While you might be currently living overseas, that does not mean that you are free from the tax obligations of being an American citizen. Even if you work overseas, there are still tax forms that you are required to file. One of those is known as IRS Form 5471. What is this form, and why is it so important?
What Is Form 5471?
After you move overseas, the IRS still expects you to report earnings and pay taxes on them. Form 5471 is one of the most common forms impacting American citizens living overseas. This form is designed to give the IRS insight into what Americans living overseas are doing when they interact with certain corporations. It is filed alongside your tax return and working with an accountant will ensure that you receive a foreign tax credit so that you are not forced to pay unnecessary taxes on your international income.
Do You Need to File Form 5471?
There are numerous reasons why you might be required to file a copy of Form 5471 with your tax return. Many people mistakenly think that the form is only required for people who own foreign corporations, but there are many other categories of Americans who are eligible. If you owned 10% of the stock in a foreign corporation, controlled a foreign company for over 30 days during the tax year, or own a foreign business, you are required to submit this form.
Some Americans are confused about why they must file this form, and the biggest reason is that the IRS routinely monitors the financial activity of American citizens abroad to prevent fraud. Your worldwide income is considered taxable as long as you are an American citizen, so you are expected to report it.
When Do You Need to File Form 5471?
Form 5471 is typically due on Tax Day with all your other tax documents. It’s important to work with your accountant to file Form 5471 on time, as there are steep financial penalties for not submitting it. If you file for an extension, the form will be due at the same time that your tax return is. Americans living overseas that fail to report income are much more likely to get penalized for doing so, so filing on time is important.
Overcome International Tax Challenges with Help from MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to make international taxes easily and avoid the most common international tax challenges. Contact us today for a consultation.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.