Modern technology and transportation have opened up literally a world of opportunity and the result is that many Americans earn income from foreign entities. It is important for anyone in this situation to understand that both resident aliens and U.S. citizens, whether stateside or abroad, are subject to United States taxing system and must report the income to the IRS.
The subject of taxation on foreign income is not always clear-cut. There are exemptions and credits that can apply to reduce the tax burden. A tax attorney is the best person to answer questions about how the tax laws will affect you.
Offshore bank accounts must be reported
Income does not need to enter the United States to be subject to mandatory reporting. Even funds held in foreign bank accounts by U.S. citizens or resident aliens must comply with American tax laws. These include filing Form TDF 90-22, also referred to as a Report of Foreign Bank and Financial Accounts (FBAR), in accordance with deadlines, when an account exceeds a minimums threshold.
For those who have failed to make the necessary disclosure, relatively recent legislation has added incentives to encourage voluntary disclosures of foreign income and assets. For example, the Foreign Account Tax Compliance Act (FATCA), which increases the power of the federal government to pursue those not in compliance, provides the opportunity to negotiate less harsh penalties for those who voluntarily report their undisclosed accounts before they are reported to the U.S. by the country where the accounts are being held.
Penalties for failing to report foreign income
Laws requiring the reporting of foreign income and accounts are intended to root out fraud – particularly individuals and businesses who are intentionally hiding assets overseas to avoid paying taxes. The penalties can be surprisingly harsh, especially when applied to unintentional nondisclosure.
Failing to file a required FBAR, for example, can cost an account holder up to $100,000 or half of the account balance (whichever is greater) for an intentional violation or up to $10,000 for an unintentional violation. The penalties can multiply as the account remains unreported for several years. Other potential consequences include additional fines, penalties, and even criminal prosecution.
Reducing tax burden on foreign income
Like all U.S. tax laws, those affecting foreign income and accounts have many facets, some of which can lessen a taxpayer’s burden. Some of the options include the Foreign Tax Credit and the Foreign Earned Income Exclusion.
When an account has not been properly reported, taxes and penalties can also be reduced by raising certain defenses or negotiating a settlement. A knowledgeable tax attorney who is up to date on the most recent legal developments is your best ally in this situation.
Sound international tax advice in Maryland
Foreign income can be tempting to overlook but the law is clear – all U.S. citizens at home or abroad, as well as resident aliens, must report it. But the Baltimore tax attorneys at Rosenberg Martin Greenberg can help you understand the intricacies including credits and exemptions that can reduce your tax burden, sometimes substantially. We make sure your takes are reported in accordance with the latest modifications to the law so you remain compliant. To discuss your reporting obligations with Maryland tax attorneys specializing in foreign bank accounts, do not wait to contact Brian J. Crepeau who is an Attorney and a CPA at firstname.lastname@example.org or at 410.649.4981 for a consultation.
Additional “Foreign Income” Resources:
- IRS.gov, Income from Abroad is Taxable, https://www.irs.gov/businesses/income-from-abroad-is-taxable
- IRS.gov, U.S. Citizens and Resident Aliens Abroad, https://www.irs.gov/individuals/international-taxpayers/u-s-citizens-and-resident-aliens-abroad