Annual Tax Return - Form 1040
The United States is one of the single countries in the world, where a tax on foreign income is based on citizenship and not a residence. As a person who has U.S. citizenship or green card, you are considered as a "U.S. person", even if you lived and worked all your life outside the country. As a U.S. person, you have certain obligations, such as the requirement to report and file annually your tax return and FBAR, above certain thresholds. A tax return might of course lead to a tax liability to the IRS, but on the other hand, you are also might be entitled to certain privileges, even if you live outside the U.S. and never had actually to pay U.S. taxes. Two of the most significant benefits for U.S. citizens living abroad are the child tax credit and education credit.
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In this section, we will cover the annual tax return fundamentals that every U.S. citizen must know and be aware of.
You must have a social security number (SSN) to be able to file your tax return and FBAR. If you don't have an SSN you can apply for it by completing form SS-5 and returning it, along with the appropriate evidence documents, to the Social Security Administration (SSA). or contact the U.S. embassy in Israel. It usually takes about 2 weeks to get an SSN.
Even if you do not have an SSN, it doesn't release you from the tax obligations to file the required reports.
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The Difference Between Tax Filing Requirement and Actual Tax liability
If you meet the filing thresholds, which are discussed below, you are required to submit annually the tax return and/or the FBAR. This is a tax filing requirement. This is different from having to actually pay taxes. Filing a U.S. tax return doesn't necessarily mean that you will have to pay taxes to the IRS. In fact, as a U.S. citizen who lives and works abroad, you might be eligible for certain credits which can entirely eliminate your tax liability to the IRS, and even result in a refund. We heard too many times the story about U.S. citizens, who were afraid to file their tax returns but turns out that they were eligible for refunds from the U.S. government which due to the expiration of prior years cannot be claimed anymore. Don't make this mistake, call us today or contact us for a free consultation.
If you never filed U.S. tax returns or FBARs, consider the Streamlined Foreign Offshore Procedures.
Annual Tax Return Filing Thresholds
The annual tax return requirement depends on your filing status, age, and gross income. There is one major exception to the table below - if you are self-employed with annual net earnings of at least $400, you have to file the tax return, even if your overall gross income is below the threshold below. Being self-employed might lead to paying social security taxes to the IRS. we cover the social security topic in-depth here.
The filing threshold for the FBAR is covered in over FBAR section. In short, a FBAR has to be filed if the balance in all of your foreign financial accounts was, at any point of the year, $10,000 or more.
Deadline to File Your Annual Tax Return and Pay Your Tax Due
The due date to file your tax return and pay the tax due is April 15th. If you live outside the United States and your main place of business is outside the United States, you are allowed an automatic two-month extension to file your return without asking for it. This means that there is an extension to June 15th, but you must pay any tax due or an estimated tax by April 15th, or penalties might be charged. If you qualify for this two-month extension but are still unable to file your return by that date, you can request another one until October 15th by filing Form 4868 before the automatic extension date.
