These 3 Tips Could Save You Thousands of Dollars

From International Living Postcards comes this article By Nick Hodges, CPA/PFS, MBA, CFP

It's easy to throw up your hands in despair at the thought of filing your tax returns. It doesn't help that it seems like the rules are forever changing; the vast amount of confusing and contradictory information out there just makes matters worse.

But figuring out your taxes can be, if not easy, then at least straightforward—and a massive money-saving measure, too. Do it right and you can cut down on your tax bill and ensure you're protecting yourself against penalties that can stretch into tens of thousands of dollars.

Here are three of my best tips to save you money and to avoid unnecessary penalties:

1. Know how and what to report on foreign bank accounts
   Many Americans who are building homes offshore open local bank accounts to fund their building project. These accounts often have balances at one time or another that exceed $10,000. This is your IRS reporting threshold.
   If you have an account like this or multiple foreign bank accounts that when combined, total $10,000 or more at any time during the year, you have an additional and separate form to file. This form is the FinCen Form 114 (Report of Bank and Financial Accounts, also known as the FBAR). It is filed separately from your individual tax return. It is due by June 30th of the year following and must be filed electronically.
2. If you disclose, you likely won't pay out more in taxes
   If you're an American living or investing abroad, you may need to file additional IRS disclosures. Rest assured, though: These forms rarely result in additional taxes. Disclosing will also ensure you avoid any penalties, which usually start at around $10,000 for each and every unfiled (or incorrect) reporting form.
   There are a few instances which might cause you to have additional forms to file with your individual tax return. These include buying foreign real estate abroad, using a foreign corporation, opening foreign bank accounts, and investing offshore in businesses, securities, or insurance policies.
   A foreign corporation is reported on IRS Form 5471. For disclosing your foreign financial assets, you'll need IRS Form 8938. There is a threshold you should know, usually starting at a total of $50,000.
   Here's a filing perk you might appreciate: If you are out of the country on April 15, you receive an automatic extension for filing your Federal tax return to June 15. The IRS still wants your money; you have to pay any tax due by April 15.
3. Leave from a no-income tax state
   If you currently file a state tax return and have some extra time before you move abroad, you should consider what we call "The move before you move." States like California and New York want you to continue to pay them state income taxes up to two years after you move abroad. Many of our clients tell us that they will just deal with it when it comes up. But who really wants to fight with a state government from a gorgeous beach two years after you move?
   Besides, if you pick the right state to leave from, you can effectively eliminate that needless inconvenience...and all of your state income tax issues and requirements.
   With just a little forethought and planning, you could potentially save yourself tens of thousands of dollars in income tax