Catching up with US tax returns
It’s more common than you think, you have fallen behind on filing your US tax returns. Below we will go through all the steps, there is a simple and easy way to catch up.
IRS amnesty – Streamlined Filing Procedure
If you have 3 or more tax returns to be filed, the streamlined filing procedure may be the perfect way for you to catch up and stop any penalties.
There are 3 sections that we’ll go through below and you can use these for original or amended tax returns. The IRS also has catch up plans if you are living in the US (streamlined domestic offshore procedure) and living outside (streamlined foreign offshore procedure).
1 – Tax returns for 3 years
The most important thing is that you report all income pay any taxes due. Although, if you are an American overseas, it is likely there will be no tax to pay.
Taxpayers residing outside the United States will use the Offshore Voluntary Disclosure Program and file the last 3 overdue federal tax returns (form 1040).
Even though you are living outside the US, you are still required to file and declare worldwide income.
You will have 3 federal tax returns, reporting all your income around the world – even if that income has already been taxed overseas.
Normally you won’t need state returns if you are living outside the US, but some states like California will still require state returns for a number of years after you leave.
2 – Disclosure document (form 14653)
You will need to explain your failure to file to use the streamlined program. There will be a section to cover how many days you have spent in the US in the last 3 years and also the main reason why you have not filed. The main benefit here for the streamlined filing compliance procedures is that not knowing that you needed to file is a completely valid excuse.
You need to show that your conduct is non-willful – non-willful conduct is conduct that is due to negligence or a good faith misunderstanding – the most common reason being that you didn’t know or realize you needed to keep filing US returns.
The IRS will want to know if you were born in the US, or when you moved there. If you are an expat abroad, then you will need to state the day you left the US.
You will also need to confirm that you are up to date with your taxes in your home country.
Finally, if you have any accumulated funds, there will just need to be a brief explanation of where these came from – friends, family, employment, inheritance etc.
3 – Foreign Bank Account Reporting (FBARs)
As part of the streamlined foreign offshore procedures, the IRS will ask for the last 6 years of FBARs. These FBARs cover your foreign financial assets – everything outside of the United States.
Delinquent FBARs normally carry a penalty of $10k per year – the benefit of the streamlined filing process is there are no penalties!
You will need to declare all your foreign accounts and as mentioned above, there are no FBAR penalties.
There are 3 sections to the FBARs:
- Accounts in just your name
- Accounts in joint names – you don’t disclose the other person’s name
- Accounts where you are signatory (normally your children, where you have power of attorney or if you run your own business)
All financial accounts will need to be disclosed if the total balance is $10,000 or more during the year (January to December). This includes current accounts, savings accounts, investments, stocks, shares, bonds, funds, pensions – any financial account outside the US.
Summary
If you are worried about tax and penalty issues – the streamlined filing procedure really is the best way for your catch up, provide the IRS with the required information returns including FBARs and a statement to say you will continue to file US tax returns and FBARs in the future.
Next steps
Bambridge Accountants specializes in helping US expats and citizens catch up with their overdue tax returns. We offer fixed fees, so you know exactly what the cost is in advance and there are no hidden surprises.
- You can call us to go through any queries +44 (0)20 3797 1432
- Email – [email protected]
- Offices in London and New York if you want to come in
- Secure document portal, so you can upload your documents in a safe way and we can work remotely – we have clients all over the world
We are qualified Enrolled Agents and offer a friendly service – you will already be worried about taxes, we’re here to make the process as smooth and gentle as possible.
We have over 10 years of experience helping US citizens to catch up with their taxes.
