Whether or not you receive a 1099-INT, 1099-DIV or equivalent form from a Foreign Bank or Foreign Financial Institution does not determine whether you are required to report the information on your tax return.
The 1099 is used to reflect the amount of income that you received. If you have not received a 1099 from your foreign bank, you still must report the income.
Essentially, the form is a bookkeeping form, in which the foreign bank and/or foreign financial institution (sometimes) will issue you a 1099 so that you are aware exactly how much interest or dividend for example you received throughout the year.
The United States is one of only a handful of countries on the planet the taxes individuals on their worldwide income. What does that mean? It means that whether or not you reside in the United States or in a foreign country, you are required to report all of your US income as well as foreign source income on your US tax.
It also does not matter if the income you earn is tax exempt in a foreign country, or whether the income you earn in a foreign country was already taxed (see below). While you may be able to obtain a credit or exemption for the taxes you paid or income you earned in a foreign country – you are still required to report the income on your US tax return.
I Did Not Receive a 1099?
If you did not receive a form 1099, it is important that you do your best to try to re-create the amount of interest or dividend earned throughout the year, in order to report it on your tax return. Depending on which foreign financial institution you bank or invest with, they may be able to provide you with an informal summary of the total amount of income you earned, and foreign taxes withheld — if any.
It is important to determine whether foreign taxes withheld, because most of the time you will receive a foreign tax credit in the United States on your U.S. tax return for any taxes you paid previously on the income. By using the foreign tax credit, you can reduce the amount of tax liability based on the foreign income so that you are not paying double tax.
What if I did Not Report it in Prior Years?
If you have not reported foreign income in prior years, your best option may be entering IRS Offshore Voluntary Disclosure. The following is a summary of the different IRS offshore voluntary disclosure programs and options:
Golding & Golding: About our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
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