IRS has provided filing advice for persons who had 2014 connections to foreign countries. For example, it reminded U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2014, that they may have a U.S. tax liability and a filing requirement in 2015, and that the June 15th filing deadline is quickly approaching.
Income tax return filing requirements, including deadlines. U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return, generally have an automatic 2-month extension beyond the regular April 15th deadline to file their returns. To use this automatic 2-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies.
Nonresident aliens who received income from U.S. sources in 2014 must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15th or June 15th depending on sources of income.
U.S. citizens and resident aliens are legally required to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B, Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.
Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the U.S. during 2014 must file a dual-status alien return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with IRS at the address provided by the due date of the tax return, including extensions.
Foreign account reporting. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens, and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds.
Separately, taxpayers with foreign accounts, the aggregate value of which exceeded $10,000 at any time during 2014, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, an FBAR form. It is due to the Treasury Department by June 30, 2015, must be filed electronically, and is only available online through the BSA E-Filing System website (see http://bsaefiling.fincen.treas.gov/main.html). It is not a tax form.
Simplified reporting for Canadian retirement accounts. Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans, is used by U.S. citizens or residents to report contributions to Canadian registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs).
Report in U.S. dollars. Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars. Both Form 114 and Form 8938 require the use of a December 31st exchange rate for all transactions regardless of the actual exchange rate on the date of the transaction. IRS generally accepts any posted exchange rate that is used consistently.
Free file and e-file now available. Taxpayers abroad can now use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $60,000 or less can use brand-name software to prepare their returns and then e-file them for free. A limited number of companies provide software that can accommodate foreign addresses.
A second option, Free File Fillable Forms, the electronic version of IRS paper forms, has no income limit and is best suited to people who are comfortable preparing their own tax return.
Both Free File and other e-file options are available until October 15, 2015, for anyone filing a 2014 return. Taxpayers can check out the e-file link on IRS’s website for details on the various electronic filing options.