Failing to report large amounts of income on the expat tax return will definitely result in doing time, a situation that is not desirable by any of the new comers in a foreign country. This is why it is important to find out more about IRS and how you can deal with them in a decent way.
One thing that you should know of is that those expats living in USA should include in their tax return one or both of these two benefits: the foreign earned income exclusion and the foreign tax credit. These two can reduce the expat tax return to zero. Let’s see how these things work out for your status as an expat:
* With foreign earned income exclusion you are given the opportunity of excluding up to $92,900 of income made in 2011 by filling the 2555 Form. This will put no tax on that income when this one was gained outside USA. One requirement that can make you eligible for this exclusion would be to have a tax put on the income in your home country or the country where you have earned that income over a period of 330 days.
* Housing exclusion can be another benefit on expat tax return and you are eligible for this only if you qualify for the exclusion from above. Another requirement would be to have housing expenses that outrun the amount of $40.72/day (this amount varying with the location).
* Foreign tax credit is an addition to the exclusion that expat tax return offers. You can claim this credit as being not a deduction but rather a dollar for dollar tax credit but it comes with limitation to the amount of income tax in USA.
* Late tax return comes for those expats who have omitted to file for tax return because they do not have any income. In case you are in this position you should expect IRS to assess taxes and when you are found with having no income then you can claim the tax credit while filing a return.
There is one obligation that you as an American expat should file for: reporting any foreign bank account while filing the TD F 90-22.1 Form. This one comes as a separate expat tax return and it is very easy to file for these accounts even if they are in a large number. If you fail to do so, you can confront with severe penalties on IRS behalf, therefore do not forget that the form can be filled by June 30 of every year.