I am a US citizen who lives and works abroad for a foreign company ...?

Question

yet I have bank accounts and some investments in the USA. What does this mean for me regarding taxes and filing? I have been told in the past that I did not need to even file. I haven't filed for 5 years. But recently it has been mentioned that if I have investments in the US, I need to file. What should I do? Will I be audited if I return to the USA?

Answer 1

Whoever told you that you didn't need to file US taxes was an idiot, pure and simple.

US citizens are taxed on their worldwide income, regardless of where it was earned or where you lived. If your income exceeds $8,300 (single filer) in any tax year you MUST file and pay any taxes due.

Some foreign earned income MAY be eligible for an exclusion from US tax, up to $82,400 for 2006. However you must file a timely return to qualify for that exclusion so you've lost that for any tax year prior to 2006. If you don't take the exclusion, you may be able to claim a credit for foreign income taxes paid against your US tax liability.

The IRS has offices in many foreign countries and they have the same authority over you that they do in the US. You can be audited anywhere, not just in the US.

Many countries have tax treaties with the US and will report your income to the IRS.

I used to live in Europe and hardly a week went by that we didn't see an article in the ex-pat press about some poor fool Yank getting his or her clock cleaned by the IRS out of the London office. And yes, they can extradite you from many countries to the US to face tax evasion charges.

You need to consult with a tax professional -- a CPA or tax attorney -- QUICKLY. Any US Embassy or US Consulate can give you a list of local tax professionals, most of them US citizens, who specialize in US ex-pats. You need to get those missing returns filed to close out the last 5 tax years and figure out how much financial trouble you're in.

If you're very lucky and live in a country with high income taxes, the foreign tax credits may save your bacon or at least lessen the pain significantly. Most of Western Europe has pretty high income taxes. However if you're in a low income tax country such as South Korea you may be in deep doo-doo as the foreign taxes won't be enough to offset your US tax liability.

Answer 2

Uh, whoever told you that led you wrong. Even though you live and work abroad, you are subject to tax on all your income, regardless of where it was earned.

The problem is though.....if you live and work outside the US, you can exempt up to $80,000 a year from being taxed in the US under the foreign earned income exclusion. However, the problem you have is that the exclusion is only valid IF you elect the exclusion (by filing Form 2555) and the election has to be made by the due date of your return. If you did not timely file your tax return and claim the exclusion, then you lost the ability to claim the exclusion, so the exemption doesn't apply and you have to pay tax on the income. Your only option to avoid tax on that foreign income now is to claim the foreign tax credit for the foreign taxes you paid on that income.

Answer 3

First, you are able to no longer use the foreign places earnings exclusion to deduct away the money earned while you have been contained in the U.S. you are able to purely use it to deduct away what you earned once you have been in my view in Iceland your self. 2nd, your maximum suitable determination is to document a schedule C and schedule SE, and pay the tax that an self sustaining contractor might have paid. It does no longer rely what "the IRS will possibly no longer likely evaluate", because of the fact they do no longer examine in case you document a schedule C and schedule SE. If the employer does no longer document a W-2, and you declare which you have been an self sustaining contractor, then they take your be conscious for it. they only check out it if the two (a) the employer information a W-2 and you declare you have been a contractor, (b) you declare you have been an worker and the employer does no longer document something, or (c) the employer information a 1099 yet you declare you have been an worker.