As a wise man once said, “Forewarned is forearmed”…and that’s never truer than when it comes to taxes. Informing yourself of all the IRS regulations is a sensible idea—and could save you thousands of dollars.
While it’s important for every American citizen to understand the phraseology of the regulations, if you’re thinking of living, working, or investing abroad, it’s even more important. That’s because, for American expats, there is a whole other set of IRS regulations for you to understand—many of which can save you thousands of dollars in taxes if followed correctly.
But decoding those regulations can be tough. To the layman, the terms often seem to contradict each other. Things are made all the more confusing by the fact that often the regulations contain words and phrases in English, but which in reality mean something else.
You might be surprised to know, though, that it’s not only the layman who has difficulty with the IRS regulations. In my 30 years as a Certified Public Accountant (CPA), I’ve spent a lot of time referring to and applying the IRS code to help my clients minimize their tax burden. During this time, I’ve found that even IRS agents conducting an audit need some help understanding the unique IRS vocabulary.
So to help you better understand the regulations and to help to save you money in both taxes and costly penalties, here are the four IRS phrases that I have found most commonly misunderstood by U.S. expats:
- Bona Fide Resident
- Foreign Earned Income Exclusion
- Foreign Financial Asset
- Foreign Account Tax Compliance Act (FATCA)
When misinterpreted, these can lead to a whole host of misunderstandings of the regulations. I regularly hear things like:
“I earned less than the Foreign Earned Income Exclusion amount, so I don’t have to file my U.S. tax return—I’m excluded, right?”
“I’ve just gotten residence in Ecuador. That means I don’t have to file my U.S. taxes anymore, doesn’t it?”
“I purchased my foreign real estate in a foreign corporation. Real estate’s not a foreign financial asset, is it?”
“If I move overseas, the IRS won’t be able to find me—especially if I open an account with my non-U.S. passport, right?”
(In case you’re wondering, none of these statements are true.)
These examples prove how dangerous it is for any of us to try to interpret the IRS Code using our everyday English vocabulary.
But what can you do to inform yourself? Well, there is no one dictionary for IRS verbiage. You could spend countless hours cross-referencing and weigh all the IRS publications, regulations, and judgments against each other. Even then, you might end up more confused than when you started, particularly because those texts often conflict with one another.
Even if you were to spend all your time reading all the information available, you still would not have the face-to-face IRS audit experience of a tax professional. So that’s why IL had me create the book Expat Taxes Made Easy.
In clear, everyday language, I’m giving you my 30 years of experience—to make sure you understand how to keep yourself out of trouble with the IRS…and that you’re saving all you’re entitled to save on your tax bill.
Those troublesome terms and regulations—Bona Fide Resident, Foreign Financial Assets, Foreign Earned Income Exclusion, Foreign Account Tax Compliance Act—are explained in detail. I’ll also give you a complete overview of reporting regulations like FBAR, so you can be sure you’re fully complaint. I’ve even included checklists and sample tax returns along with IRS references and explanations.
Because this book is updated annually, I can give you the most up-to-date info around on your tax responsibilities overseas—like the fact that, unlike previous years, the Treasury Department is requiring all forms to be electronically filed (no more paper forms!)…or that there is a brand-new form that will replace an existing form…or how to avoid potential penalties of $10,000 for incorrect filing.
I’ve always seen it as my job to put myself between my clients and the IRS. One way I do that is to make sure my clients are well-educated in the best tax practices for their lifestyle. It’s my goal with this tax book that you have the best information available, too.