What happens if you realize you should have been filing US expatriate taxes, but failed to do so for one or more years? Fortunately, it’s never too late to get caught up! If you’re wondering where to begin, check out these four questions and answers that will help guide you through the process!
1. I haven’t filed, but I also haven’t heard anything from the IRS – should I bother to file a tax return?
The truth is, if you meet the filing threshold, you should file an expatriate tax return. Even if you feel you’re a ‘small fish’, don’t owe US expatriate taxes or your income barely exceeds the threshold, the IRS has the ability to exercise maximum penalties for your failure to file.
It’s worth noting, though, that the IRS tends to be more lenient on those who voluntarily come forward to report their delinquency – so in short, yes, you should always file a tax return if you meet or exceed the filing threshold.
2. It’s actually been years since I filed and I don’t know where to begin – help!
It’s not uncommon for Americans working overseas to realize down the road that they should have been filing a US Tax Return. If this is you, a good place to start is by talking with an expat tax professional to determine how many years of US expatriate taxes you’ll need to file and the type of documents and information you should gather. You will need to show your expatriate status for every tax year you need to get caught up.
In some cases, you may owe penalties for late filing or failing to pay taxes on time, but this is generally only if you owed money on your tax return (which causes interest and penalties to accrue on underpayment).
3. How many years of late returns should I file?
The number of years for which you’ll need to file taxes depends on your individual situation.
- In most cases, the IRS will consider you caught up once you file three to six years of late US expatriate taxes.
- Trying to sponsor a spouse for US citizenship? Up to eight years of tax returns may be required in order to prove your ability to support your spouse as a US citizen.
- If getting caught up to prove financial merit for something like a loan application, three years is generally enough.
Ultimately, every situation differs – that’s why it’s so important to discuss yours with an expat tax expert!
4. What documents should I have on hand to start the filing process?
Having tax returns from previous years can prove to be the most helpful documentation; however, as a late filer, you may not have these available. Don’t fret – your US expatriate taxes can be completed using statements of income, capital gains, interest earned, mortgage interest paid, student loan interest paid, housing expenses, dependents and more. Have a local tax return? That is a great place to begin! You can check out a list of documents needed for tax prep here.
5. Can I e-file late expat tax returns?
Yes, if you’re filing 2014 or 2015 late tax returns and aren’t filing under the Streamlined Filing Procedures. If filing Streamlined, you must mail paper copies of your tax returns to the IRS. You can read more about Streamlined filing here.
6. Will I need to report my foreign financial accounts for the years I missed filing expat taxes?
If your financial accounts exceeded the filing threshold for either the Foreign Bank Account Report (FBAR) or FATCA Form 8938, you will need to ensure you’re all caught up on filing these forms.
- FBAR – You must report all foreign bank accounts that totaled more than $10,000 at any point during the tax year. This is an aggregate amount, so if one account had $3,500 and another had $7,000, you’d need to file an FBAR.
- Form 8938 – The types of accounts that must be reported on this form are a bit more extensive than FBAR, and thus, the thresholds are higher.
- Single or Married Filing Separately– The total value of your foreign assets is greater than $200,000 on the last day of the tax year or more than $300,000 at any point during the year.
- Married Filing Jointly– The total value of your foreign assets owned by you and your spouse is greater than $400,000 on the last day of the tax year or more than $600,000 at any point during the year.
You can read more about reporting your foreign financial accounts in this article. In any event, getting caught up on your expat tax obligations is so important, no matter how far behind you’ve found yourself.
Ready to Get Caught Up on Your US Expatriate Taxes?
Get started with our team of expat tax experts today and gain unbeatable peace of mind knowing you’re one step closer to becoming compliant on your expat taxes.