U.S. Tax for Expat Americans in Costa Rica – IRS Costa Rica Expat Tax (Golding & Golding)
U.S. Tax for Expat Americans in Costa Rica – IRS Costa Rica Expat Tax
Expats Costa Rica: Do American Expats still have to file U.S. Tax Returns, and report foreign accounts, assets, investment and income to the IRS and FinCEN? The short answer is yes, they do. Whether you are an Expat in Australia, Costa Rica, Vietnam, Mexico, Hong Kong, Singapore or Argentina – U.S. Tax is still required for American Expats.
U.S. Expats in Costa Rica who are considered American and/or U.S. persons are still required to complete their 1040 tax returns, just as they would if they were residing in the United States.
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American Expats in Costa Rica
We represent many clients in Costa Rica, with a large portion of clients having ownership in one or many rental property businesses.
Even though the client may not be in handling the day-to-day management activities, and/or having the property held in a entity such as a Sociedad Anonima, there is still reporting required.
Generally, ownership will reported on either a form 8938 or 5471 – as well as pay tax on various sources of income generated.
Taxes for Expats in Costa Rica
We’ve heard it al (almost).
Oftentimes a client will contact us and let us know they thought they didn’t have to file U.S. Tax anymore.
We’ve heard various different tall tales told at expat watering holes worldwide, with people being told that once they have been out of the United States for 25 years they legally do not have to file taxes any longer – but that is not true.
Expat Foreign Account Reporting
In addition to taxes due, U.S. Expats may have various reporting IRS, FinCEN, and FATCA reporting requirements — depending on whether they maintain foreign income, foreign assets, or income.
Expats in Costa Rica (And U.S. Tax)
We represent many clients in Costa Rica, with a large portion of clients having ownership in one or many rental property businesses.
Even though the client may not be in handling the day-to-day management activities, and/or having the property held in a entity such as a Sociedad Anonima, there is still reporting required.
Generally, ownership will reported on either a form 8938 or 5471 – as well as pay tax on various sources of income generated.
U.S. Expats & Taxes (in General)
Just because a person relocates outside of United States does not exempt or exclude them in from U.S. tax rules.
U.S. Tax rules dictate (exceptions, exclusions, and limitations permitting) that if a U.S. Expat has not relinquished or renounced their U.S. Status, they are still considered a U.S person — U.S. citizen, Legal Permanent Resident (or otherwise meets the Substantial Presence Test) they will still have to file a tax return to report income.
This is true, even if the income was all foreign sourced, never touched U.S. soil — and and all foreign taxes were paid.
* An Expat may be able to utilize a Foreign Tax Credit and/or apply for the Foreign Earned Income Exclusion – but neither of these IRS Tax Forms negate the baseline requirements to file a tax return.
Expat Forms for Reporting Foreign Accounts & Assets
The following is a list of the more common international tax forms you may have to file
FBAR (FinCEN 114)
The FBAR is used to report “Foreign Financial Accounts.” This includes investments funds, and certain foreign life insurance policies.
The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does the total amount exceed $10,000 (USD)?
If it does, then you most likely have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.
Form 8938
This form is used to report “Specified Foreign Financial Assets.”
There are four main thresholds for individuals is as follows:.
- Single or Filing Separate (in the U.S.): $50,000/$75,000
- Married with a Joint Returns (In the U.S): $100,000/$150,000
- Single or Filing Separate (Outside the U.S.): $200,000/$300,000
- Married with a Joint Returns (Outside the U.S.): $400,000/$600,000
Form 3520
Form 3520 is filed when a person receives a Gift, Inheritance or Trust Distribution from a foreign person, business or trust. There are three (3) main different thresholds:
- Gift from a Foreign Person: More than $100,000.
- Gift from a Foreign Business: More than $16,076.
- Foreign Trust: Various threshold requirements involving foreign Trusts
Form 5471
Form 5471 is filed in any year that you have ownership interest in a foreign corporation, and meet one of the threshold requirements for filling (Categories 1-5). These are general thresholds:
- Category 1: U.S. shareholders of specified foreign corporations (SFCs) subject to the provisions of section 965.
- Category 2: Officer or Director of a foreign corporation, with a U.S. Shareholder of at least 10% ownership.
- Category 3: A person acquires stock (or additional stock) that bumps them up to 10% Shareholder.
- Category 4: Control of a foreign corporation for at least 30 days during the accounting period.
- Category 5: 10% ownership of a Controlled Foreign Corporation (CFC).
Form 8621
Form 8621 requires a complex analysis, beyond the scope of this article. It is required by any person with a PFIC (Passive Foreign Investment Company).
The analysis gets infinitely more complicated if a person has excess distributions. The failure to file the return may result in the statute of limitations remaining open indefinitely.
*There are some exceptions, exclusions, and limitations to filing.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.