Income from Abroad is Taxable

We wanted to remind you that with a more than 90% conviction rate and substantial penalties for noncompliance, it is more important than ever to keep current with your U.S. tax filings.  This doesn’t only mean your income tax returns, but also your FBAR and FATCA reporting.  The IRS and its international equivalents actively pursue tax evaders and aggressive tax planning is investigated in most countries. In addition to interest and penalties, the failure to report and/or pay taxes on your foreign accounts and income may even be punished as a crime.

Reporting Foreign Accounts

There are two reporting requirements for foreign accounts

FBAR – The Foreign Bank Account Report (FBAR) must be filed if your total foreign accounts total $10,000 or more at any time-even for a day. You must also file an FBAR if you have signature authority over a foreign account that belongs to another individual or entity and exceeds $10,000 (e.g., you sign checks for your employer, relative, friend, or an association).

FATCA – The Foreign Tax Compliance Act (FATCA) must be filed if:

  • You live in the U.S. and your aggregate foreign holdings total more than $50,000
  • You live abroad, are single or married filing separately, and your aggregate foreign holdings total more than $200,000 at year end or $300,000 during the year
  • You live abroad, are married filing jointly, and your aggregate foreign holdings total more than $400,000 at year end or $600,000 during the year

If your foreign holdings exceed any of these thresholds, we highly recommend consulting an expert in international tax planning.

Paying Income Tax

Regardless of where you live and where your assets are, if you are a U.S. citizen or resident or green card holder you must pay tax on your worldwide income.  Note, however, that if you live and work abroad, you should be able to claim the foreign earned income exclusion-and not pay income tax on part of your earned income (this figure was $95,100 in 2012 and $97,600 in 2013).

You may also reduce your U.S. tax liability by claiming a foreign tax credit or deduction for foreign taxes paid because you don’t pay double tax, you only pay the tax of the higher taxing jurisdiction.

Social Security Taxes

The U.S. has bilateral social security agreements with some countries that prevent the taxation of employees or self-employed individuals and multinational companies under two social security systems.  These countries are:

  • Japan
  • Luxembourg 
  • Netherlands
  • Norway 
  • Poland 
  • Portugal 
  • Slovak Republic
  • South Korea
  • Spain 
  • Sweden 
  • Switzerland
  • United Kingdom 
  • Australia
  • Austria 
  • Belgium
  • Canada
  • Chile
  • Czech Republic
  • Denmark
  • Finland
  • France
  • Germany 
  • Greece 
  • Ireland 
  • Italy 

U.S. citizens and green card holders located in other countries may be subject to double taxation for social security.

Protection from criminal prosecution and hefty penalties and fines

The tax law firm of Moskowitz, LLP has tremendous success with its clients avoiding criminal prosecution, and hefty penalties and fines imposed by the IRS. If you earn income abroad and/or have offshore accounts, it is crucial to secure competent and experienced tax representation with the necessary experience in international taxation.