People with dual US citizenship complain about filling out a US tax return, but how does the US know where they are and what happens if they don’t?
If you are a dual citizen living in another country and don’t file a US tax return, and the US finds out about it, the US government might sue you for millions of dollars just for not filing, even if you owe no taxes at all. See: U.S. sues Vancouver dual citizen for over $1M for not reporting accountsThe penalty is purely for not reporting accounts, not for taxes owing or penalties for unpaid taxes.U.S. citizens (including dual citizens) with signing authority over non-American bank accounts are required to report them, along with the highest amount in the account during the year, on a form called a Report of Foreign Bank and Financial Accounts, or FBAR.Unlike other industrialized countries, the U.S. requires citizens, including dual citizens, to file tax returns no matter where in the world they live.Selling a house and putting the money in a bank account puts the value of the house into the penalty calculation. And moving that money around between different accounts multiplies it, as each dollar is counted several times.The average house in Vancouver is worth more than $1 million, so selling it, and then moving the money around between Canadian accounts can incur insane amounts of penalties from the IRS, which is something most dual citizens are not aware of. Many Canadians have acquired dual citizenship by accident (by being born in a US hospital or having a parent who has American citizenship) and are not aware they are US citizens. Finding out can be a nasty shock for them.The obvious way to avoid this is for dual citizens to revoke their US citizenship, but the US government has made revoking US citizenship nearly impossible. I know people who have been trying to do this for years, with little success. See: Unwilling dual citizens face 10-month wait to shed U.S. citizenship in TorontoUS citizenship has become a real problem for dual citizens residing in Europe because many European banks will cancel their bank accounts and refuse to deal with them because of the enormous complications involved in filing documents with US tax authorities.US citizenship has become like leprosy, it is an affliction nearly impossible to cure without professional help.Hint: It’s much quicker and cheaper for a Canadian citizen to go to Mexico to revoke their US citizenship, because the US government hasn’t figured out this dodge around their laws. See: Meet the Alberta man who went to Tijuana to renounce his U.S. citizenship
How can I fill out an IRS form 8379?
Form 8379, the Injured Spouse declaration, is used to ensure that a spouse’s share of a refund from a joint tax return is not used by the IRS as an offset to pay a tax obligation of the other spouse.Before you file this, make sure that you know the difference between this and the Innocent Spouse declaration, Form 8857. You use Form 8379 when your spouse owes money for a legally enforeceable tax debt (such as a student loan which is in default) for which you are not jointly liable. You use Form 8857 when you want to be released from tax liability for an understatement of tax that resulted from actions taken by your spouse of which you had no knowledge, and had no reason to know.As the other answers have specified, you follow the Instructions for Form 8379 (11/2016) on the IRS Web site to actually fill it out.
If the IRS knows how much money we owe, why do we need to fill out returns?
Because the IRS doesn't know how much money you owe. They know approximately what you made, and they know a little bit about some of your deductions, but they don't know whether and to what extent you are entitled to additional deductions or credits, or whether and to what extent you earned money from transactions not reported to the IRS. Even on the transactions that were reported to the IRS, the IRS doesn't always know how much of that income is actually taxable - or at what rate.
Which IRS forms do US expats need to fill out?
That would depend on their personal situation, but should they actually have a full financial life in another country including investments, pensions, mortgages, insurance policies, a small business, multiple bank accounts…The reporting alone can be bankrupting, and that is before you get on to actual taxes that are punitive toward foreign finances owned by a US citizen and god help you if you make mistake because penalties appear designed to bankrupt you.US citizens globally are renouncing citizenship for good reason.This is extracted from a letter sent by the James Bopp law firm to Chairman Mark Meadows of the subcommittee of government operations regarding the difficulty faced by US citizens who try to live else where.“ FATCA is forcing Americans abroad into a set of circumstances where they must renounce their U.S. citizenship to survive.For example, suppose you have a married couple living in Washington DC. One works as a lobbyist for an NGO and has a defined benefits pensions. The other is self employed in a lobby firm, working under an LLC. According to the IRS filing requirements, it would take about 15 hours and $280 to complete their yearly filings. Should they under report income, any penalties would be a percentage of their unreported tax burden. The worst case is a 20% civil fraud penalty.Compare the same couple with one different fact. They moved to Australia because the NGO reassigned the wife to Sydney. The husband, likewise, moves his business overseas. They open a bank account, contribute to the mandatory Australian retirement fund, purchase a house with a mortgage and get a life insurance policy on both of them.These are now their new filing requirements:• Form 8938• Form 3520-A• Form 3520• Form 5471 (to be filed by the husbands new Australian corporation where he is self employed)• Form 720 Excise Tax.• FinCEN Form 114The burden that was 15 hours now goes up to• 57.2 hours for Form 720,• 54.20 hours for Form 3520,• 61.22 Hours for Form 3520-A.• 50 hours estimate for Form 5471For a total of 226.99 hours (according to the IRS’s own time estimates) not including time to file the FBAR.The penalties for innocent misfiling or non filings for the above foreign reporting forms for the couple are up to $50,000, per year. It is likely that the foreign income exclusion and foreign tax credit will negate any actual tax due to the IRS. So each year, there is a lurking $50,000 penalty for getting something technically wrong on a form, yet there would be no additional tax due to the US treasury.”
How is the IRS penalty for late payments calculated?
The IRS had the following to say on the subject.April 15 is the annual deadline for most people to file their federal income tax return and pay any taxes they owe. By law, the IRS may assess penalties to taxpayers for both failing to file a tax return and for failing to pay taxes they owe by the deadline.Here are eight important points about penalties for filing or paying late.A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. The IRS will work with you.The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.If both the 5 percent failure-to-file penalty and the ½ percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.Note: The IRS recently announced special penalty relief to many taxpayers who requested an extension of time to file their 2012 federal income tax returns and some victims of the recent severe storms in parts of the South and Midwest. For details about these relief provisions, see IRS news releases IR-2013-31 and IR-2013-42. The IRS has also provided individual tax filing and payment extensions to those affected by the Boston explosions tragedy. See IR-2013-43 for more information.Footnotes Eight Facts on Late Filing and Late Payment Penalties
Is it a good idea to reduce the payroll income tax bite, do investments with it, and pay the following year?
In the US, you must pay taxes “as you go”. Usually this is done through withholding.If withholding is not sufficient to pay a minimum amount, then you must pay “estimated taxes”. Failure to do so subjects you to the estimated tax penalty (essentially a 6% loan of the taxes you should have paid). Estimated taxes must be paid every quarter.Calculating estimated taxes can be as simple or complicated as you like, depending on how much money you want to squeeze out. Generally, you’re safe by paying 25% * of your previous year’s taxes every quarter**. You can also use the “annualized installment method”, which is equivalent to doing your taxes four times every year.Just for fun, test out any scheme by filling out IRS Form 2210. If you use the 25% technique above, you’ll check box D, and then fill out up to line 19, where you will have no penalty.* State taxes vary. California, for example, uses the percentages 30%, 30%, 0%, 40%.** The percentage is higher if you had an AGI over $75k, $150k for filing jointlyConsult a qualified tax professional for advice.
For taxes, does one have to fill out a federal IRS form and a state IRS form?
No, taxes are handled separately between state and federal governments in the United States.The IRS (Internal Revenue Service) is a federal, not state agency.You will be required to fill out the the necessary tax documentation for your federal income annually and submit them to the IRS by April 15th of that year. You can receive extensions for this, but you have to apply for those extensions.As far as state taxes go, 41 states require you to fill out an income tax return annually. They can either mail you those forms or they be downloaded from online. They are also available for free at various locations around the state.Nine states have no tax on personal income, so there is no need to fill out a state tax return unless you are a business owner.Reference:www.irs.gov