[mdl]

Hello,

I'm an US expat who has been living in HK for several years and has not filed a US tax return. My past income was below the US$ 80,000 excemption. I have always paid my taxes here in HK.

Now I am taking a job that is well above the $ 80,000 and will need to pay tax on the non excempt portion. My concern is for all of the previous years that I "should" have filed a tax return even though I was not taxable.

Anyone with this experience?

thanks.

[Sleuth]

Doubt anyone will admit to what amounts to US tax fraud--even though it probably amouints to $0 in the US Treasury-- in a public forum. Might be a hypothetical question you could get an accountant to answer, though.

[penguinsix]

Find a professional.

If you owe no taxes, you do not have to file. That's pretty much the guideline of the IRS. Any penalty is based on the tax owed, so if you owe no taxes, then, well, you can't be penalized on $0 tax. 0 x 15% penalty = 0. So basically, you don't have that much to worry about.

HOWEVER, even if you only made $1 in income, the advice of most professionals is that you DO file a return. This is a situation in which it is better to be safe than sorry. Sorry in the sense that it can make you more of a suspect in the years to come.

Here is the scenario. You start filing now with say $100,000 in income. The IRS sees this for the next few years and starts asking 'wait a minute, what was he doing before?' They contact you, you explain (a pain) and you think things are all settled.

But in the back of their minds, they are thinking 'hmmm....I wonder who we should audit next year?'

It's always good advice to file a return to PROVE you owe no taxes, rather than just "know to yourself" that you owe no taxes. Never get in a position of having to explain something like this, if you don't have to.

My advice is to find a professional and talk about how to handle this. It won't cost much (and would also help plan how to deal with the new taxes). He may instruct you to go ahead and fill out the back year tax forms (which can be downloaded at the IRS website) just so you have 'proof' in your files of what you know to be the case.

And tangentially related to this: please be advised that the rules on the $80k exemption changed in the Spring of 2006 such that next year could pack more of a bit for expats.

[penguinsix]

Related to this....

If you file the back tax forms in the US, which claim the HK taxes, you will have a better chance of writing off the past years HK taxes against future HK income for US tax purposes.

[whong]

Hi MDL,

Just file your returns ASAP. I remember one of my clients had not filed returns for both federal and New York States for 7 years and got hit big time- penalty and interest even though the back taxes were not significant... around 20K usd.

In your case, assuming your tax liability is zero due to the foreign exclusion "80,000" per year, you probably might not be hit with a huge tab.

I agreed with Penguinsix has pointed out...

"It's always good advice to file a return to PROVE you owe no taxes, rather than just "know to yourself" that you owe no taxes. Never get in a position of having to explain something like this, if you don't have to."

go find a 1040 tax specialist. you shall be ok!! any questions, you may pm me. I am an AICPA living in HKG.

whong