How to Transfer Offshore Funds To The USA
We often get asked this question on our Facebook group and in client emails. We thought it would be useful to create a blog post about it. There is this common misconception that the IRS will penalize you if you have an offshore account or if you bring your foreign money to the US. That’s simply not true. It is absolutely safe to transfer your offshore money if you are fully tax compliant. We know this may sound a bit confusing so keep reading as we explain further.
What is Tax Compliance?
As a US person you are required to not only pay taxes on your income and assets but also file tax returns and any other forms relevant to your circumstances. This means that you live and work abroad you still have to declare your income and disclose all of your financial and other assets. The most commonly used form in situation like this is FBAR, which is required with your annual tax return if at any point during the year your overseas aggregated bank account balances exceeded $10,000. Not reporting your foreign assets to the IRS is tax non-compliance and a criminal offense.
Who is a US Person?
You don’t have to be a US citizen to be considered a US person for tax purposes. If any of the below applies to you, you are required to comply with the US tax law.
- US citizen
- Permanent Resident
- Visa holder who passes the presence test after 183 days
Transferring Offshore Money to the US
As long as you have reported the existence of your foreign bank accounts and disclosed your foreign assets there will be no issue when you decide to bring them to the US. In the majority of cases US persons with assets abroad will have the legal reporting requirement. However, even if you are required to file you may not be subject to any taxation. For example, you can take advantage of the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credits (FTC). With the former you can deduct up to $104,100 for 2018 from your foreign earnings from payroll. The latter allows you to offset the amount of tax you paid in your country of residence from your US tax bill. So it may turn out that when you bring your offshore money to the US there will be no tax implication and the IRS will not be creating any issues for you, provided you are fully tax compliant.
Do you have any more questions about offshore earnings or transferring money to the US? Drop them in the comments section at the bottom of the page.
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