Frequently Asked Questions
Penalties -Failure to File
Failure to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation
Taxpayers are required to report transfers of property to foreign corporations and other
information under IRC 6038B. The failure to file penalty for this information return is 10% of the value of the property transferred up to a maximum of $100,000.00 per return with no limit if the failure to report the transfer was intentional.
Failure to file Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships
Failure to file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.
Taxpayers must report various transactions involving foreign trusts, including creation of foreign trust by a U.S. person, transfers of property from a U.S. person to a foreign trust and receipt of distributions from foreign trusts under IRC 6048 and receipt of foreign gifts under IRC 6039(F). Filing an incomplete return or failing to file results in a penalty of the greater of $10,000.00 or 35% of the gross reportable amount. For returns relating to gifts, the penalty is 5% of the gift per month to a maximum penalty of 25% of the gift.
Failure to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations:
Failure to file Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner:
Failure to file Form Fincen114, Report of Foreign Bank and Financial Accounts
A person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation (indexed for inflation). If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 (indexed for inflation) or 50 percent of the balance in the account at the time of the violation. See 31 U.S.C. section 5321(a)(5). Willful violations may also be subject to criminal penalties under 31 U.S.C. section 5322(a), 31 U.S.C. section 5322(b), or 18 U.S.C. section 1001.
Failure to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business
records regarding reportable transactions is $10,000.00 with an additional $10,000.00 added each month the failure continues beginning 90 days after the taxpayer is notified of the failure to file.
Failure to file Form 8938, Statement of Specified foreign Financial Assets
Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification).
Failure to file Form 1040, U.S. Individual Income Tax Return
A failure-to-file penalty may apply if you did not file by the tax filing deadline (including extended due date).
Failure to file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)
IRC 6114 generally requires that if a taxpayer takes a position that any treaty of the U.S. overrules or modifies any provision of the Code, the taxpayer must disclose the position. A taxpayer meets the disclosure requirement by attaching Form 8833, appropriate successor form to his or her timely filed tax return (including extensions)
Military on Active Duty
Are Active Duty in the Army subject to Ohio individual income tax and school district income tax? Would the answer be any different if I were serving in the National Guard or the Reserves?
Yes: Ohio individual income tax applies to all military servicemembers of the active and National Guard or reserve components who are residents of Ohio and are stationed inside the state. School district income tax also applies if the service member’s domicile is within a school district that imposes the tax, even if the service member did not reside in the school district at any time during the taxable year.
Law Change for Taxable Years 2007 and Forward: You and all other service members, however, are affected by a change in law for taxable years beginning on and after Jan. 1, 2007. This law allows for the deduction of your military pay you receive for active duty service while you are stationed outside the state (see Resident Service Members Stationed Outside the State, below) if the military pay is included in your federal adjusted gross income. See division (A)(24) of Ohio Revised Code 5747.01. You must still file an Ohio individual income tax return in order to qualify for the deduction.
You are an Ohio resident if Ohio is indicated as your state of legal residence (e.g., home of record from where you entered the military) in your military personnel record, whether or not you spent any time in Ohio during the taxable year. For purposes of Ohio income taxes, if you are a member of the military and if Ohio is indicated in your military personnel record as your state of legal residence, then you are domiciled in Ohio. This status does not change unless a service member takes action to change it by submitting Department of Defense form DD-2058, and this change is approved by the military. The approved DD-2058 is then placed in the service member's military personnel record.
Filing information is available in the Ohio income tax publication which contains the Ohio School District income tax instructions and is available on the Tax Forms page.
Visit The Finder to locate a school district number by address.
You can calculate a resident tax credit if any of your income was taxed by another state. For information about the resident tax credit, see the instructions for the Ohio Schedule of Credits in the current Ohio income tax publication.
Military pay and allowances received while a member of the active component of the U.S. Armed Forces and assigned to a permanent duty station outside Ohio.
Military pay and allowances received while a member of the active component of the U.S. Armed Forces, who is assigned to a permanent duty station inside Ohio, only for periods of duty outside Ohio for purposes other than training, or periods of training greater than 30 days outside Ohio.
Military pay and allowances received while a member of the National Guard or the reserve components of the U.S. Armed Forces in an active duty status outside Ohio, or for periods of training greater than 30 days, outside Ohio.
Military pay and allowances received while a member of a unit of the National Guard or the reserve components of the U.S. Armed Forces under federal mobilization orders under which the unit mobilizes for training at a non-Ohio location followed by an operational deployment to any non-Ohio location.
Military pay and allowances received by cadets at the U.S. service academies, specifically, the Military Academy, the Air Force Academy, the Coast Guard Academy, and by midshipmen at the Naval Academy. Cadets and midshipmen are serving on active duty under the provisions of 38 United States Code section 101 (21) and are eligible for this deduction for the pay they receive while stationed at these facilities to the extent that this pay is included in federal adjusted gross income (line 1 on the Ohio income tax return, IT 1040). However, this deduction is not available for pay received for service in the Reserve Officer Training Corps.
Military pay and allowances received while a member of the active component of the U.S. Armed Forces who is assigned to a permanent duty station inside Ohio and who departs Ohio for a period of temporary duty for unit or individual training of 30 days or less (e.g., training exercises, basic and advanced training courses, and additional skill training courses).
Military pay and allowances received while a member of the National Guard or the reserve components of the U.S. Armed Forces in an active duty for training status who departs Ohio for a period of temporary duty for unit or individual training of 30 days or less (e.g., unit annual training, training exercises, basic and advanced training courses, and additional skill training courses).
Military pay and allowances received for service in a combat zone because that pay is not included in federal adjusted gross income (line 1 on Ohio form IT 1040)
Am I required to file Form Fincen114, Report of Foreign Bank Accounts?
Yes, if both 1 and 2 below apply:
- You are a united states person that had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
United States person includes U.S. citizens; part or full year U.S. residents for tax purpose; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.
Whin Global is a tax and accounting firm based in Columbus, Ohio. We serve both U.S based clients and non-U.S. based international clients.
As a U.S. citizen or greencard holder, do I have to report all my foreign financial accounts to the Department of Treasury?
No. You are only required to report those foreign accounts where you have a financial interest in or signature authority over if the aggregate maximum values of the accounts exceeds $10,000 at any time during the calendar year.
Do I have to report my life insurance or annuity policy with cash value on my FBAR?
Yes. Foreign financial accounts include insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash surrender value.
I am a US citizen and I own 51% of US Co. stocks. US Co. owns 100% of Foreign Co. US Co. filed an FBAR. Do I have to file an FBAR as well, even if I do not have personal foreign accounts?
Yes. Any US person that directly or indirectly owns more than 50 percent of the total value of the shares of stock must file an FBAR and report the foreign accounts as well.
Am I required to File Form 8938, Statement of Specified Foreign Financial Assets?
Yes, You must file Form 8938 if all three conditions below apply to you:
You are a U.S. citizen, tax resident of the United state by Green card or presence,
You have an interest in specified financial assets required to be reported, and
The aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you per this chart:
Form 8938 is filed per year per tax return and not per spouse, if filing joint.
What is a specified foreign financial asset? A specified foreign financial asset is:
Any financial account maintained by a foreign financial institution, except as indicated above
Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, namely:
Stock or securities issued by someone other than a U.S. person
Any interest in a foreign entity, and
Any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person.
Am I taxable to the Alimony I received from my Ex-spouse in 2019?
No. The tax reform has eliminated the recognition of income for alimony received effective for divorce decrees executed after Dec. 31, 2018. Alimony received is no longer taxable.
Can I deduct the Alimony money I provided to my ex-spouse in 2019?
No – For divorce decrees executed after Dec. 31, 2018, the tax reform has eliminated the deduction for alimony paid.
What is Qualifed business Unit (QBU)?
A QBU is any separate and clearly identified unit of a trade or business of a taxpayer provided that separate books and records are maintained.
Can I recharacterize a rollover or conversion to a Roth IRA back to Traditional IRA?
No Effective January 1, 2018, pursuant to the Tax Cuts and Jobs Act (Pub. L. No. 115-97), a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA cannot be recharacterized. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans.
Can I contribute to Roth IRA if I exclude all my earned income under the FEIE?
As a U.S. citizen or green card holder living abroad, is there a penalty for not filing taxes?
Yes. If you are required to file and you fail to file a U.S. or state income tax return, you may be subject to a penalty for not filing taxes. This failure to file penalty could be hefty. You may not be able to take part in advantages, special reductions, or benefits offered to U.S. taxpayers to help reduce your U.S. tax obligations.
Fortunately, If you did not realize you were still required to file as an expat, we can help you file back taxes and avoid penalties for not paying taxes. A streamlined procedure is generally used by US expat to catch up on back taxes filing and foreign bank accounts reports.
Contact Whin Global today to learn more. Have a question? Get in touch and we will be glad to answer your tax questions.
What if I've never filed taxes as an expat before or stopped filing my taxes?
Many U.S. citizens and green card holders as well as foreign nationals living abroad with U.S. tax filing requirements assume that they only have tax obligations to their current country of residence and overlook their U.S. tax filing requirements. Even if taxes are not owed to the IRS or a state government, due to anticipated foreign tax credits or foreign earned income exclusions, expats are still required to file a U.S. tax return if their gross income exceeds the filing threshold amount for their filing status.
If you were unaware of your filing requirement, there is time to act. Our CPAs at Whin Global can help you decide on the best course of action for your unique situation. The IRS has a non-penalty disclosure program, IRS Streamlined Filing Compliance Procedures, currently available to Americans abroad or living in the US who have overlooked their filing obligations and never filed taxes or stopped filing their taxes. Get in touch with a CPA at Whin Global if you have any questions.
Are American Expats Required To File US Taxes?
Are American expats required to file US and State Tax Returns?
In short Yes and If. Even if you are a permanent resident or citizen of a foreign country, if you remain a U.S. citizen or greencard holder who works/lives abroad, you are still required to file U.S. taxes and report your worldwide income, if you meet the filing threshold (see the FAQs on the US tax filing requirements).
However, certain rules and benefits are available to expats, like the foreign earned income exclusion, foreign tax credit.
As an American expat, you may also still owe state taxes. This depends on the state you lived in prior to moving abroad as the tax residency rules vary by each state. Many states will also allow the foreign earned income exclusion, which can affect your taxable income. But some states do not allow the FEIE or FTC or both.
Consulting with an expat tax expert can help you determine if you are still required to file a state income tax return or not.
If you’ve been living abroad for a while and you were unwilfully unaware of your U.S. and state tax obligations, stop and don’t panic. Take a deep breath. Whin Global has assisted U.S. taxpayers by filing many tax returns worldwide, including taxpayers residing in multiples countries.
File You Expat Tax Returns with Whin Global
Have more questions? Ready to file? No matter how complicated your U.S. tax return is, there's an Expat Tax Expert ready to help. Get started with your Certified Public Accountant from Whin Global, Expat Tax and Accounting Services.
US Tax Filing Requirements
What are the 2019 minimum income requirements to file a 2019 tax return for non dependent individuals?
Should I file a tax return even if I do not have a filing requirement?
It depends. Child tax credit, earned income tax credit, or excess income tax withheld are few examples of credit you can get back from the IRS. However, you must file a tax return, calculate these tax credits, and claim a refund from the IRS before the statute of limitation runs out. Generally, you have three years to request a refund from the IRS from the tax return due date.
What forms American expats must file with their 1040 to avoid double taxation?
When do nonresident aliens have to file a U.S. tax return?
Can a US Expat use the First Time Abatement Waiver Procedure?
Whin Global has assisted many taxpayers file this first time abatement waiver and we have a 100% success rate. The IRS has approved 100% of all of our FTA waiver requests. Get in touch if you need assistance with any IRS, state, or local tax notices. Yes local notices! Ohio has 100's of local tax juridictions that levy income taxes.
Foreign Tax Credit
What is Foreign Tax Credit?
The foreign tax credit intends to mitigate some or all of the double tax burden that would otherwise arise when foreign source income is taxed by both the United States and the foreign country from which the income is derived.
How do I qualify to take the foreign tax credit?
The foreign tax must meet four tests to qualify for the credit:
- The tax must be a legal and actual foreign tax liability
- The tax must be imposed on you
- You must have paid or accrued the tax, and
- The tax must be an income tax (or a tax in lieu of an income tax)
How do I claim a foreign tax credit?
If you paid or accrued foreign taxes to a foreign country or U.S. possession and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.
File Form 1116, Foreign Tax Credit, to claim the foreign tax credit if you are an individual, estate or trust, and you paid or accrued certain foreign taxes to a foreign country or U.S. possession.
Corporations file Form 1118, Foreign Tax Credit—Corporations, to claim a foreign tax credit.
Is there a reduction in Total Foreign Taxes Available for Credit?
Yes - You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U.S. income under the foreign earned income exclusion or the foreign housing exclusion. This is to avoid a double dip.
Is there a limit on foreign tax credit?
Yes - Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by your taxable income from sources outside the United States over your total taxable income from U.S. and foreign sources.
Foreign Earned Income Exclusion
What are the requirements to claim the foreign earned income exlcusion, the foreign housing exclusion, or the foreign housing deduction?
What is earned income for Foreign Earned Income Exclusion purpose?
Foreign earned income generally includes pay, such as wages, salaries, bonuses, commissions, tips, net ordinary business income (example: freelance/independent contractor), or professional fees for personal services performed in a foreign country.
social security benefits,
worker's compensation benefits,
wages paid by the U.S. government to its employees: Individuals paid by the U.S. government under a Personal Services Contract (PSC) are considered employees of the U.S. government,
Payments received after the end of the tax year following the tax year in which you performed the services that earned the income,
Pay received for work while an inmate in a penal institution.
I am a contractor working in designated combat zone, can i claim the FEIE?
Contract services in a combat zone.
Are nonresident aliens subject to US Taxes?
Are nonresident aliens subject to US taxes? Practical examples
If you are a green card holder or meet the substantial presence test, you have US tax obligations similar to any US citizen, regardless of where you work or live.
US-sourced income effectively connected with a trade or business in the US is taxed at the normal rates.
US-sourced income NOT effectively connected with a trade or business in the US is taxed at 30% or treaty rates.
Non-US-sourced income NOT effectively connected with a trade or business in the US is not taxed.
$1000 is US source and taxable at 15% tax treaty rate, if applicable.
The $1,000 foreign source income is not taxable.
General Rule: her gross rental income is taxed at a 15% (treaty rate)
If she chooses under Internal Revenue Code section 871(d) to treat the income as effectively connected with a U.S. trade or business, then she can claim deductions attributable to the real property income and $12,000 of net income from the real property is taxed at the US graduated
How is a nonresident alien taxed on a US rental property?
Nonresident aliens who own rental properties in the US are taxed on the gross income at 30% rate.
What is withholding tax rate on sale of US real property by a nonresident alien?
Am I subject to expatriation tax after I renounce my US citizenship or give up my greencard?
Generally, the expatriation tax provisions apply to U.S. citizens who have renounced their citizenship and long-term residents (LTR) who have ended their residency (relinquished their greencards).
Who is considered a long-term resident (LTR)?
You are an long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends.
Who must file form 8854?
You must file an initial statement form 8854 in the the year you relinquish your US citizenship or terminate your long-term residency, even if you are not a covered expat.
I renounced my U.S. citizenship or terminate my LTR, but what are the US tax forms do I need to file?
After you relinquish your U.S. citizenship or terminate your long-term residency, you become a nonresident alien. Therefore, you are a dual status taxpayer on that date.
Controlled Foreign Corporation
What is a Controlled Foreign Corporation (CFC)?
According to the Internal revenue service, a controlled foreign corporation is any foreign corporation in which:
more than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned directly, indirectly, or constructively by U.S. shareholders on any day during the taxable year of such foreign corporation
more than 50% of the total value of the stock is owned directly, indirectly or constructively by U.S. shareholders on any day during the taxable year of the corporation.
Who is a shareholder under the CFC rules
A U.S. shareholder of a CFC is a U.S. person who owns directly, indirectly, or constructively:
10 percent or more of the total combined voting power of stock entitled to vote
10 percent or more of the total value of all classes of stock entitled to vote in a foreign corporation
What is Subpart F income and GILTI inclusion?
The changes to subpart F rules and the new GILTI are put in place in December 2017 to prevent U.S. companies to defer taxes from their controlled foreign corporations. This antideferral rules allow the IRS to collect taxes on current earned income and not when the profits are repatriated.
What forms are required if I have a CFC income?
if you are a US shareholder of a CFC, you must file Form 5471, Information Return of US Persons with Respect to Certain Foreign Corporations providing information about the entity and its subsidiaries.