Over 8 million U.S. citizens and green-card holders live abroad, which means millions of Americans have foreign accounts. However, many Americans fail to comply with IRS reporting requirements. The regulations for filing and disclosing international accounts are complex and yield severe penalties for failure to report and pay tax. In 2009, the US began strictly regulating international accounts, and in 2010, Congress passed the Foreign Account Tax Compliance Act. The Act requires foreign banks to release information regarding their American clients’ accounts.
Here’s what citizens with international accounts should know. They need to disclose accounts totaling more than $10,000 with FinCen Form 114. Americans are required to pay taxes on foreign income, though a credit is often available to at least partially avoid double taxation. Housing allowances generally have tax exemptions, as do other non-financial assets. But if these assets are held in a trust the rules change. Foreign trusts that name one or more U.S. citizens as beneficiaries must be reported as well. And even if a citizen wants to avoid dealing with the taxes altogether, they should know that an expatriate leaving an inheritance to U.S. citizen beneficiaries may leave them with hefty taxes to pay. With the IRS becoming more aggressive it is important to get the help of an accountant and disclose your international assets carefully.
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