Thursday, July 16, 2015

Retiring overseas? Don’t let FATCA bite you

Baby boomers in record numbers are looking to spend their golden years outside of the U.S. Latin America has become a popular destination. Mexico, Nicaragua, Costa Rica, Belize, Panama, Columbia, and Ecuador top the list. And in the Central Valley region of Costa Rica where I frequently travel, gringos can be found in most all of the supermarkets and restaurants.

The IRS caught wind of this trend, too, and wanted to make it tougher for expats to hide money in offshore accounts. As a result, if you are a U.S. citizen living abroad you must comply with the Foreign Account Tax Compliance Act (FATCA).  

That means attaching Form 8938 to your Form 1040 when you file your income taxes.

Here is a breakdown of which foreign assets you must report:

You only have to file if your foreign assets exceed certain thresholds, which you can find here.

Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.

With steep penalties like those, it’s worth taking a little time to make sure the IRS’ posse doesn’t put a damper on your retirement adventure.   

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