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Why Americans Abroad Should File U.S. Tax Return

Taxes for Expats

1. First and foremost, it’s the law – If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. It’s that simple.

Whether or not you end up paying tax on that income is irrelevant – the income itself must be reported. We might as well end the list right here but there are five more reasons that actually make filing U.S. Tax Return advantageous to you:

2. If you fail to file, you cannot claim foreign income exclusion and you may be liable for penalties.

You are eligible to exclude up to $100k if you meet the qualifications for FEIE. However – you must file in order to avail of this exclusion – it is not given automatically.

3. There is a three year statute of limitations on filed tax returns.

If you do not file, the statute of limitations never runs out. Therefore it is in your interest to file to ‘run the clock’ and not leave yourself exposed to an audit down the road.

4. Most of our clients never actually have to pay anything to the IRS…

The combination of taxes paid in the host country and various deductions available to expats results in no cash outlays.

5. If you are a green-card holder, filing U.S. tax return establishes…

“Good moral character” in the eyes of INS USCIS for immigration compliance.

6. If you do owe money to the IRS and do not report it, you are liable to pay penalties and interest…

Which accrue in perpetuity. After about five years, the amount of penalties accrued may more than double the original tax bill (compare it with stock market performance, which is flat for the last 10 years).

Let’s look at some real numbers to really bring this point home. Below we plot what would happen to $1,000 invested in the U.S. stock market (Dow Industrials) vs $1,000 owed to the IRS. Assume that tax was due on January 1, 2005.

Taxes for Expats

For those who like to play with the numbers, you can find the actual spreadsheet here.

As you can see, the stock investment has done very little, while the tax bill has almost doubled in 5 years.

7. U.S. government is actively exploring the option of refusing

Renewal of US passports for delinquent taxpayers. Congress requested a study by the Government Accountability Office (GAO) to look into whether withholding US passports from individuals with outstanding tax balances would increase IRS tax collections. The study (, released by the GAO in March 2011, suggests billions in unpaid tax revenue could be claimed by the IRS if individuals owing taxes were denied US passports.

As federal deficits continue to mount, the federal government has a vital interest in efficiently and effectively collecting the billions of dollars of taxes owed under current law. Federal law already allows the linkage of debt collection with the passport issuance process in certain areas, including for certain outstanding State Department debt and child support enforcement, the report said.

8. As you have probably heard, the US government has started …

To actively pursue its citizens who have unreported foreign bank accounts. Congress has passed numerous laws that make it a criminal offense with draconian fines and even a threat of a jail sentence. IRS allows US citizens to come clean and report these foreign accounts under either the quiet disclosure or an occasional Offshore Voluntary Disclosure Initiative. However – whichever program you follow, you must declare that all your past due tax returns are filed.

9. Lastly – the government is actively working with foreign countries…

that have large numbers of US expats in order to secure information about them:

If you happen to live in a different country, it is only a matter of time before they will get there. Ultimately the graph below presents all the information you need to know. US debt is exploding and the government is doing all it can to improve collection.

The government knows that over 6 million Americans are living abroad and only approximately 500,000 file income taxes abroad. Their goal is to increase that number by any means.

Taxes for Expats

These are the reasons why American Expats should file their US tax returns. We have also prepared a list of reasons why you should enlist the services of Taxes for Expats to help you file.

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