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1.
" My income is under the $85,700 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 $85,700 have more to worry about than
people over $85,700.
The
reason is, if you lose the $85,700 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 $85,700 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 credit even though
you haven't paid any taxes. See the ALERT button explanation.
2.
The IRS may send you a letter asking for a tax return
which means that you may lose the $85,700 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 $85,700 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
$85,700.
Under the new law, you can file late and still get the
$85,700 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"
The
tax law is clear. You should file for all years. However,
I have had clients who have told me that the IRS office
in the Embassy typically says to file for 5 or 6 past
years, plus any other years that you think that you might
owe tax.
I prepare returns for long-term non-filers, based on their
request, as follows:
a. File for the current year only. I have never had a
situation where the IRS has then asked for prior years,
but they could.
b. File for two to five years. Again this has not resulted
in the IRS asking for prior years, but the could.
c. File all prior 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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