International Tax FAQ
Some of the most frequently asked questions RJS LAW addresses when advising clients on international tax matters | International Tax FAQ.
“When the IRS Crosses Borders, So Do We“
What makes me a U.S. taxpayer for international tax purposes?
U.S. tax obligations generally apply to: U.S. citizens, lawful permanent residents (green card holders), and certain non-residents. Each category carries different reporting and filing obligations.
Do I have to pay U.S. tax if I live abroad? International Tax FAQ
Yes, if you are a U.S. citizen or green card holder, the U.S. generally taxes you on your worldwide income, even if you live and work outside the United States. However, exclusions, credits, and treaties may significantly reduce or eliminate double taxation.
Am I being taxed twice on the same income?
Not necessarily. The U.S. offers mechanisms such as the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credits (FTC) to reduce or eliminate double taxation. The best option depends on your income type, country of residence, and overall tax profile.
What counts as foreign income?
Foreign income includes wages, self-employment income, rental income, investment income, pensions, and business income earned outside the United States, regardless of whether the money is paid into a U.S. or foreign bank account.
What counts as a foreign financial account?
Foreign bank accounts, investment accounts, certain foreign pensions, foreign brokerage accounts, and some foreign digital asset accounts may qualify. Ownership, signature authority, and control can all trigger reporting.
Do I have to report income that never entered a U.S. bank account?
Yes. U.S. taxpayers must report all worldwide income, even if the funds never touched a U.S. financial institution.
Do I need to report ownership in a foreign business?
Yes. Ownership or control of a foreign corporation, partnership, or disregarded entity may trigger filing requirements such as Forms 5471, 8865, or 5472, even if the business earned little or no income.
What is an FBAR, and do I need to file one?
An FBAR (FinCEN Form 114) is required if the aggregate value of your foreign financial accounts exceeds $10,000 at any time during the year. This is a reporting requirement and is filed separately from your tax return.
What happens if I failed to file FBARs or international forms in prior years?
There may be large civil penalties, but the IRS offers voluntary disclosure and streamlined compliance programs that allow eligible taxpayers to come into compliance while significantly reducing penalties.
What is FATCA (Form 8938) and how is it different from FBAR?
Form 8938 is filed with your tax return and applies to certain foreign financial assets above specified thresholds. While FBAR and FATCA overlap, they are separate requirements, and filing one does not satisfy the other.
Are foreign retirement accounts taxable in the U.S.?
Often, yes. Some foreign pensions and retirement accounts are taxable annually in the U.S., and many do not receive the same tax treatment as U.S. retirement plans.
Should I close my foreign accounts to avoid problems?
Not necessarily. Proper reporting, not account closure, is usually the solution. Closing accounts without proper disclosure can sometimes create additional issues.
When should I consult an international tax attorney?
You should strongly consider consulting an international tax attorney if you: have unreported foreign income or accounts, own or control a foreign business, received an IRS international compliance notice, or you are considering voluntary disclosure or streamlined filing.