Who must file a U.S. tax return?
American citizens and green card holders are taxed on their worldwide income, regardless of where they live or where their income is derived. Whether or not an American taxpayer actually needs to file depends on their level of income and filing status, such as single, married filing jointly, head of household and etc. For tax year 2010, the income threshold is $3,650 if you are married filing separately, $9,350 for a single filer and increases to $18,700 for married couples filing jointly.
What happens if I don't file my taxes?
Depending on your individual situation and income level, you could be looking at anything from paying back taxes plus interest and penalties to a felony prosecution for tax evasion. There is no blanket answer to this question as everyone's situation is different, but it's clear that the IRS is more lenient on those who come into voluntary compliance and file their back taxes before the IRS discovers them.
What if my income level is less than the Foreign Earned Income Exclusion?
Even if your income from employment is below the exclusion amount of $103'900 for 2018, you must still file a tax return if your total earnings are greater than the income thresholds above. It is also important to keep in mind that the exclusion applies only to earned income. This means that income from pensions and social security, for example, does not qualify for the exclusion.
What about the double-taxation treaty between the United States and Switzerland?
The treaty has provisions in place to ensure that taxpayers will not pay tax twice on the same income. However, that does not mean that if someone pays Swiss tax on their income they will never pay U.S. tax. As an easy example, if someone pays income tax at a 15% rate in Switzerland and that same income would be taxed at 20% in the U.S. they will need to pay the 5% difference back to the U.S.
How can I reduce my U.S. tax burden?
There are provisions in place to help reduce or eliminate the amount of U.S. taxes that would otherwise be incurred by overseas taxpayers. Typical "tools" are the foreign earned income exclusion and foreign tax credit. However, depending on your overall situation there may be additional options such as itemizing deductions to reduce your taxable income or obtaining social security numbers or taxpayer identification numbers for family members in order to have a more beneficial filing status. Again though, there is no blanket answer for this as your individual situation will determine which options are open to you.
When is my tax return due?
Overseas tax filers have an automatic extension until June 15th for individual income tax returns. However, if tax is due it must be paid by April 15th in order to avoid interest and late payment charges. It’s also possible to make a prepayment by April 15th and file the tax return itself later.
Can I obtain an extension of the due date for my tax filing?
It is possible to receive an automatic filing extension until October 15th. In some cases, it may also be possible to receive an extension until December 15th.
What is the Report of Foreign Bank Accounts (FBAR)?
Americans and green card holders who have foreign (non-U.S.) bank or financial accounts with an aggregate value of $10,000 or more at any time during the year MUST file an FBAR to declare their ownership over the accounts. Generally, all bank accounts, securities accounts and 3rd Pillar accounts must be declared. These accounts must be declared even if you don’t own them directly but have signatory authority over them. The rules are complex and penalties for non-compliance are severe, beginning at $10,000 per year. Also, this form must be received by the Treasury Department by June 30th and there is no extension available.
Anything else I should know?
If you own, or have an ownership interest in a foreign corporation you may be required to file an information return to declare your ownership interest. Failure to file the form can result in a penalty of $10,000 per year.
If you received a distribution from a foreign trust or a gift of $100,000 or more from a nonresident alien (non-U.S. citizen or green card holder) you must file an additional form to declare the receipt of the distribution or gift. Unsurprisingly, the penalties for failure to file can be severe.
If you are liable for U.S. taxes (American or Green Card holder) you should not own non-U.S. mutual funds. These qualify under IRS code as PFIC’s (passive foreign investment companies) and ownership can result in increased filing requirements as well as very high effective tax rates when sold.
How do I get started?
If you are behind on filing your tax returns (or have never started) there are voluntary compliance procedures in place to get you caught up and you should speak with a qualified U.S. tax preparer to learn more about your options.
Please note that this is simply a rough overview to show you the system of Taxation of Americans an green card holders Abroad in a little more detail. The information contained in this article does not constitute advice and does not replace a visit to a qualified consultant under any circumstances.