Tax Forms for the IRS Vary Depending on Your Circumstances
The first rule of expat tax basics is that moving abroad does not mean the end of IRS tax filing obligations for a U.S. citizen.
But which forms for the IRS are required on an annual basis?
In this blog, we review three types of forms: first - the basic forms that apply to most U.S. expats; second - common international forms for U.S. expats that hold accounts or assets overseas; and third - less common international forms that apply in special circumstances.
Forms for the IRS – Basic Forms
Form 1040 - The most basic and common form for filing with the IRS is the U.S. federal income tax return - 1040. This form is an annual requirement for all U.S. citizens and green card holders, regardless of residence and regardless of the source of your income, assuming certain income thresholds are met.The Form 1040 must be accompanied by certain schedules, depending on the circumstances of the taxpayer. Common schedules include: Schedule A (for itemized deductions), Schedule B (for interest and ordinary dividends), Schedule C (for self-employment reporting), Schedule D (capital gains and losses), and Schedule E (for supplemental income and loss).
Other basic forms include:
Form 1116 - In order to claim the foreign tax credit, an individual must file this form with their U.S. federal tax return.
Form 2555 – In order to claim the foreign earned income exclusion, an individual must file this form with their U.S. federal income tax return.
The foreign tax credit and foreign earned income exclusion comprise the two most basic methods used by taxpayer to prevent the double taxation of their income.
Forms for the IRS – Common International Forms
U.S. expats who hold accounts or assets overseas are subject to a number of specific filing requirements in the form of informational forms for the IRS. Some of these forms are submitted to the IRS as attachments to the personal income tax return, while others are submitted to other governmental departments. The failure to file any of the below forms can result in severe civil penalties, such as a $10,000 penalty per form per year. Additionally, in certain extreme cases, criminal penalties, including fines and incarceration, may apply if the reporting delinquency is shown to be willful.
FBAR - Perhaps the most common of international forms is the Foreign Bank and Financial Account Report (FBAR or FinCEN Form 114). Any U.S. account holder (person or entity) with a financial interest in or signature authority over one or more foreign financial accounts, with more than $10,000 in aggregate value in a calendar year, must file the FBAR annually. The FBAR is actually not a tax form per se, and it is not filed with the IRS. Instead, it is an informational report that is submitted with the Treasury Department. The IRS is responsible, however, for assessing and collecting civil penalties for FBAR delinquencies.
Form 8938 (FATCA) - If you reside outside the U.S. and own foreign financial assets, such as a bank account or investment account in a foreign financial institution, you are generally required to include FATCA Form 8938 with your U.S. federal income tax return if you meet certain asset value thresholds.
Form 5471 - Certain U.S. individuals who own more than 10% of stock in a foreign company classified as a corporation must include this form with their federal tax return. There are also several other similar categories of filers that must file this form. Special attribution rules (which include attribution between spouses) may apply to expand the scope of such categories. It is important for U.S. individuals who own shares in a foreign corporation to determine if they fall into any of such categories.
Form 3520 and 3520-A - Owners and beneficiaries of foreign trusts must report their trusts and certain trust activities to the IRS. Certain transactions between a foreign trust and a U.S. person need to be reported on Form 3520, and the trust itself may be required to file Form 3520-A. The Form 3520 is also used to report certain gifts from non-US persons.
Forms for the IRS – Less Common Forms
In addition to the basic expats forms for the IRS and typical international forms for the IRS, there are a number of forms that apply to less common circumstances. Below is a non-exhaustive list of such less common forms.
- Form 8621 – ownership interest in a passive foreign investment company
- Forms 8992 – ownership interest in a foreign corporation that generates global intangible low-taxed income (GILTI)
- Form 8865 – ownership interest in a foreign partnership
- Form 8833 – claiming benefits under a tax treaty with the United States
- Form 8858 – ownership in a foreign disregarded entity
- Form 8829 – expenses for business use of your home
- Form 8832 – entity classification election
- Form 8854 – expatriation by virtue of renouncing U.S. citizenship
It’s important to keep in mind that the late or non-filing of these less common forms can be met with harsh penalties, so it’s important that all activities outside the U.S. are carefully examined by you or your preparer to determine if reporting to the IRS is required.
If you are late reporting any of the above forms, from the most basic Form 1040 to the least common IRS international form, our experts at Expat Tax Professionals would be happy to discuss your particular circumstances and help you understand the best solutions for late filers.
Contact us and we’ll get you on the best path to compliance with the IRS.
