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Staying IRS Compliant When Abroad: Dates And Common Qs

Don’t Run Afoul Of The IRS—Two Things Every American Living Or Investing Overseas Must Know About U.S. Taxes

Kathleen Peddicord by Kathleen Peddicord
Jun 07, 2019
in How to, Offshore
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How many tax dates do we Americans have to deal with?

Let’s see…

There’s the initial tax deadline of April 15 each year. Then you have the automatic extension deadline for Americans living abroad. That’s June 15… which is just around the corner…

Finally, you have the six-month extension deadline for anyone who files Form 4868, which gets you to Oct. 15.

Since 1970 and through this year, those of us who’ve met the reporting requirements also have to file a Foreign Bank Account Report (FBAR), officially FinCEN Form 114. This is due on April 15… though, again, you can file for an extension to Oct. 15.

We hear almost daily from readers struggling to understand how to stay IRS compliant as Americans living or investing overseas. Some contact us almost in a panic, hoping for help with their reporting questions.

Here’s one of the most common:

Q: How do I report my offshore LLC that holds a rental property and the related rental income if the LLC is owned by my IRA?

A: Assets held by your IRA are reported by your custodian. Therefore, the good news is that you don’t have to report the LLC or the rental income.

The bad news is that you do have to pay taxes on the rental income earned in your traditional IRA when you take withdrawals from the account.

If you have a bank account for your IRA LLC… and you qualify otherwise to file an FBAR… then that bank account must be reported on your FBAR. However, neither the LLC nor the bank account need to be reported on Form 8938.

Got that?

As we remind you often, it’s not so much the taxes owed anymore as it is the information reporting requirements. That’s what the FBAR and Form 8938 are—information reporting to make it possible for the U.S. government to track every American’s assets so the U.S. government can try to determine if you might be earning income from an asset that you’re not reporting.

The tax return that Lief and I file each year is more than 100 pages, including worksheets. About 80% of it is informational.

The information reporting requirement isn’t only for expats but for any U.S. person with assets outside the country. In other words, you could be required to file this form even if you’re living in the United States.

Fortunately, the threshold for filing Form 8938 is four times higher for an expat than for a resident American. Still, the thresholds are low at US$50,000 for a single living in the United States and US$200,000 for someone living outside the country (double those figures for married couples).

Which brings me to another frequently asked U.S. tax question:

Q: What assets must be reported on Form 8938?

A: Anything that can be identified as your asset only through a piece of paper is considered a financial asset reportable on Form 8938. Specifically excluded by the IRS is real estate held in your own name and allocated metals (gold and silver, but also industrial metals held for investment).

Note that, in the case of gold, silver, and other metals, I’m speaking of the physical metals themselves. Gold represented by a piece of paper, such as a Perth Mint Certificate, is reportable.

As are those junior mining stocks from Canada you bought directly from the company years ago and stuffed in your filing cabinet.

And real estate held by an offshore entity is reportable as an asset of the entity… unless the entity is owned by your IRA.

Take these reporting requirements seriously. Fail to report foreign financial assets as required on Form 8938, and the IRS could disallow your basis when calculating your capital gain.

In other words, if you don’t report an offshore financial asset and then sell that asset, you could be facing tax on 100% of the proceeds of the sale rather than the gain only. Not to mention the potential fines for not having reported the asset in the first place.

It’s all part of a crackdown on offshore investments because the U.S. government believes it’s missing out on billions of tax dollars from Americans not reporting their international transactions. That’s what FATCA was meant to help with… tracking Americans’ offshore assets.

But the math is faulty. The U.S. government won’t collect enough additional tax, these current and increasingly aggressive efforts notwithstanding, to make a dent in the national debt.

Meantime, they continue to grow their bloated staffs and overheads… while making it harder all the time for honest, hardworking Americans to pursue interests offshore… and more expensive all the time for those of us who continue to try.

Kathleen Peddicord

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Kathleen Peddicord

Kathleen Peddicord

Kathleen Peddicord has covered the live, retire, and do business overseas beat for more than 30 years and is considered the world's foremost authority on these subjects. She has traveled to more than 75 countries, invested in real estate in 21, established businesses in 7, renovated historic properties in 6, and educated her children in 4.

Kathleen has moved children, staff, enterprises, household goods, and pets across three continents, from the East Coast of the United States to Waterford, Ireland... then to Paris, France... next to Panama City, where she has based her Live and Invest Overseas business. Most recently, Kathleen and her husband Lief Simon are dividing their time between Panama and Paris.

Kathleen was a partner with Agora Publishing’s International Living group for 23 years. In that capacity, she opened her first office overseas, in Waterford, Ireland, where she managed a staff of up to 30 employees for more than 10 years. Kathleen also opened, staffed, and operated International Living publishing and real estate marketing offices in Panama City, Panama; Granada, Nicaragua; Roatan, Honduras; San Miguel de Allende, Mexico; Quito, Ecuador; and Paris, France.

Kathleen moved on from her role with Agora in 2007 and launched her Live and Invest Overseas group in 2008. In the years since, she has built Live and Invest Overseas into a successful, recognized, and respected multi-million-dollar business that employs a staff of 35 in Panama City and dozens of writers and other resources around the world.

Kathleen has been quoted by The New York Times, Money magazine, MSNBC, Yahoo Finance, the AARP, and beyond. She has appeared often on radio and television (including Bloomberg and CNBC) and speaks regularly on topics to do with living, retiring, investing, and doing business around the world.

In addition to her own daily e-letter, the Overseas Opportunity Letter, with a circulation of more than 300,000 readers, Kathleen writes regularly for U.S. News & World Report and Forbes.

Her newest book, "How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad," published by Penguin Random House, is the culmination of decades of personal experience living and investing around the world.

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