How to retire overseas and avoid IRS penalties
Retirees living abroad have to take special care with their tax returns.
If you forget to check it off this box on Schedule B when you live overseas, it could mean big trouble with the IRS.
An IRS law was designed to increase tax compliance by Americans with financial assets held outside the U.S.
We get it. People with millions of dollars sometimes like to hide the money overseas.
Naturally, the government frowns on tax evasion. Following the financial crisis, Congress in 2010 enacted the Foreign Account Tax Compliance Act, also known as FATCA.
FATCA works through "dual reporting": Other countries agree to report on the assets held by U.S. account holders. These account holders, in turn, must report to the IRS that they have money in foreign bank accounts each year when they file their taxes, says Katelynn Minott, a CPA and expatriate tax specialist with Bright!Tax.
Some people are unhappy with the requirements. Edd Staton, an expat retiree who lives in Ecuador, said FATCA was intended to reel in "big-league tax evaders stashing money offshore."
Small oversight leads to big problem
Problem is, according to Ed Slott, CPA and founder of Ed Slott and Co., "they cast such a wide net … they catch the little fish — people who weren't doing anything wrong."