Accidentally
American? (expats)
An increasing number of people are accidentally discovering that they are American citizens and didn't know it. If you were born in America, or have an American parent, by US law you are automatically a US citizen regardless of whether you have a US passport, SSN, or have even been to the USA. Once this reality dawns, they then sometimes discover they are required to file a US tax return each year. These revelations can be disconcerting when it comes to the annual tax reporting obligations.
Once this reality is realised, the process of getting compliant with Uncle Sam can be overwhelming. This page helps outline the options for those who find themselves in this situation. Gingerbread Tax can assist with helping you through this situation. We have been there ourselves.
1. Social Security Number
American citizens are not eligible for an ITIN. Instead they need a social security number (SSN) which they can apply for using form SS5 . Make sure to follow the instructions and documentation requirements for applying for an SSN
2. Annual Filing - from $400
If you reside permanently outside the USA, you can claim up to USD$108,700 (as of 2021) as income tax exclusion. For Americans who are not high income earners and spend less than 30 days per year in the US, this means there is no US income tax liability (but you still need to file a US tax return.) Each year you will need to file your 1040, Sch1, and 2555 forms and complete your FBAR. You can do this yourself or you can contact us to file your returns for you:
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Form 1040 + Schedule 1 and instructions
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Form 2555 and instructions
3. FBAR - from $250
FBAR stands for Foreign Bank Account Reporting. This can be e-filed by the US individual or entity who owns or controls the non-US account(s). Using Adobe, you can create this once, save your pdf as a template, and upload it each year just noting any changes. FBAR is managed by the Department of the Treasury and the Financial Crimes Enforcement Network (FinCEN), not the IRS.
4. Streamline Process (Amnesty) - from $1295
If you realise that you have missed multiple years of tax return filings, you can apply for amnesty through the Streamline process. It is the easiest and cheapest way to catch up and remain in compliance.
In a nutshell, you have to file your Form 1040(NR), US tax returns for the last 3 years, plus 6 years of FBAR (foreign bank account reports). By using this amnesty program, you can forget about previous years, the IRS promises not to look back any further than 3 years as long as you promise to keep filing each year. On top of that, they promise no fines or penalties.
To be eligible with the program, your reason for being behind your US taxes should be due to a non-willful conduct (due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirement of the law.). You must also have stayed outside the US for 330 days in at least one of the last 3 years. You must have not received a notice from the IRS nor have any bank accounts levied by the IRS. Contact us for a discussion and referral to the best professional to assist.
5. Renouncing Your US Citizenship
Increasingly Americans who are dual citizens are electing to renounce their US citizenship in order to escape the burden of tax reporting and compliance. But in an increasingly digitally surveilled world, it is important that you exit correctly so you are not liable down the track.
If you have filed your US tax returns for the last 5 years, earn less than USD$172K and have a net worth less than USD$2M, the process to renounce is relatively straight forward as follows:
If you do not meet those 3 criteria, you are a 'covered expatriate' which means you will need to undertake a point in time inventory of your assets to determine any expatriate tax that you may owe. You will want to engage a specialised tax professional for this process.
