Common International Tax Issues for New Jersey Residents Working AbroadArticles/News, Offshore Account Update
Posted on February 17, 2023 | Share
If you are a New Jersey resident but you spend time working abroad, it is important to make sure you have a clear understanding of your obligations to the Internal Revenue Service (IRS). While U.S. citizens working abroad can exclude foreign-earned income from their taxable income in some circumstances, reporting and payment violations are common—and these violations can trigger IRS audits and steep penalties.
4 International Tax Mistakes to Avoid as a New Jersey Resident Working Abroad
What are the international tax mistakes you need to avoid as a New Jersey resident working abroad? Here are three common mistakes that can lead to problems with the IRS:
1. Improperly Claiming the Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion (FEIE) allows U.S. taxpayers who work overseas to exclude up to $112,000 of their foreign-earned income from their federal taxable income. But, not all types of income are eligible, and just because you spend time working overseas, this doesn’t necessarily mean that you can claim the exclusion.
2. Improperly Calculating the FEIE
If you are eligible to claim the FEIE, you must calculate your excluded income correctly. In addition to knowing what sources of income are eligible, this also requires an analysis of the amount of time you spent working abroad compared to the number of days you worked domestically—among other factors. Improperly calculating the FEIE can lead to underreporting and underpayment, and this can lead to IRS scrutiny, interest and penalties.
3. Failing to Report Foreign-Earned Income When Claiming the FEIE
Even if you are eligible to exclude your foreign-earned income, you must still report this income on your federal returns. The IRS makes this clear, stating, “the exclusion applies only if you are a qualifying individual with foreign earned income who meets all of the requirements to claim the foreign earned income exclusion and you file a tax return reporting the income.”
4. Failing to Report Foreign Financial Assets (Including Bank Accounts)
In addition to failing to properly report foreign-earned income, U.S. taxpayers living abroad also frequently make the mistake of failing to report their foreign financial assets. This includes offshore bank accounts. If you have a bank account in a foreign country, if you own shares in a foreign company, or if you own any of a variety of other foreign financial assets, you may have an obligation to report these to the IRS and the Financial Crimes Enforcement Network (FinCEN) on an annual basis.
Request a Consultation with International Tax Lawyer Kevin E. Thorn in New Jersey
What should you do if you have concerns about international tax compliance as a New Jersey resident? If you are concerned that you may be behind on your federal tax reporting or payment obligations, you should speak with an international tax lawyer as soon as possible. To request a confidential consultation with Kevin E. Thorn, Managing Partner of Thorn Law Group, in New Jersey, call 201-842-7696, email firstname.lastname@example.org or tell us how to contact you online today.