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Expat Tax Blog

Jan 20

7 Important Issues to Consider For Overseas Americans Repatriating to the US In the Middle of the Year

by julie

Moving back to the US in the middle of the year is the most common way anybody makes their move back. If you think about it, nobody is going to plan their move to happen on Dec-31st. Aside from readjustment to life in the US and the burden of relocation, moving in the middle of the year is certain to have an impact on your taxes. The below tips are essential reading during your repatriation planning.

1. US Expat Taxes: Foreign Earned Income Exclusion for Part-Year Residents

While working abroad you likely have got used to the Foreign Earned Income Exclusion. US citizens who return home after working abroad during the middle of the year still qualify for partial exclusion of their income earned during the part of the year spent abroad.

US citizens must report and pay taxes on their worldwide income to the US government on their annual tax return. That said, US citizens who live abroad are eligible to exclude a portion of their foreign income by qualifying for the Foreign Earned Income Exclusion (FEIE).

– As the name implies, the Foreign Earned Income Exclusion is only available for foreign earned income. You cannot use the this exclusion to exclude any US sourced income.

For 2016, this exclusion is capped at $101,300. To be eligible for FEIE, you must pass one of two tests – Bona-Fide Residency Test (BF Test) or the Physical Presence Test (PPT)

– If you have previously qualified for the Bona Fide Resident Test you can continue claiming the exclusion based on the Bona Fide Resident Test, even if you moved back to the US in the middle of tax year.

– To qualify for the Physical Presence test, you must live abroad for at least 330 days out of a 12 consecutive months period.

If your foreign work assignment was a contract with a defined ending date then the Physical Presence test should be used to claim the exclusion.

Note that the 12-months calendar period utilized to obtain PPT does not need to coincide with the actual date of return to the U.S. It can be any period leading up to the filing of your tax return. The amount of foreign income a taxpayer is eligible to exclude will be prorated based on the number of days in the calendar year that he or she was physically present in a foreign country.

2. Keep Record of Moving Expenses

Moving expenses related to your return to the U.S. may be a powerful tax deduction. When first moving abroad, your moving expenses were adjusted for the amount related to excluded foreign income. When returning to the US there is no such adjustment and you can deduct the full amount. There are special rules that allow you to split the deduction between two years if this can benefit your bottom line.

Whole Story at TFX.

Jan 19

2017 Roth IRA Rules You Should Be Aware Of

by julie

#1 Contribution Limits Stayed the Same

Standard Roth IRA contribution limits stayed the same as last year, with $5,500 being the limit any individual can contribute. In addition , plan participants ages 50 and over still have a limit of $6,500, which is commonly referred to as the “catch up contribution.”  You can also contribute to your ira up until tax day of the following year.

CONTRIBUTION YEAR 49 AND UNDER 50 AND OVER (CATCH UP)
2009 $5,000 $6,000
2010 $5,000 $6,000
2011 $5,000 $6,000
2012 $5,000 $6,000
2013 $5,500 $6,500
2014 $5.500 $6,500
2015 $5.500 $6,500
2016 $5.500 $6,500

#2 Roth IRA Phase-Out Limits Have Increased

Although contribution limits stayed the same, other information released in the 2017 Roth IRA rules show some changes.

For example, the AGI phase-out range for taxpayers making contributions to their Roth’s is now between $184,000 and $194,000 for couples who file jointly. While this range is slightly higher than the year before, it’s not a huge change.

A similar increase took place for singles who file taxes and contribute to a Roth IRA. As of 2017, the range where phase-outs begin now starts at $117,000 and ends at $132,000. Meanwhile, married individuals who file separately and have been actively participating in an employer-sponsored retirement plan should see no changes in the phase-out range.

Whole Story at TFX.

Jan 3

Swiss say goodbye to banking secrecy

by julie

The international convention on the automatic sharing of banking information entered into force on January 1. This heralds the beginning of the end of the country’s reputation as a tax haven. 

This will ensure that financial information on bank accounts held by citizens of certain countries in Switzerland and vice-versa will be shared annually. Switzerland will begin collecting such data from 2017 onwards and begin sharing it with select countries from 2018.

To prevent losing its status as a global financial hub, Switzerland signed the convention in 2014. The Swiss parliament approved the deal in 2015 and the treaty was ratified in 2016.

Previously Switzerland would only provide banking information if requested by another country with which it had signed a deal to prevent double taxation.

A new era

Now countries with which Swiss has signed agreements no longer need to request information on their citizen’s Swiss bank accounts. The data will be handed over automatically once a year. However, this data can only be used for tax collection efforts and cannot be made public.

The first beneficiaries of the Swiss tilt towards banking transparency include mostly rich European countries as well as Australia, Japan, Canada, and South Korea. For developing countries like India, Brazil, Mexico, Argentina and South Africa the process will only begin a year later.

Original Story at SWI.

Jan 2

Tax Tips for Saving on Your 2016 Tax Return

by julie

There are many reasons your 2016 tax bill might increase. The allowed amount for exemptions decreases as your adjusted gross income (AGI) increases over certain amounts, and is different for different filing statuses. There is also the 0.9% additional tax for Medicare and additional taxes of 3.8% of net income from investments (i.e., income from investments minus related expenses) applicable to certain taxpayers. The threshold that triggers these additional taxes varies depending on filing status. It is important to determine if you think your income will exceed these thresholds, and increase either your withholding for the remainder of the year, or increase your estimated tax submission for the 4th quarter (which is due before the 15th of January) to avoid penalties for underpayment.

The penalty amount is assessed if your taxes paid (through withholding or estimated tax payments) are under 90% of the current year, 100% of prior year, or 110% of prior year if your adjusted gross income was over $150,000. If necessary, avoid the penalty by increasing your withholding amount for the remainder of the year. Additional tax withheld is treated like it was paid in evenly throughout the year, so it is easy to “catch up”. If you pay estimated taxes, you can increase your 4th quarter payment, which is due by January 15th.

The two primary ways you can lower your tax bill are to either increase deductions, or decrease the amount of income that is taxable. Following are some ways you can minimize your tax bill for 2016.

Whole Story at TFX.

Dec 31

Growing Number of Americans are Retiring Outside the US

by julie

Newly widowed, Kay McCowen quit her job, sold her house, applied for Social Security and retired to Mexico. It was a move she and her husband, Mel, had discussed before he passed away in 2012.

She is among a growing number of Americans who are retiring outside the United States. The number grew 17 percent between 2010 and 2015 and is expected to increase over the next 10 years as more baby boomers retire.

According to the Social Security Administration, around 400,000 American retirees are now living abroad, mainly in Canada, Japan, Mexico, Germany and the United Kingdom.

Retirees most often cite the cost of living as the reason for moving elsewhere. In some countries, retirees also may find it less expensive to hire someone to do their laundry, clean, cook and even provide long-term care than in the United States. But for others there are hurdles to overcome to adjust to life in a different country.

One of the biggest obstacle is not speaking the language or knowing the culture. Access to health care also can be a challenge. While retirees still can receive Social Security benefits, Medicare is not available to those living abroad.

Original Story at AP.