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Many Americans living overseas are unaware that they are required to file a U.S. federal income tax return every year, regardless of where they live in the world - and the procedure can be rather daunting. Filing - or not filing - returns pretty much guarantees a few sleepless nights. What’s more, the U.S. tax code changes frequently, making it rather difficult to latch on to a particular method.
Important things to know for Americans overseas and Green Card holders
■ If you are residing in Japan but are a U.S. citizen, then bear in mind that you are eligible to pay taxes in the U.S. if your income from worldwide sources is over a specified amount.
■ The due date for paying your taxes is April 15. You receive an automatic 2-month extension for filing only until June 15 for those who live outside the U.S.
■ Further extension until Oct 15 is granted to file the taxes by filing form 4868 before due date. For Americans living overseas, you must file form 4868 prior to June 15.
■ If you have paid taxes in Japan, then you can take a credit or deduction for the same so that your U.S. taxes are reduced. i.e. No double taxation.
■ As a U.S. citizen living in Japan, you can take advantage of certain tax-related benefits such as Foreign Earned Income Exclusion (FEIE) and Foreign Housing Exclusion (FHE). For the 2013 tax year, you can exclude up to $97,600 of foreign earned income.
■ What to prepare: In addition to any other documents needed to prepare your return, your U.S. tax preparer will ask for copies of your Japan income tax withholding statement “gensen choshu hyo” (給与所得源泉徴収票). Actual taxes paid will depend on your salary amount, resident vs non-resident status and other factors. There are also various other Japan based taxes that may affect your U.S. tax filing, which your tax preparer should review when preparing your return.
What is FATCA and why has it got non-resident Americans so worried?
According to the IRS, under the newly introduced Foreign Account Tax Compliance Act (FATCA), U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. This reporting will be made on Form 8938, which taxpayers attach to their federal income tax return, starting this tax filing season.
In addition, FATCA will require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
While FATCA was likely introduced as a long-term strategy for more capital control and increased reporting requirements and transparency for Americans trying to hide assets overseas, it includes non-resident Americans, who in most cases need to open bank accounts for routine purposes such as receiving salary and paying rent. You might have received a letter from your bank in Japan recently asking if you were an American or not. While actual filing requirements differ somewhat for eligible non-residents (e.g. minimum threshold amounts), the basic procedures bank and personal reporting requirements are the same.
As reporting requirements (and penalties for not filing) are constantly changing, it is important to find a professional tax preparer who will be able to wade through the ever-increasing complexity of tax filing for Americans living abroad.
© Japan Today
21 Comments
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gokai_wo_maneku
"eligible to pay taxes"? That is a nice way to put it.
Cricky
BBC had a story 1 year ago about people relinquishing their citizenship (US) to avoid paying tax on income (earnings) in another country. Seems pretty harsh.
M3M3M3
@Suzu1
Canada only taxes its residents, not all of its citizens as in the US. In Canada, If you are outside of the country for at least 183 days out of the tax year, you are generally regarded as a non-resident for tax purposes and only pay tax on income earned while in Canada. The reason that you may have had trouble with them is that they didn't believe that you had passed the 183 day limit within the tax year.
twinans
I am always told that I have to pay Japanese taxes and American taxes.
Princess Sheila
Might as well make Japan into 52 states including Puerto Rico.
M3M3M3
The only 2 countries that have an extraterritorial tax system requiring non-residents to report foreign income:
1.) United States (Land of the free)
2.) Eritrea (One of the poorest countries in Africa)
http://en.wikipedia.org/wiki/International_taxation
EthanWilber
Benjamin Franklin once said " In this world nothing can be said to be certain, except death and taxes.
I am almost 7,000 thoudand miles away from home, but tax deadline still follows me, worse double dipped.
John Galt
" Any suggestions?" Jamie, best thing is to renounce US citizenship. That's what people are increasingly doing, though still in relatively small numbers. Every year the number of renunciations has increased significantly. Tina Turner did, too.
Suzu1
The important thing is to declare bank accounts on a Form 8938 with your tax return if the balance reaches the reporting threshold. The bank account itself may not require payment of taxes, but the failure to report the account could lead to severe penalties. Japanese banks will be reporting account information to U.S. tax authorities so there is no chance that you can just ignore the requirement and hope it goes away.
Badge213
If you make over $97600 USD, then yes. If under, you are exempted, but you still need to file.
FATCA when it comes to US JPAN requires banks to report accounts over $50000 USD. The threshold for other countries is lower.
lucabrasi
My sympathies to all the Yanks out there... I'm all for a robust tax system, that's what keeps teachers, doctors and the police in work.
But having to pay tax in a country where you don't reside seems perverse....
texasTom
Also, if you have not filed FBAR , you better start now. I received a letter from Citibank Japan informing me that they are required to report american bank holders to IRS. I had not filed in 14 years since i've been in Japan but under some amnesty program, we only had to file the last 3 years of taxes and 6 years of FBAR.
texasTom
did you guys see this. Guy gets nailed for 150% for failing to say he had cash in overseas account! gotta love the IRS.
http://www.forbes.com/sites/irswatch/2014/05/29/zwerner-jury-determines-150-fbar-penalty-applies-what-next/
Suzu1
That's not quite true, as appealing as it must be to make the extreme juxtaposition. Try explaining to the Canada Revenue Agency that you didn't think you were required to pay taxes simply because you live and work abroad.
M3M3M3
Just a thought, I wonder if Edward Snowden has sent his tax return in this year. If he hasn't, I think the IRS probably has more resources to get him than all the intelligence agencies combined.
FizzBit
I've never been over the threshold, so I don't have to pay. However, since I'm self employed, I didn't realize until a few years ago that I still have to pay Social Security. I haven't paid since I've been here. I'm looking at, at least a $10,000 plus bill and fines if they decide to. Not sure if it's worth it though in this crazy fiat world.
John Galt
Good article, even if it is from CNN
http://money.cnn.com/2014/02/17/pf/taxes/citizenship-taxes/
Further, from Dollar Vigilante,
2013 marks a record year for renunciation of citizenship by US taxpayers, exceeding by two-thirds the previous high set in 2011. Since 2006, expatriations have increased tenfold from the US. 630 individuals renounced US citizenship or ended long-term US residency by turning in their green cards during the fourth-quarter.
The fourth-quarter figure increased the total number of expatriations for 2013 to 2,999. The previous record was 1,781 in 2011. That's a staggering 221% increase!…"
It may seem like a slow trot for now, but better a bit early than too late. "
texasTom
People think because they don't earn more than $97,000 they don't need to file. This is false. I learned the hard way. You will not pay tax but you still must file. And to do this, you have to file form 2555 to qualify for it. We applied for my spouse's green card and we were told we had to file taxes.
Nessie
Here's more info:
http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements
Note that you need to file "Form 8938, Statement of Specified Foreign Financial Assets" if your bank account had the equivalent of $50,000 at the end of 2013 or $75,000 at any time during 2013. The thresholds are higher if you live overseas, and they may differ for married filers.
Note also that you need to file "FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)" if you had a foreign account worth more than $10,000 at any time during 2013. The catch is that this is no longer filed by mail. You MUST file it online using Adobe. Here's the link.
http://bsaefiling.fincen.treas.gov/main.html
Good luck.
Jamie Lunel
I haven't filed US taxes in over 18 years, but my income has only been as high as 7 million yen. This year however, I will have made around 15 million. I need to hide it. Any suggestions?
Nessie
Guy gets nailed for hiding millions of dollars in assets overseas? Good.