Announcements

Jul 18

IRS Tax Tip Reminds U.S. Citizens/Resident Aliens Living Abroad to Know Their Tax Obligations

July 18, 2023 By: Dorot & Bensimon PL

The IRS has issued a recent tax tip on reporting foreign income and filing a tax return when living abroad. ( IRS Tax Tip 2023-36 )

 

The worldwide income of U.S. citizens and resident aliens, including wages, unearned income and tips, is subject to U.S. income tax, regardless of where they live or where they earn their income. The IRS explains that these individuals have the same income tax filing requirements as U.S. citizens or resident aliens living in the United States.

 

An income tax filing requirement applies even if a taxpayer qualifies for tax benefits such as the Foreign Earned Income Exclusion or the Foreign Tax Credit , which reduce or eliminate U.S. tax liability. Such tax benefits are available only if an eligible taxpayer files a U.S. income tax return.

 

See Checkpoint's Federal Tax Coordinator ¶O-1100 for more on the Foreign Earned Income Exclusion and Checkpoint's Federal Tax Coordinator ¶O-5500 on the Foreign Tax Credit.

 

Extension to file but not pay. A taxpayer has an automatic two-month extension to June 15, 2023, if both their tax home and abode are outside the United States and Puerto Rico. Even with an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 18, 2023.

 

Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15, 2023. The IRS advises taxpayers to attach a statement to their tax return if one of these two situations applies.

 

Foreign account/asset reporting requirements. In addition to reporting their worldwide income, federal law requires U.S. citizens and resident aliens to report to the IRS their foreign assets, including foreign financial accounts. Most affected taxpayers attached  Schedule B (Form 1040) , Interest and

Ordinary Dividends, to their federal tax return. Part III of Schedule B asks about the existence of foreign accounts such as bank and securities accounts and usually requires U.S. citizens and resident aliens to report the country in which each account is located.

 

Some taxpayers may also need to attach Form 8938 , Statement of Foreign Financial Assets, to their return to report specified foreign financial assets if the total value of those assets exceeds certain thresholds.

 

Requirement to report foreign assets to the Treasury. U.S. persons with an interest in or signature or other authority over foreign financial accounts where the total value exceeded $10,000 at any time during 2022 must also file a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR), with the Treasury Department.

 

The deadline for filing the annual FBAR report is April 18, 2023. U.S. persons who miss the April deadline have an automatic extension until October 16, 2023 (as October 15 is a Sunday), to file the FBAR.

 

For more information about filing Form 8938, see Checkpoint's Federal Tax Coordinator ¶ S-3650.1. For more information about filing an FBAR, see Checkpoint's Federal Tax Coordinator ¶S-3650.

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