Do I Need to File a U.S. Tax Return?
It is tax season in the U.S. right now. Everyone is receiving their tax documents from banks and employers to help fill out their tax returns, whether that is going DIY with Turbotax, walking into a retail shop, like H&R Block, or taking everything to a Certified Public Accountant. What do you do if you are a U.S. Citizen competing overseas though? You most likely won’t be receiving any of these documents, and there is a good chance, depending on how much money you are making, that you will owe significantly less U.S. tax than your friends working desk jobs in the U.S.
One common myth is, “I didn’t make any money in the U.S., and I wasn’t even in the U.S. for most of the year, I guess I don’t have to file a tax return.” Again, this article is for U.S. citizens, which by nature of being a U.S. Citizen you have the responsibility to report income from all sources within and outside of the U.S. This does not necessarily mean you will owe tax on all that income, but nevertheless, you must report it. How do you report your worldwide income from any source? By filing a tax return.
Being an athlete abroad is an opportunity that you sacrificed so much for, why does the government make your life more complicated during the whole process? The U.S. government has been getting more heavy handed in the this area of income coming from abroad, and the penalties can be stiff, in addition to jail time! But trying to comply with the host of rules governing foreign income can be arduous. Is it worth the risk? I’ll give you one example. One form, the Report of Foreign Bank and Financial Accounts(FBAR) is required to be filed when you have a financial interest in or signature authority over any financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the total value of these accounts exceeds $10,000. Civil penalties for non-willful violation can range up to $10,000 per violation, while a willful violation can range to the greater of $100,000 or 50% of the amount in the account at the time of violation. In addition to the FBAR, what about Forms 5471, 8865, 8938, 8858, or 3520?
In most cases, these rules are meant to prevent millionaires from hiding assets or income overseas, which, if that were your situation, you would hopefully have a CPA making sure you are complying. This article shouldn’t scare you. You might be playing your sport in Europe simply because it is something you are doing before you have to get a desk job, or you just want to have a good time, not worrying about making a ton of money. So just make sure in those cases, if you are a U.S. citizen, you are filing a tax return, and that if you don’t owe any tax, it is because of the Foreign Earned Income Exclusion or because of Foreign Tax Credits, which we can discuss in another post.
John Mark Wendler is a Certified Public Accountant (CPA) practicing in San Diego, CA. He played volleyball in college and has had friends who play the sport all over the world, and wants to help make sure those playing any sport abroad get the most accurate information that can help make sure they have a warm welcome back to the U.S. Follow him on twitter @johnmarkwendler
John Mark Wendler