Americans and Taxation with IRS

Every expat American must obey two things that Uncle Sam does not frown. This will page will tell you all the basics.

  1. annually file a tax return (this does not automatically mean paying taxes),
  2. annually report your foreign bank accounts to the Department of Treasury via form TD F 90-22.1

This might sound stupid simple and it is but many – too many – Americans are ignorant about these requirements. Why should you submit tax returns? First and foremost, it's the law. If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. It's that simple. Whether or not you end up paying tax on that income is irrelevant - the income itself must be reported. We might as well end the list right here but there are more reasons that actually make filing U.S. Tax Return advantageous to you.

What is the concept behind this? While every other country generally levies taxes based upon your residence in that country. The United States, next to exclusively Eritrea,  levy taxes based on citizenship or for non-Americans on green card. That is why.

As you have probably heard, the US government has started to actively pursue its citizens who have unreported foreign bank accounts. Congress has passed numerous laws that make it a criminal offense with draconian fines and even a threat of a jail sentence. IRS allows US citizens to come clean and report these foreign accounts under either the quiet disclosure or an occasional Offshore Voluntary Disclosure Initiative. However - whichever program you follow, you must declare that all your past due tax returns are filed.

If you happen to live in different country, it is only a matter of time before the IRS will get there. US debt is exploding and the government is doing all it can to improve collection. The government knows that over 6 million Americans are living abroad and only approximately 500,000 file income taxes abroad. Their goal is to increase that number by any means.

 

Related Articles:

FATCA and What it Practically means for your German Bank Relationship from the German Legal Perspective

Effects incurring from a Revoked or not Renewed Passport for an American in Germany

Taxation of a Salary for an Employer active in the USA and Germany