U.S. expatriates should read IRS Publication 54 - Tax Guide for U.S. Citizens and Resident Aliens Abroad. This is a beneficial article published by the agency itself, detailing the unique and specific tax reporting requirements and rules when reporting offshore or "foreign-earned" income to the Internal Revenue Service.
3 Important Points on Why U.S. Expatriates Should Read IRS Publication 54:
- IRS Publication 54 establishes the definition of a U.S. taxpayer, the requirement to file accurate, timely, and complete tax returns, while reporting all income earned worldwide.
- IRS Pub 54 helps U.S. expatriates understand many essential tax concepts, such as the Foreign Earned Income Exclusion, Foreign Housing Exclusion or Deduction, as well as information associated with tax treaties between the United States and nations worldwide.
- IRS Pub 54 explains the requirements for "international U.S. taxpayers," including U.S. expatriates, including withholding issues, available extensions, and required disclosures of foreign financial accounts, assets, corporate ownership, investments, real estate, and associated reporting requirements.
All U.S. Taxpayers, Including Expatriates, Are Required to Understand Their Tax Reporting and Payment Responsibilities
U.S. taxpayers cannot use "ignorance of the laws/rules" or a "misunderstanding of the guidelines" as an excuse when it comes to the IRS. All U.S. taxpayers, including expatriates, are required by law to understand their tax reporting and payment responsibilities.
From the IRS: "Under the law, taxpayers have the following responsibilities:
- Know and understand their responsibilities under the law (ignorance is not an excuse the IRS will accept or tolerate)
- File a return
- Obtain forms and instructions
- Provide complete and accurate information
- This includes organizing and maintaining all associated information
- File a tax return and pay all taxes on time.
The Benefits of IRS Publication 54
The legal responsibility of a U.S. taxpayer to understand their tax reporting and payment obligations under the law is one of the primary reasons why U.S. expatriates should read IRS Publication 54. The document begins with an update on recent tax treaty developments and then quickly moves to the current year's standard deductions for U.S. taxpayers based on their filing status (i.e., single or married filing separately, married filing jointly, or qualifying surviving spouse, or head of household).
Pub 54 is well-organized into chapters, allowing you to find the information you need quickly and efficiently.
Chapter 1 - Filing Information and requirements, including who must file, helpful publications, and forms & instructions.
Chapter 2 - Withholding Tax (and estimated taxes)
Chapter 3 - Self-Employment Tax
Chapter 4 - Foreign Earned Income Exclusion (FEIE), Foreign Housing Exclusion, Foreign Housing Deduction
This chapter is essential for U.S. expatriates. Decisions in this area of the law should be made under the guidance of an experienced international tax attorney. In many cases, once an election is taken or changed, the taxpayer may not be able to go back to that election for a period of years. The issues of tax credits or deductions, as well as child tax credits and the "effect of revoking the exclusions," are discussed in this chapter.
Chapter 5 - Deductions and Credits
Chapter 6 - Tax Treaty Benefits
Chapter 7 - How to Get Tax Help
Publication 54 concludes with a section labeled "Additional Material," which contains a comprehensive list of common questions and answers, and is followed by a helpful index of all associated topics.
The Complications of Tax Filing for U.S. Expatriates and Foreign Nationals who Live and Work in the United States
U.S. expatriates should read IRS Publication 54 as a primer to establish a solid foundation of knowledge and awareness regarding their ongoing obligations as U.S. taxpayers.
It is difficult to overstate the complexity of tax filing for U.S. expatriates, as well as foreign nationals who reside and work in the United States. This is why it is crucial for these taxpayers, and U.S. residents with offshore investments, Passive Foreign Income Companies (PFICs), foreign corporate ownership, foreign mutual funds, pensions, or retirement assets, cryptocurrency or Non-Fungible Tokens (NFTs), as well as other assets and financial accounts, to seek the advice and counsel of an experienced international tax attorney.
In addition, U.S. taxpayers and expatriates with qualifying bank accounts, investment accounts, foreign investments, business interests, crypto or NFT holdings, or signatory authority over any foreign account must understand and comply with FinCEN Form 114 or FBAR reporting requirements, as well as IRS forms such as 8938 - "Statement of Specified Foreign Financial Assets."
Ignorance is not an excuse with the IRS. Failure to fully disclose all sources of income, both foreign and domestic, exposes U.S. taxpayers to a broad range of penalties, including interest, fines, and even the potential for criminal charges for tax evasion. The penalties on foreign income and assets are substantial, some would say "draconian." This is why you need an experienced international tax attorney. It's also a great reason why U.S. expatriates should read IRS Publication 54 - Tax Guide for U.S. Citizens and Resident Aliens Abroad.
