With all of the talk about President Trump\u2019s tax changes and the filing deadline of April 15th fast approaching, I wanted to publish an article about some of the Offshore Filing Requirements for 2018. The article covers the top 3 forms that expats must generally file, based on my experience living and working abroad for the past 23 years. These common forms are the FinCEN 114 (formerly the FBAR TD F 90), the 8938, and the 5471.<\/p>\n
Several other forms are also described below. These are also fairly common for expats and offshore business owners. They include some of the standard forms for corporations, trusts, as well as the reporting of certain international transactions. Please take a minute to review your U.S. filing requirements for U.S. citizens living, working, and investing abroad right now. The penalties for failure to file are severe, so make sure that you get it done.<\/p>\n
Here’s the disclaimer.<\/strong> <\/span>\u00a0\u00a0I am not an accountant. \u00a0\u00a0I am not a tax lawyer. \u00a0\u00a0This is not tax advice. \u00a0\u00a0This is an article about my experience, what kinds of forms I file, and what forms many friends, associates, and colleagues of mine file on an annual basis. Your situation may be different, so please check with a tax lawyer or accountant to verify any and all filing requirements that you may have. At the end of the article is a link to some professionals who may be able to assist you with your responsibility.<\/p>\n No relief in sight.<\/strong> There was a time we thought the offshore filing requirements would be eliminated when Trump changed the foundation of international tax law for corporations. Where U.S. corporations with divisions abroad were taxed on their worldwide income, they are now only taxed on U.S. source income. That is, to say, the United States moved from a worldwide tax system for multinationals to a residency-based tax system.<\/p>\n We had hoped that individuals might also move to a residency-based system. That those of us living abroad would no longer be taxed on our worldwide income<\/strong>. That we would be placed on the same footing as large corporations. But, this didn\u2019t happen. The bottom line for 2018 is that there is no change to the filing requirements for individuals.<\/p>\n The United States tax system still operates on the principle that U.S. citizens and residents are taxed on their worldwide income. To enforce these laws, the IRS has imposed various filing obligations backed up by draconian penalties for those who fail to comply.<\/p>\n Below is a summary of the most common filing requirements and possible penalties. None of these have changed under President Trump\u2019s tax system.<\/p>\n Also, at the end of the column this week you\u2019ll read a note from a reader about the Trump tax article and some follow-on thoughts. You\u2019ll also see some links to stories that readers sent about their experiences on Little Corn Island, Nicaragua. The reader’s response was fantastic. It was great to see some photos and storyboards of other folks\u2019 trips to the island. Hope that you enjoy them, too.<\/p>\n International Bank and Brokerage Accounts<\/strong><\/p>\n One of the most critical filing requirements is the Report of Foreign Bank and Financial Accounts. Anyone who is a signor or beneficial owner of a foreign bank or brokerage account(s) with more than $10,000 must disclose these accounts to the U.S. Treasury. This rule also requires anyone with multiple accounts with an aggregate average balance of all accounts above $10,000 to file as well.<\/p>\n The law imposes a civil penalty for not disclosing an offshore bank account or offshore credit card up to $25,000, or the greatest of 50% of the balance in the account at the time of the violation, or $100,000. Criminal penalties for willful failure to file an FBAR can also apply in certain situations. Note that these penalties can be imposed for each year.<\/p>\n In addition to filing the Foreign Bank Account form, the offshore account must be disclosed on your personal income tax return, Form 1040, Schedule B.<\/p>\n FYI… the name for this form changed from TD F 90-22.1 to FinCEN Report 114 in 2013. This, and the fact that those of us in the business still refer to it as the FBAR, has caused some confusion around the web.<\/p>\n When to File<\/strong><\/p>\n You should file your FBAR and most foreign returns (described below) with your personal return on April 15. If you have a foreign trust, Forms 3520 and 3520-A are due on March 15.<\/b><\/p>\n You might choose to hold your foreign structure in a U.S. corporation. This moves most of the reporting off of your personal return and on to the corporate return. In this case, the foreign entity forms are due March 15 and are attached to the U.S. corporation\u2019s Form 1120.<\/p>\n If you extend your personal return using IRS Form 4868 to October 15, most foreign forms are also extended. To extend a foreign trust or a structure in a U.S. corporation, you need to file IRS Form 7004 by March 15.<\/p>\n Corporate and Trust Filing Requirements<\/strong><\/p>\n There are a number of filing requirements for international corporations and trusts. Failure to file the required returns may result in civil and criminal penalties and may extend the statute of limitations for assessment and collection of the related taxes.<\/p>\n I hope you have found this summary helpful. Again, it\u2019s meant only as a review of the basics. If you are in need of an international tax expert, please contact us here <\/b><\/a>for a referral list of tax professionals who can assist you in the correct preparation and filing of all the forms you are required to file.<\/p>\n READER FEEDBACK – TAXES:<\/strong><\/span> Also included this week is some reader feedback from the last couple columns. The first is a response to the tax article last week from a reader and business owner. He says,<\/p>\n Hi Mike,<\/em><\/p>\n Just got back from a mini-tax seminar with 400+ people trying to make sense of the new tax bill. I think your advice for those who do not own a business stateside is pretty much dead on. There are winners and losers in the new tax bill, but overall, I doubt that it changes your mind about becoming an American living abroad.<\/em><\/p>\n If you own businesses, well\u2026.\u00a0 There\u2019s some work to be done.<\/em><\/p>\n At the current 30-day view, some businesses are going to need to look at a different way of being a \u201cpass-through\u201d entity to maximize the new and difficult QBI (Qualified Business Income) rules and regulations. This was created to regain the \u201cgap\u201d between corporate rates and LLC\/ S. Corp. rates. It\u2019s worth it for many. But it\u2019s a different world.<\/em><\/p>\n And for those who had aspirations of selling their business(es) in the coming 8 years, you will need to plan carefully for that inevitability. A longer-term view of capital appreciating in a C Corporation could be a good strategy when you go to sell it as a stock sale. The rules for asset sales have changed, and it\u2019s not favorable, so the old game of assets + goodwill may not work anymore. We are taking a step back as an M&A acquirer and making sure our strategy is sound.<\/em><\/p>\n The best advice for business owners:\u00a0 Next time you are home, plan a day with your CPA. Or two. It will be well worth it.<\/em><\/p>\n –\u00a0 \u00a0 Robert \u00a0J. \u00a0Nashville, TN<\/em><\/p>\n READER FEEDBACK \u2013 CORN ISLAND \u00a0<\/strong><\/span><\/p>\n We received a few responses from folks who enjoyed the Little Corn Island Piece by Amanda Cobb. Take a look here at a couple links to stories that readers sent in about their experiences on Little Corn Island, Nicaragua. One is a family vacation over Christmas and the other a volunteer group from Wisconsin and their work on the island. Both are great follow-ups to last week\u2019s column and add a depth of vision to the story Amanda told of her time there with the Cobb family.<\/p>\n Kim\u2019s Christmas Vacation on Little Corn<\/a><\/span><\/p>\n\n
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