Breaking Down Your Maos: Tax Filing for US Expats & the IRS (Part 1)

This is the first in a series of blogs running over on our sister site, beijing-kids.com, which will hopefully shed some light on how expatriate US citizens file our taxes and why we need to be filing them. This year, US citizens living abroad will need to file their taxes by June 15.

I often meet US citizens living abroad who are not current with their annual US income tax filing requirement. In some cases, their returns have not been filed for a decade or more. In my experience, this failure to file is usually the result of receiving bad information from friends, or advisers, or a misunderstanding of the Internal Revenue Code, and not an overt attempt to evade paying US taxes. 

There are complications that grow over time, however, when tax returns are not filed, and the longer the failure to file goes on, the more the taxpayer starts to look like a tax evader. It may be worthwhile to note that failure to file is a federal crime that can have undesirable consequences for the evader. You can be fined up to USD 25,000 and imprisoned for up to one year for each year you fail to file. If you file, even if you can’t pay the taxes, interest, and penalties, you won’t face prosecution.

Most expats who are delinquent in filing don’t hear from the Internal Revenue Service (IRS) about it like they would if they were living and working in the US. Expats who are compensated “locally” don’t receive a US compliant 1099 or W-2 (documents delivered each tax year by employers to both the taxpayer and the IRS). Expats are on the honor system to report their income. In the US, the IRS matches W2 and 1099 documents they receive from employers with tax returns filed by the taxpayer, and if returns aren’t filed, the IRS knows, and typically initiates a Taxpayer Delinquency Investigation which generates a letter to the delinquent tax payer demanding the missing tax return. In this regard, expats may be, for the moment, “off the grid”.

Read the full article over at beijingkids.

Photo: Images Money (Flickr)