Misunderstandings, mistakes, and downright minefields: It is that vexing tax time again for US persons living abroad. Despite the United States Congress’ laudable intentions along with every politicians’ marketing byline to simplify US tax law, tax complexity has increased.With passage of so many US legislative bills in the last 18 months, most of which contact some reference to changes in US tax law, confusion reigns supreme.Each new law (or superseded an old one) becomes a new interpretation at each turn as to: who is subject to tax, who should file and report, what should be filed and reported, how, where, and why should tax returns and reporting information be delivered.If your family has changed (and whose hasn’t?) since the last tax filing season a year ago in terms of having United States citizens in the mix, events such as the not completely inclusive list below will need to be assessed for potential tax filing and reporting:l The passing of the settlor of a foreign trust, or establishing a foreign trust.l Receiving an inheritance from a foreign estate.l A family starts a pre-immigration decision process.l Sales or acquisitions of investments or property.l Structuring, redeeming, or receiving a foreign pension, or foreign annuity.l Purchasing or liquidation of life insurance.l Relinquishing or obtaining a green card.l Opening a business in the United States or a hiring a US consultant for your business here.l Forming a domestic business corporation with other family members or friends.l Marriage, divorce, and blessed arrivals.l Opening and closing foreign bank and foreign investment accounts.l Changes in employment in amounts and kinds of employee benefits.l Acquisition or rationalising a mortgage or other debts.The jurisdiction of Bermuda does not have an income tax regime that remotely resembles the tax structure of the United States, or Canada, for instance. Yes, there are taxes here, more than enough of them thank you very much, but the taxing structure is payment at some point of contact (or contract) rather than reporting, filing forms, and computing possible tax liability for a given calendar year.Who is a US person? US law treats US persons and foreign persons differently for tax purposes. Therefore, it is important to be able to distinguish between these two types of taxpayers. According to US Internal Revenue Service, in general, a “United States person” means:A citizen or resident of the United States a resident alien is classified as a lawful permanent resident (“green card holder”), or a resident for income tax purposes who meets the substantial presence test. There are business structures not included in this description because the focus here is on individuals. The United States asserts the right to tax its citizens on their world-wide income, one of only two countries in the world to do so, rather than on the concept of residency taxation.A non-resident of the United States will generally be taxed only on US source income.There are also differences of criteria and process between US income tax, estate tax, and gift tax.It is not the least unusual in today’s plugged in world that there are individuals who do not realize that they are United States citizens, or others who hold green cards, both individual situations unaware that they may have US tax reporting and filing obligations. Given the current Foreign Account Tax Compliance Act environment whereby all foreign financial institutions (our local banks and foreign financial entities) must identify all US citizens and residents and their accounts to US Internal Revenue Service or face monetary sanctions, it is a important time for any individual and his/her multi-national family to sort through their national allegiances.Tax discussions never win popularity contest. Tax law is never easy, and is subject to constant change. There is a reason for an army of tax lawyers, accountants, tax practitioners highly experienced in monitoring and interpreting tax law for the ordinary taxpayer. Consequently, even with the vast amounts of tax information, mistakes, misunderstandings, and missed tax planning opportunities are very common. I’ve compiled a list of comments, actions and mistakes that are seen often some simple, some very complex misunderstandings.“My friend told me, I don’t have to file a tax return because I am below that exclusion.” Yes, you probably do please read the IRS instructions relative working outside the United States before you make that assumption. This is the Number one misunderstanding among US citizen guest workers, US citizens and green card holders living and working abroad.“I just copy everything with new numbers from the form I used last year and the year before, and the year before that.” Bad idea. Tax laws change without notice along with threshold calculation amounts and new reporting forms. Failure to include all forms, or use the correct calculations will result in a tax surprise and a IRS letter requesting a complete tax return. Individuals have been caught out on changes in alternative minimum tax and other tiered tax calculations.“We don’t work any more, and are retired so we don’t report income we earn here because it is not US income.” As stated above, US citizens are subject to tax on worldwide income. There is no selective jurisdiction income process.“We had to pay more tax on a trust distribution than we estimated, something about a 65-day election.” You will need to have a conversation with your trustee very soon. The 65-day election is designed to attribute certain income to the prior tax year, so that the onerous throwback tax rules aren’t triggered.“I am in a local pension scheme it is similar to a US pension plan. Since I can’t receive the money until retirement age, I see no point in reporting it.” The rules for foreign pensions are very different than for those established in the United States. This is a complex area for general commentary, but the individual position stated here is incorrect.“My spouse and I own a Bermuda company, she has 60 percent, I have 40percent of the shares. I do not receive a salary from the company, so it is a non-event in tax terms.” There are certain reporting requirements for US citizens who are involved with foreign companies, including penalties for not reporting.“I have joint accounts with my spouse in local banks with over $10,000 in total. It is not my money, I didn’t earn it.” Nevertheless, you are a joint account holder and are subject to reporting under the Report of Foreign Bank and Financial Account requirements.Martha Harris Myron JP CPA/PFS CFP(US) TEP is an international Certified Financial Planner™ and a US tax practitioner with Patterson Partners Ltd specialising in cross-border tax and financial planning, retirement, and estate strategies for dual citizens of Bermuda and the US, foreign nationals with US connections, and US citizens living abroad. She serves on the American Institute of Certified Public Accountants Advanced Personal Financial Planning Conference Committee. She is a Masters in Law candidate in International Tax and Finance as well as the American Citizens Abroad contact for Bermuda www.americansabroad.org. She can be contacted at martha.myron[AT]gmail.com or 296-3528.