‘Offshore’ refers to something that’s carried out away from the mainland. You probably hear it the most when there’s talk about offshore oil drilling or fishing, but what does it have to do with taxes?
In financial terms, ‘offshore’ is used to describe businesses, accounts, assets, or transactions that occur outside the country of citizenship. Even when citizens aren’t physically located in the country, they continue to generate tax liability. If you’re wondering whether you should be paying offshore taxes, you’ve come to the right place.
To better understand the issue, let’s take an example. Say you have a job in the United States. You’re obligated to pay taxes to the government because you’re earning an income. Offshore taxing operates on the same principle. As a US citizen, it is your duty to pay income taxes regardless of where you’re living. Not doing so is a punishable offense. A new law allows the IRS to ask overseas banks for information on its citizens, and the banks must reveal the information. In other words, hiding information is not an option.
The IRS takes it very seriously when citizens store assets and don’t divulge information about income sources abroad. Many people attempt to use various methods to evade taxes, but it is not wise. If you own property or have bank accounts in another country, you must reveal your assets to the IRS. You should also pay off any penalties voluntarily. The longer you don’t, the worse it gets.
You must pay offshore taxes if one or more of the following conditions apply:
- You own real estate or property offshore
- You have a business running offshore
- You have bank accounts in foreign banks
- You have any other income source based out of your country of residence/citizenship
Apart from stacking penalties and interests, not voluntarily disclosing your offshore assets can lead to criminal prosecution. If that isn’t frightening in itself, your children could also face problems because of your debts.
What actions should you take to avoid negative contact with the IRS?
The Offshore Voluntary Disclosure Program (OVDP) allows defaulting taxpayers to reveal their offshore assets and accounts. Penalties will be imparted, but it’s the best course of action. We recommend contacting the IRS as soon as possible. You might even be able to appeal against high penalties, which would not be an option without voluntary disclosure.
If you inherited offshore accounts or businesses that you and the IRS were previously unaware of, you can appeal in an attempt to have the penalties removed. Consider talking to a certified tax professional with experience in offshore and international taxes. Don’t take chances when faced with trouble from the IRS – you have too much to lose.