For many American business owners, expansion could mean overseas growth or increase in profits. But one thing remains the same: paying taxes. The law on filing tax returns and paying for taxes are often the same regardless of the size of your business. Every year, you are required to submit a report on your international financial accounts to the Treasury Department. Failure to do so could lead to civil monetary penalties or even criminal penalties.
But if you have a foreign tax lawyer, they can assist you in your tax problems and resolve any tax issues. Your lawyer will help you understand how much and in what ways international tax law affects you. If the IRS assesses that you are not fulfilling your tax obligations, then they may think that you are a likely candidate for an audit.
However, once faced with this issue, they can help you get through the entire process and solve the issue as soon as possible. A Report of Foreign Bank and Financial Accounts (FBAR) is essential at this point, but do you know what it is?
Who must file
Anyone from the United States, whether they are a citizen, resident or corporation, should file for an FBAR. Any account opened in a financial institution outside of the US is considered a foreign financial account.
When to file
US citizens or residents who are based overseas, or military assigned outside of the country, are given two months as an extension from the day of their arrival to file their tax return; requesting for an even longer extension will not be granted.
What to report on your tax return
- Gross income – this includes all income received throughout the year like goods, money and services.
- Foreign income – this is the type of income that you can get from payments for your products or services in a foreign country. However, any amount earned from your products or services done in the US must be reported under US source of income.
How to file
Taxpayers with adjusted gross income (AGI) are required to file the FBAR electronically through the Financial Crimes Enforcement Network’s BSA E-Filing System for free. However, for those who would still opt to paper file their FBAR, you must ask for an exemption for e-filing.
Penalties
Being ignorant about international law can increase the chances of becoming a candidate for audit. It also does not help that people try to illegally underpay their taxes by using foreign earnings to disguise their actual wealth. It makes the IRS stricter and more sensitive to this kind of situation. US citizens and residents who fail to fix their taxes or refuse to admit about their foreign taxes might face legal consequences regardless if it was done intentionally or unintentionally.
Tax issues can give you a financial headache. Hiring a lawyer can help you prepare and come up with a legal strategy to protect yourself, your family, and your investments. Remember, ignorance of the law excludes no one, especially businessowners.