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2019 & earlier US INCOME TAX RETURN RETURN PREPARATION AND PLANNING FOR US EXPATRIATES IN COSTA RICA |
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We have been preparing US income tax returns for US Citizens and permanent residents living in Costa Rica for over 20 years. As a US Citizen or permanent resident you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption (currently approximately $105,500) only can be claimed if you file a timely tax return. It is not automatic if you fail to file your return. You can also offset US taxes with foreign tax credits for the income taxes you pay in Costa Rica on your Costa Rican tax return. We have scores of clients located in Costa Rica and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income. As an expat living abroad you get an automatic extension to file it until June 15th following the calendar year end. You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th. There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not. There are certain times you may wish to make elections with respect to your Costa Rica corporation which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions. If you are self employed there are no US Costa Rican social security agreements. Therefore if you file a schedule C on your self employment income you must pay the 15.3% self employment tax on your net self employment income. If you are a bona-fide employee of a foreign corporation you do not have to worry about paying US social security on your wages. In Costa Rica almost everything you owned is held by a Costa Rican Corporation. That means you must file form 5471 for all of the Costa Rican Corporations that you own 10% or more of the stock. Failure to file this form each year with you US income tax return can result in a $10,000 US per year penalty. We have helped hundreds of US expatriates around the world catch up because they have failed to US returns for many years. Unfortunately, unlike Australia, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years. You can more read about Costa Rica's income Taxes and Procedures HERE If you have not been filing, we can help you catch up. There is not penalty for filing late if no taxes are due. The penalties arise with respect to late filing certain other reporting forms for foreign financial accounts, foreign corporation ownership, etc. We can explain your exposure and help you move forward with your US return filing requirement. Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire below or email us to request a mini consultation by phone, skype or email I look forward to solving your tax concerns. Thanks Don D. Nelson, Attorney, CPA
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