5 International Tax Mistakes to Avoid in 2023 (and How To Correct Mistakes Made in 2022)News, Offshore Account Update
Posted in on February 17, 2023
Whether you are a Virginia resident who spends time working abroad or you have accounts or investments offshore, you need to make sure you dutifully meet your obligations to the IRS. Underreporting foreign income and assets can trigger an IRS audit or investigation, and both underreporting and underpayment can lead to steep penalties.
Don’t Make These Common International Tax Mistakes in 2023
What do you need to do to avoid unwanted scrutiny from the IRS this tax season (or in the future)? Here are five common international tax mistakes to avoid in 2023:
1. Claiming the Foreign Earned Income Exclusion (FEIE) When You Don’t Qualify
The Foreign Earned Income Exclusion (FEIE) allows qualifying U.S. taxpayers to exclude up to $112,000 of their foreign-earned income from their federal taxable income annually. But, while some Virginia residents who work abroad qualify for the FEIE, others do not. If you claim the FEIE when you don’t qualify, you could end up substantially underreporting your taxable income to the IRS.
2. Failing to Report Your Excluded Foreign Income
If you qualify for the FEIE, you must still report your excluded income to the IRS. The IRS makes this clear, stating that the exclusion “applies only if . . . you file a tax return reporting the income.” Even if you don’t owe federal income tax on your foreign-earned income, you can still face penalties for failing to report it.
3. Improperly Calculating the FEIE
Calculating the FEIE is not easy. There are several factors to consider, and overlooking even a single relevant factor can result in an inaccurate calculation. Even if your mistake is inadvertent, improperly calculating the FEIE can lead to interest and penalties from the IRS.
4. Failing to Disclose Your Offshore Bank Accounts to FinCEN
Along with reporting their foreign income, Virginia residents must also report their foreign assets in many cases. This includes reporting their offshore bank accounts to the Financial Crimes Enforcement Network (FinCEN). If you have offshore accounts that exceed the relevant reporting thresholds, you must file a Report of Foreign Bank and Financial Accounts (FBAR) annually.
5. Failing to Disclose Your Foreign Financial Assets to the IRS
Taxpayers must also report other foreign financial assets to the IRS in many cases. Regardless of whether you file an FBAR with FinCEN, you may also need to file Form 8938 with the IRS under the Foreign Account Tax Compliance Act (FATCA).
What If You Made These Mistakes in 2022 (or in Prior Years)?
What if you made one of these mistakes in 2022 (or in a prior tax year)? As discussed above, foreign income and asset reporting violations can lead to scrutiny from the IRS. However, if you are not yet facing scrutiny, you may be able to protect yourself by submitting a voluntary disclosure or streamlined filing. Both of these are options under different scenarios, and you will need to consult with an experienced international tax attorney to determine which is the best option given your present circumstances.
Schedule an Appointment with International Tax Attorney Kevin E. Thorn in Virginia
If you need to know more about foreign income or asset reporting compliance as a Virginia resident, we encourage you to contact us promptly. Call 703-752-3752, email firstname.lastname@example.org or contact us confidentially online to schedule an appointment with international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.Share This Post