Offshore Income

Today TaxMama hears from Mark in Florida who asks. “I live overseas in Oman. I am selling property in Mexico. If I have the proceeds wired to my bank in Oman do I have to pay IRS capital gains?”

Dear Mark,

Are you an American? Are you familiar with the concept of world-wide income?

Americans are taxed on income they earn all over the world – except for the earned income exclusion when you have a job overseas. Even if you have the money wired to Oman, you are legally responsible for reporting the sale on your US tax return.

Read IRS’s list of their Dirty Dozen tax scams. Especially read #4.

http://www.irs.gov/newsroom/article/0,,id=120803,00.html

IRS loves to find these kinds of transactions. It’s like free money for them.

Penalties can be as much as 75% of the understatement of income, plus interest.
http://www.irs.gov/newsroom/article/0,,id=181068,00.html

There are special places in tax hell for those who don’t report offshore transactions and the contents of offshore bank accounts. Punishment includes both civil and criminal penalties.
http://www.irs.gov/newsroom/article/0,,id=168194,00.html

But hey, if it makes you happy to think you can hide transaction from IRS, who am I to talk you out of it?

On the other hand, if you report the sale, your taxes won’t be that high. Long-term capital gains taxes are limited to 15% of the sale. And if there are any Mexican treaty exclusions, you’d get the benefit of that, too. In addition, if you paid taxes in Mexico, you can deduct the Mexican taxes as a credit from your U.S. taxes. They may even wipe them out. Who knows?

Personally, I’d try to do it the legal way. It may be a bargain!

And remember, you can find answers to all kinds of questions about offshore income and other tax issues, free. Where? Where else? At TaxMama.com

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