requires you be completely caught up on all U.S. tax obligations. Vagabond can insure that you have all of the required income tax documents should you decided to proceed.
Beyond taxes, there many other considerations and steps to be taken when considering renouncing your citizenship. For additional information on how to proceed, please consult your closest U.S. embassy.

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