Many United States (U.S.) citizens and resident aliens receive income from foreign sources. Regardless of where in the world this income is received it has to be included in your worldwide income reported on your U.S. tax return.
If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return), or the foreign equivalents. Also, the rules don’t change whether you are living in the U.S. or abroad.
While worldwide income from all sources must always be reported, there are Foreign Tax Credits, Foreign Housing Exclusion, International Tax Treaties, and other benefits which may help reduce your tax. Work with a tax professional who is experienced in foreign reporting and international taxation, such as OTA Tax Pros.
Not reporting income from foreign sources may be a crime. The IRS and its international partners are pursuing those who hide income or assets offshore to evade taxes. The goal is to ensure U.S. citizens and residents are accurately reporting their income and paying the correct tax.
In addition to reporting your worldwide income, you must also report on your U.S. tax return any foreign bank or investment accounts, if:
- You have a financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and
- The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
If the IRS finds you have unreported income or undisclosed foreign financial accounts the consequences for not reporting may not only include the additional taxes, but also substantial penalties, interest, fines and even imprisonment.
Lastly, if you received a gift from a non-resident alien, you do not have to pay tax on the gift. However, you will have to report the gift if the amount you received is more than $100,000.