Income from Abroad is Taxable
If you are a U.S. citizen or a resident alien with offshore businesses and foreign bank or investment accounts, you are required to comply with certain tax filing requirements. What are these requirements? And how you could comply with them? Read our guide to help you answer these questions.
Do you know that if you are a U.S. citizen or a resident alien, you are required to report in your tax return all income that you receive both from within the country or abroad, as well as any foreign or investment accounts?
And that you are subject to the same income tax filing rules wherever you are? By definition, a U.S. person refers to a citizen or a U.S. resident or any domestic legal entity.
Non-payment of taxes or incorrect payment of taxes from foreign sources has legal consequences. The IRS hunts and punishes people for hiding offshore income or assets and for evading taxes. If you are found guilty of an offense, you could be liable to pay additional taxes, penalties and other add-ons, even imprisonment.
Foreign or Investment Accounts Reporting
The Bank Secrecy Act requires a U.S. citizen or a resident alien to disclose foreign bank or investment accounts. The investment accounts referred here include those held in mutual funds and unit trusts. Excluded in the definition of offshore accounts are accounts in the U.S. military banking facility. The Report of Foreign Bank and Financial Accounts (FBAR) is needed for those who have financial interest or authority over one or more account outside the country whose total value is more than $10,000 at any time during the calendar year. This holds true except for officers or employees of a bank or a publicly traded corporation that are federally-regulated.
Complying with FBAR Filing Requirements
To comply with FBAR filing requirements, you must submit to the U.S. Dept. of Treasury a completed form TD F 90-22.1 on or before June 30 of the following year that you have the account. This form can be obtained from the Web site of the IRS or the Financial Crimes Enforcement Network. It is not to be mailed with the filer's income tax return because it is not considered as such. In fact, unlike federal income tax returns, FBAR filings could not be extended.
Non-compliance with FBAR Filing Requirements
Non-compliance with FBAR filing requirements is subject to civil and/or criminal penalties that could merit at most more than $100,000 or five years imprisonment. For willful violation, the maximum civil penalty is whichever is the greater of $100,000 or 50% of the remaining amount in the account when the violation occurred. The penalty for non-willful violation could be as high as $10,000 for each offense. Criminal violations carry a fine and/or five years imprisonment.
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