A staggering number of US citizens dropped their US citizenship in 2020 among frustrating tax laws. In a recent CNBC survey, Americans said that unfavorable tax laws were the No. 1 reason for renouncing citizenship.
Currently, US citizens living abroad are not only required to report and pay taxes on their worldwide income, but they are also subject to rigorous foreign reporting requirements.
FBAR (Foreign Bank Account Reporting) filings are due April 15 with individual tax returns, but like 1040s, can be extended to the Oct. 15 deadline. Penalties as high as $129,210 though can be assessed in an event of non-compliance and a lot of taxpayers have a heavy reporting burden when it comes to the cumbersome forms.
FBAR filings are required by all US citizens who at any point during the year had $10,000 or more in a foreign bank account or foreign investments.
Currently, US citizens living abroad are not only required to report and pay taxes on their worldwide income, but they are also subject to rigorous foreign reporting requirements.
Not only are US taxpayers living abroad staunchly opposed to the double taxation they face living and working outside the United States, but the additional reporting requirements mean they have to provide a higher level of personal detail as to the value of their assets or face threatening fines.
The US tax laws are not always favorable either, and when many families were able to transition to more remote work during the pandemic, it changed the game in terms of expat decision-making. It is easier for former citizens to live abroad without disrupting their businesses or means of income.
FBAR filings are handled electronically directly through the FinCEN website. The most common mistakes are not filing and missing foreign accounts that should have been reported. Be careful not to miss accounts based on ownership.
Unlike other foreign reporting forms such as Form 8938, the FBAR requires the reporting of any account that taxpayers have signatory authority over, even if they do not own the account. This includes joint accounts with non-US citizens. Minor children are also required to file an FBAR form and the forms are required even if a taxpayer is not required to file a tax return.
The bottom line is to be careful when accepting these engagements, make sure to dot your I’s and cross your T’s in terms of the questions you are asking clients to ensure that you are not missing information or deadlines and don’t misunderstand the forms.
