Hi,
If you have income, accounts, or property outside the US, you are almost certainly overpaying by tens of thousands of dollars, because your preparer looks at these items in April, when the credit you should have elected and the disclosure you should have filed are already locked in to give your money to the IRS.
That’s the trap. By the time these show up on a return, the money is either paid twice or sitting in a penalty. Here are the six that quietly decide what you owe.
1. Not Paying Tax Twice on Foreign Income
- Foreign Tax Credit (Form 1116). If you paid income tax to another country, this credit removes it against your US tax, dollar for dollar. Unused credits carry back one year and forward ten. In a high-tax country it can zero out your US bill and still leave credits banked for later.
- Foreign Earned Income Exclusion (Form 2555). Live and work abroad and you can exclude up to $132,900 of earned income for 2026, per person, plus a housing amount of up to $39,870! Two catches: it does not reduce self-employment tax, and you must choose the credit or the exclusion. Choosing the wrong strategy here can cost you thousands each year until it is fixed!
2. Reporting Foreign Accounts and Assets
- FBAR (Form 114). Foreign accounts totaling over $10,000 combined, at any point in the year, trigger a filing. It goes to FinCEN, not with your return, and you owe nothing on it. The risk is the penalty. Non-willful failures start in the five figures per account. Willful ones reach the greater of $100,000 or half the balance. Due April 15, automatic extension to October 15.
- FATCA (Form 8938). This one files with your return and covers a wider set of assets. Thresholds depend on your exact details, starting from $50,000 for a single filer. Common mistake we see daily: taxpayers file the FBAR thinking it also covers the FATCA, but these are two separate, and forgetting the FACTA can lead to penalties of up to $50,000 plus interest!
3. Selling Hawaii and US Real Estate as a Foreign Owner
- FIRPTA. When a foreign person sells US property, the buyer must withhold 15% of the gross price and send it to the IRS. That’s almost always more than the actual tax on the gain. You don’t have to wait a year to get it back. A withholding certificate (Form 8288-B) filed before closing cuts the hold to the real expected tax and keeps your cash in your hands. Plan ahead – this cannot be done last minute at closing.
- HARPTA. Hawaii adds its own withholding on top. A nonresident selling Hawaii property gets hit with 7.25% state withholding (Form N-288) stacked on the 15% federal hold. That’s over 22% of the sale price gone at closing. Like FIRPTA, it can be reduced in advance with the right filing.
None of these are afterthoughts. The FEIE needs day-counts and a documented tax home before the year ends. FBAR and FATCA turn on balances you have to track as they happen. FIRPTA and HARPTA relief has to be requested before the sale closes. Miss the window and you wait a year for your money. Every one of them comes down to timing.
If you have foreign income, a foreign account, or a property sale coming up, reply to this email by Monday next week. Will schedule a free 15-minute diagnostic call with our COO and Tax Strategist, Liliya Maksimov, to map out which of these apply to you and what they’re worth this year.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com