Staying Ahead of International Taxation
Why Minding International Taxation Matters
For U.S. citizens and residents with foreign financial interests, understanding international tax obligations is more than simply good practice — it is essential for compliance. From income earned abroad to accounts held overseas, there are specific reporting requirements that, if overlooked, can lead to steep penalties.
What Classifies as a Foreign Asset?
The U.S. taxes its citizens and residents on a worldwide basis. That means income earned through foreign assets—regardless of location—must be reported on your tax return.
Common foreign assets include:
Bank accounts
Investment accounts
Pension plans
Rental properties
Interests in foreign corporations or partnerships
You may own these assets directly or have signature authority or financial interest without direct ownership. Either scenario can trigger a reporting obligation.
Key Forms in Reporting
U.S. taxpayers with foreign assets will often need to file additional informational forms, even if no tax is due. Some of the most common include:
FBAR (Foreign Bank and Financial Accounts Report):
Required if foreign account totals exceed $10,000 at any point during the year, even for a single day. This form is filed electronically and separately from your tax return.
Form 8938:
Included with your tax return, this form reports on a broader range of assets, including foreign pensions and investment income.
Form 8865:
For investments in foreign partnerships.
Form 5471:
For ownership in certain foreign corporations.
While many of these forms are informational in nature, the penalties for non-filing can be significant, reaching upwards of $10,000 per account per year.
Resolving a Missed Filing
If you have unintentionally missed a required filing, there are three options to get back on track:
Amend your tax returns to include missing forms.
File delinquent FBARs with a reasonable cause statement.
Use the IRS’s foreign offshore procedures.
This option is for non-willful omissions and involves submitting three years of amended returns, six years of FBARs, and a reduced offshore penalty. If done correctly, this approach can restore compliance and reduce your exposure to penalties.
Regarding Non-U.S. Persons and Entities
Our team’s international tax practice also supports non-U.S. individuals and entities with U.S. investments, business activities, or income-generating property. In these cases, tax obligations apply only to U.S.-connected income, and we assist you in ensuring the correct forms are filed.
What Domestic Businesses Need to Know
If your business pays a foreign contractor, you are responsible for:
Withholding appropriate taxes
Remitting those funds to the IRS
Filing Form 1042, the equivalent of a Form 1099 for foreign recipients.
This permits the foreign contractor to properly report U.S. income and claim withheld taxes.
The Bottom Line
International tax law may be complex, but noncompliance is costly. Whether you are a U.S. taxpayer with foreign holdings or a business working with international partners, proactive planning and accurate reporting are essential for success. If you're unsure about your obligations or want help navigating your next steps, our tax team at Hantzmon Wiebel is here to assist you.
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International tax planning can be complex, but Hantzmon Wiebel is here to help. From reporting requirements to cross-border compliance, our team provides the guidance you need to navigate global tax obligations with confidence. Learn more at https://www.hwllp.cpa/tax
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Disclaimer of Liability
Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.
