Tax Return Filing For U.S Citizens Living Abroad

Anyone holding U.S. citizenship is obligated to file a U.S tax report to the U.S. tax authorities using Form 1040. On the form, the applicant reports his income from every source in the world and his marital status. Depending on these two factors, his annual tax obligations will be determined. In addition to this report, U.S. citizens are required to provide information about any financial account located outside the country for the purpose of the U.S. war on money laundering.


What information should be reported?

In 2010, the US Congress approved the FATCA Act requiring any financial institution outside the U.S. to report Americans holding under its auspices a bank account or any other pool of funds.
These assets include bank accounts, pension funds, holdings in companies, executive insurance, study funds, and more…


Form 1040

In the United States, any income of a self-employed individual that exceeds $400 is required to be reported to the tax authorities. The form used to report the total revenue Form 1040. It includes, among other things: personal information, status, and income reporting of any kind, such as Social Security benefits, payslip, pension, interest, dividends, and more…


Form NR1040

Foreign citizens who conduct financial activity within the U.S. borders report their income using form NR1040. This form, as with Form 1040, requires reporting of any income within or outside the country, on all types of existing revenues.


Reporting dates

The date set by the U.S. Tax Regulations for reporting is April 15th. A non-U.S. citizen will be able to submit the tax returns by June 15th.
On June 30, there is a duty to report financial assets held outside the United States.
If a request to postpone the report is received, the reporting obligation is postponed to October 15th.


Additional aspects regarding the reporting process

Tax-exempt income

The tax authorities perform a calculation that includes the family status of the citizen and the number of people in his family, thus calculating whether he must pay tax. For example: in 2018, a single individual under the age of 65 with income below $12,000 is exempt from paying tax.


The tax treaty between Israel and the United States

The Israel-U.S. Tax Treaty is a factor that prevents double taxation. In other words, every taxpayer in the U.S. is offset with a tax payment in Israel. For example, if the U.S. tax rate is 10% higher than that in Israel, the American citizen can pay the authorities in the United States the difference alone. On the other hand, if the tax paid is higher than in the other country, the payer will be able to receive a tax refund. This tax refund is transferred back one year and is valid for up to 10 years ahead.


Does filing a report necessarily require payment?

As mentioned above, filing a tax report is mandatory for every American citizen. On the other hand, submitting the report is not necessarily indicate that tax must be paid. That is, it is possible that deductions and tax returns can determine that the citizen is not taxable at all or is entitled to a tax refund.


Extended reporting obligations

U.S. tax rules state that there are cases that require extensive reporting to the tax authorities.
For example $200,000 in financial institutions outside the U.S. requires extended reporting using Form 8939.


Tax returns

The tax authorities in the United States allow for a tax refund even if the taxpayer was not required to pay that year. The main refunds are for children, academic studies, or low incomes. From this, it can be concluded that an Israeli resident who is supposed to submit this income tax report may receive a tax refund only for his children.


Lack of reporting

The tax obligation includes an annual interest rate of about 5%. Failure to submit the report on time also leads to an annual interest rate that may reach up to 25% of the tax amount. There is also a sanction for reporting inaccuracy that could amount to about a fifth of the tax liability. All of these sanctions together can amount to huge sums.
FBAR’s failure to report to the United States Treasury Department also risks the business owner paying a fine of up to $10,000.
Additional sanctions for non-reporting, which are not economic sanctions, maybe the revocation of the US passport. Worse, non-reporting or inaccuracy in reporting may in some cases initiate criminal proceedings.
In some cases that comply with the regulations, payment can be arranged through retroactive tax reporting. This procedure is also referred to as a “voluntary disclosure procedure”.


Retroactive tax reporting

U.S. tax authorities are aware that many U.S. citizens don’t know they need to file a tax report and report foreign bank accounts (FBAR). Therefore, since 2009, the senior officials in these authorities initiated the OVDP program through which they could submit retroactive tax reports and avoid potential economic and criminal sanctions according to the criteria set forth in the program.


In summary

The obligation to report to the U.S. tax authorities applies to every U.S. citizen who conducts financial activity on its territory. Any type of income should be reported including passive and active income. It is advisable to be familiar with the rules in order to avoid sanctions imposed by this complex bureaucratic system.

We recommend using our professional team who will be happy to be at your service and assist you to deal with the American tax authorities for various purposes.


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This should not be seen as legal advice. It is recommended to consult with Masamerica’s team before any action. The service is provided by a professional team, who speak English and Hebrew fluently, and includes lawyers and accountants with American licensees.

The aforesaid should not be regarded as legal advice. It is advisable to consult with the MasAmarika team before any action. The service is provided by a professional team, fluent in English and Hebrew, and includes attorneys and accountants with American licenses.

For American taxes consulting only
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