The U.S Tax Code is notoriously complicated, and even inadverted error can cause severe headaches to tax payer not to mention costly penalties.

Tax return filing can be very stressful, especially for those living abroad or unfamiliar with the vital changes in US tax laws.

“Have I reported all  income accurately?” “Have I claimed all available exclusions/credits?” “Do I need to file FBAR to disclose my foreign financial accounts? What is FATCA?” “What if I filed my prior year tax returns incorrectly?” “Do I need to file a US tax return?” From these fundamental questions that many may have, here are five of the most common errors that should be avoided, as explained by Sekiyama U.S. Tax Consulting experts.

1. Not reporting entire income

If you are a US citizen, a Green Card holder, or a U.S. resident, your World-Wide income is taxable, so all income must be reported. On a married-filing-joint (MFJ) return, both spouses’ entire income should be reported regardless of where they were earned. This rule applies even if your spouse is NOT a US citizen or a Green Card holder as long as MFJ return is filed.  Also note that filing separate returns to avoid taxes on s spouse’s income may rather end up with higher tax rate and more tax liability.

1. 2.  Not claiming Exclusions/Credits to reduce tax liability

Satoru Sekiyama is a U.S. certified CPA and has a tax consulting office in Tokyo.

If you are living/working abroad, you may wonder why you have to report to both the US and foreign government. Reporting your World-Wide income to the IRS cannot be waived; still there are ways to reduce  US tax liability by claiming Foreign Earned Income Exclusions (FEIE) and Foreign Tax Credits (FTC). FEIE provides an option to deduct from US taxable income, income earned abroad up to $97,600. Should any amount not be fully offset by the FEIC, FTC may be available.

3. Not being compliant with Foreign Account and Asset Disclosure Requirement

FBAR – FBAR is a form to disclose foreign financial accounts. The filing requirement applies to US persons including US citizens, Green Card holders, or U.S. residents whose aggregate maximum balance, at any time during the year, exceeds $10,000. FBAR is only an informational document, and no additional tax will be added. However, severe penalties can be levied against taxpayers who fail to file or file late.

FATCA – FATCA is a product of U.S. efforts to combat offshore tax evasion. Similar to FBAR, FATCA requires disclosure of foreign financial assets by filing Form 8938, but FATCA has a separate filing requirement and threshold than that for FBAR.  Make sure that the following items are fully disclosed for both FBAR and FATCA: insurance with cash surrender value; employer savings account; and vested severance pay.

4. Not filing Amended Tax Forms

If you become aware you made errors in previously filed tax returns or did not file necessary forms, consider about filing an amended form as soon as possible. Taxing authorities can assess severe penalties for significant underreporting of income or for failure to file.

5. Not sure if you even have US tax filing requirement

You may think that your spouse is exempted from filing FBAR because he/she is not a US citizen, Green Card holder, or a US resident; but your spouse who has no US citizenship/ Green Card may need to file FBAR if MFJ return is filed.

Sekiyama U.S. Tax Consulting LLC is a U.S. CPA office located in Tokyo. They specialize in U.S. tax law and provide the following services: Individual income tax return & FBAR preparation; Tax consulting and planning; Amending previously-filed tax returns and FBARs, etc. Contact them for tax services or any advices. Contact info@sekiyamatax.com or call 03-5403-4639 with inquiries, or visit www.sekiyamatax.com for more information.

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