I live in Europe, do I have to submit a U.S tax return?

If I had a euro for every time, I have been asked this question, I certainly would be able to buy a very nice T.V so it is high time I wrote a brief piece on this.

Liability for U.S. income tax is based on citizenship. If you have a US passport, for whatever reason you need to submit a US tax return unless your income, for example, is below $12,000, a single person and under age 65. You must file an annual U.S. income tax return regardless of where you live or how long you have been away from the U.S. For U.S. tax purposes, you must report your worldwide income from all sources. This include reporting investments and bank accounts with balance above USD10,000 (FBAR reporting).

The requirement to submit annual US tax returns still applies even if you have never lived in the US but have received a passport via your parents.

It is also a common misconception that if you expect to have no U.S. tax liability you do not have submit a US tax return. While in practice this is the most common outcome given the higher tax rates in most European countries compared to the US; Tax returns still need to be submitted even if it just for compliance purposes.

Traditionally there has been a relatively low compliance for US citizens living overseas permanently, taking the view that the US government could not possibly know about their financial affairs. Well that all changed with the introduction of FATCA (Foreign Account Tax Compliance Act) the most comprehensive compliance system the world has ever seen, read more about it here in a previous blog.

If you have never filed a tax return, a US citizen and living abroad for more than 3 years, currently you can use the IRS Tax Amnesty Program. This allows you to normalise your tax affairs without any penalties. The streamlined procedure requires you to submit US tax returns for the last 3 years, plus the last 6 years FBARs (if applicable), and a note that states how your previous failure to file was not because of wilful avoidance (e.g. knowing about it but not doing it anyway).

So yes, file a US tax return and avail of the IRS Tax Amnesty Program while it is still available, if required.

Author: Frank Mulcahy Principal & Personal Financial Manager at Trinity Financial Management

At TFM we work with Expatriates to help them navigate their complex financial affairs when abroad. Contact Frank on frank@trinityfinancial.ie to discuss your needs.

This article is provided on the strict understanding that it is for the reader’s general consideration only. Accordingly, no action must be taken or refrained from based on its contests alone.

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