What Dual Citizens Residing out of the U.S need to know about Tax Filing

Written by admin on April 2nd, 2012

Article by Ajax

Dual citizens are required to file a federal income tax return for any tax year in which their gross income is equal to or greater than the standard deduction or relevant exemptions. Gross income includes worldwide income from all sources, even sources outside the United States. In many cases, dual citizens of the United States and a foreign country may have failed to timely file United States federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), despite being required to do so. Taxpayers need to be aware of their filing obligations and seek to come into compliance with the law.

These are a few things that dual citizens need to keep in mind regarding the filing of taxes.

* Tax filing requirement in the U.S

As a United States citizen, it is essential to file a federal income tax return for any tax year in which your gross income is equal to or greater than the applicable exemption amount and standard deduction. It is also necessary to report all income, regardless of which country is the source of the income.

* Consequences for not filing tax returns

Unless you show that the failure is due to reasonable cause and not due to willful neglect, you may be subject to a penalty. It is necessary to pay the amount of tax shown on your federal income tax return. While the total file penalty cannot exceed 25 percent, there is also no penalty if there is no tax due.

* Additional penalties applicable in certain cases

There could also be other civil penalties, including the accuracy-related penalty, fraud penalty, and certain information reporting penalties, in addition to the failure to file and failure to pay penalties.

* FRBAR filing Requirement

It may be necessary to report your interest in certain foreign financial accounts on Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) as a U.S citizen. It is not necessary to file FBARs that were due more than six years ago and no penalty will be asserted if IRS determines that the late filings were due to reasonable cause. It is always a good idea to keep copies, for your record, of what you send.

* Consequence for failure to file FBAR

If you fail to file an FBAR, in the absence of reasonable cause, you may be subject to either a willful or non-willful civil penalty. The civil penalty for willfully failing to file an FBAR can be up to the greater of $ 100,000 or 50 percent of the total balance of the foreign account at the time of the violation. There is no penalty in the case of a violation that IRS determines was due to reasonable cause.

* Need for reporting foreign financial assets

A new law requires U.S. taxpayers who have an interest in certain specified foreign financial assets with an aggregate value exceeding $ 50,000 to report those assets to the IRS. This reporting will be required beginning in 2012. Taxpayers who are required to report must submit Form 8938 with their tax return.

While it is necessary for a dual citizen to report all income, regardless of whether the income originated from a foreign source or United States source, the failure to report such worldwide income could result in noncompliance with United States income tax rules. Take the help of an expert who could offer you the best tax planning services and give you assistance in other taxes like business tax returns, US India tax etc.

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