Non Filers Corner - Facts and misconceptions.
 

1. "My income is under the $100,800 exclusion amount so, even if I filed a tax return, I would owe no tax"

I often hear this comment. It's not true. Actually people with wages under $100,800 have more to worry about than people over $100,800.

The reason is, if you lose the $100,800 exclusion, (see Amnesty below) you can still deduct the Japanese taxes paid against the US tax. Japan has a much more progressive tax system under which lower incomes are taxed at a much lower rate and higher incomes are taxed at a much higher rate than in the US.

Therefore, if you are under the $100,800 in wages the Japanese tax may not be enough to offset the US taxes and you have to pay the difference plus interest and penalties. At higher incomes the Japanese tax exceeds the US tax, resulting in no US taxes or penalties owing in many cases.

2. "I don't have any income in the US and don't plan to return to the US. Why should I file?"

1. If you have children under 17, you may qualify for thousands of dollars of child tax credits even though you haven't paid any taxes.

2. The IRS may send you a letter asking for a tax return which means that you may lose the $100,800 exclusion amount.

3. A relative may leave you an inheritance, the income from which will be reported to the IRS. This may be done without your knowledge. Then the IRS asks for a tax return, and you lose the $100,800 exemption.

4. Your children will need copies of your tax returns if they apply for financial assistance at a university.

5. You will need copies of your tax returns if a family member applies for a green card.

6. You are legally required to file.

3. "Amnesty"

There is no such thing in the normal sense of the word. What happened a few years ago was that the tax law changed. The prior law said that if you file more than one year late, you lose the Foreign Earned Income Exclusion of $99,200. Under the new law, you can file late and still get the $100,800 exclusion as long as you do it before the IRS contacts you. If you wait for them to contact you, you lose the exclusion.

4. "How many years to file"

Recent IRS advice is to file income taxes for 3 years and FBAR (Foreign Bank Account Report) forms for 6 years.

5. "I don't have the documents for prior years"

If you have made an effort to get the documents, and can't, I have no problem preparing the returns based on your best estimates.

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