By now most expats understand that they have a filing requirement in the U.S. And of course you know that the IRS expects you to be compliant with U.S. tax laws. That means filing your returns and making all your tax payments completely, accurately, and on time. It’s easy to let things like this get away from you. Now is the time to set up a system so that you will stay on top of your tax issues.
But we know that some people can be procrastinators. They put off important things, even when they know the consequences are serious. If it’s not in your nature to be proactive, consider contracting with a service to do it for you. Sure you will have to pay someone, but at least it will be done. That is certainly better than penalties and interest.
But if you do anything make sure that you keep good records. Find a system that works for you and use it. For individuals, this could be as simple as setting up a series of file folders in which to keep your receipts and other tax-related documents. Or you may opt to use any of the off-the-shelf accounting packages— they are reasonably priced and easy to learn.
We have a client who was able to timely file tax returns, but was not so great at maintaining good records. He had a business and paid someone $40,000 in cash to provide services to the business. The problem is that the payments were made in cash and no 1099 was issued. In addition, he has no other records to support the transaction, such as a cash receipts log, independent contractor agreement, etc. All he was able to do was to obtain a name and social security number from the independent contractor. Unfortunately, it turns out that the social security number was inaccurate and of course the phone # is disconnected.
The IRS has disallowed the deduction and the taxpayer will likely be facing substantial penalties and interest. Fighting for this deduction will be challenging. If you are claiming a business deduction make sure that you maintain proof and issue 1099s.
The moral to the story is to make sure that you have a recordkeeping system in place. We have many expat clients who are nomadic and travel at times to various countries. This can make recordkeeping that much more difficult. But if you get into trouble with the IRS, the records will certainly come in handy.
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