Q&A: I don’t think I’m actually an expat. Do I need to file?

Posted by Don W on May 13, 2010 under Expatriate Taxes, First Time Filing as an Expat

Q: Hi, I’m American but I live in the Netherlands and am married to a Dutch citizen.  I am not an expat, as I’m on a highly skilled migrant visa and I work for a Dutch company, earning euros. I’ve been told that I need to file a tax return in the US– can you advise?

A: Because you are a US citizen living and working abroad, you are an expat.  Let me qualify that – by our definition you are an expat!

All US citizens are required to report their worldwide income each year.  You do have to file.

Based on what your question it looks like you will have to file Married Filing Separate instead of Married Filing Joint.  If your husband is a non-resident alien with no exposure to the US then you must file MFS.

There’s good news, though:  the IRS provides two tools to help reduce, or eliminate, double taxation.  The first is the Foreign Earned Income Exclusion, which if you qualify, allows you to exclude up to $91,500 for the 2010 tax year.  The second tool is the Foreign Tax Credit.  This, potentially, gives you a dollar-for-dollar credit against your US taxes for taxes paid to foreign country.

It is more complex than that and various factors can determine the outcome.  But, that is the gist of it.

Our web site has a great deal of information about expat filing requirements on our Expat Tax Basics page.

Q&A: Just found out that I should have filed. I want to avoid the bureaucracy but I don’t want to get in trouble. What should I do?

Posted by Don W on January 29, 2010 under Expatriate Taxes, First Time Filing as an Expat, Foreign Bank Account Reporting (FBAR)

Q: I worked in China for three years. While there I deposited my salary in a bank account and when I left the country I left money sitting in the account. While in China I filed and paid Chinese taxes.

After returning to the US, I learned that I was supposed to file taxes in both China and the US. I hate dealing with tax documents, so I did the easiest thing I could and just filed the missing years in the US as zero income.

Later, I learned that I was supposed to report the money I earned in China in the tax returns. I’d now like to access some of the money sitting in my account in China. I don’t want the hassle of re-filing tax returns and I don’t want to be double-taxed on the money.

The reason I’m asking this questions is because I recently got in touch with the Chinese bank to update my contact information and let them know I was living in the US. They sent me a form asking if I wanted to declare the account to the US government on a W-9 form.

I want to go through as little paperwork, expense and bureaucracy as possible. Therefore I’m not inclined to file a W-9 and declare the account to the government. Is the IRS going to come after me for money laundering?

A: It is clear from your question that you know you are not in compliance.  You know that you need to correct your prior years returns. And, you may need to file form TDF90-22.1(PDF)  which is used to report foreign bank accounts under your control IF your combined foreign balances ever equal $10,000 or more on any given day–sometimes referred to as FBAR (see IRS FAQ).  The penalties for not filing TDF 90-22.1 are very large.

You want to resolve this so you can access your funds without any concern for future actions against you. Amend your prior year returns to report any interest/dividends you received each year in your Chinese accounts. Determine if you have to file Form TDF 90-22.1.

It is important to note that you are not penalized unless you owe money.  So, it is possible that you would be fully covered by the Foreign Earned Income Exclusion and Foreign Tax Credits.  For more information on these, visit our Expat Tax Basics page on our main site.

You won’t know until you redo your tax returns.  Would you rather spend a few hours on your own, or pay a professional to do it, and know for certain that the issue has been put to bed or always wondering if you are going to get caught?

Compliance is always the easiest road because you get peace of mind.