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Expat Tax Blog

Nov 14

IRS Urges Taxpayers with Expiring ITINs to Submit Renewal Applications as Year-End Deadline Approaches

by julie

IRS reminds taxpayers with expiring Individual Taxpayer Identification Numbers (ITINs) to submit their renewal applications as soon as possible. Failing to renew them by the end of the year will cause refund and processing delays in 2018.

Who Needs an ITIN?

ITINs are used by people who have tax filing requirements under U.S. law but are not eligible for a Social Security number.

Who Should Renew an ITIN?

Taxpayers with ITINs set to expire at the end of the year and who need to file a tax return in 2018 must submit a renewal application. Others do not need to take any action.

  • ITINs with middle digits 70, 71, 72, or 80 (For example: 9NN-70-NNNN) need to be renewed if the taxpayer will have a filing requirement in 2018.
  • Taxpayers whose ITINs expired due to lack of use should only renew their ITIN if they will have a filing requirement in 2018.
  • Taxpayers who are eligible for, or who have, a Social Security number (SSN) should not renew their ITIN, but should notify IRS both of their SSN and previous ITIN, so that their accounts can be merged.
  • Taxpayers whose ITINs have middle digits 78 or 79 that have expired should renew their ITIN if they will have a filing requirement in 2018.

How to Renew an ITIN

To renew an ITIN, taxpayers must complete a Form W-7 and submit all required documentation.

Whole Story at IRS website.

Nov 14

IRS Announces 2018 Pension Plan Limitations; 401(k) Contribution Limit Increases to $18,500 for 2018

by julie

The IRS announced cost of living adjustments which affect dollar limitations for pension plans, as well as other retirement-related items for tax year 2018. The technical guidance detailing these items can be found in Notice 2017-64.

Highlights of Changes for 2018

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions.

The income phase-out range for taxpayers making contributions to a Roth IRA is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000; $47,250 for heads of household, up from $46,500; and $31,500 for singles and married individuals filing separately, up from $31,000.

Highlights of Limitations that Remain Unchanged from 2017

  • The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

Original Story at IRS website.

Nov 12

Don’t Believe the Hype; No Tax Holiday For Foreign Partners In U.S. Partnerships

by julie

Articles with controversial headers have flooded the usually stoic accounting community upon a recent Tax Court decision.

“Non-US Partner’s Gain on Disposition of US Partnership Interest Not Taxable in US”,

“Tax Court Declines to Follow Revenue Ruling that Sale of Partnership Interest Creates Effectively Connected Income”

The list goes on.

The hype arose when a Tax Court recognized that the petitioner, Grecian Magnesite Mining (“GMM”), may exclude a $4 million capital gain from its US taxable income. The gain resulted from the disposition (sale) of GMM’s interest in the U.S. Partnership Premier Chemicals (Premier).

Precedent-setting rule — premature and excessive

While we have seen other commentators label this “A precedent-setting ruling that changes the way foreigners are taxed in the US” – we believe this is premature and excessive. These are a few muted factors that need to be taken into account.

The total capital gain from the disposition of interest by GMM in the U.S. Partnership was $6.2M, of which $2.2M were treated as U.S.-sourced capital gain attributable to the sale of U.S. real estate. This part was mutually agreed by the Petitioner and the Commissioner.

The remaining $4M was the matter of discussion. The tax court sustained this portion from disposition of partnership interest as a foreign-sourced gain.

However, the treatment of gains from the disposition of partnership interest as foreign-sourced is not universal and aforementioned Tax Court opinion does not override prior IRS ruling on disposition of partnership interest.

Whole Story at TFX.

Nov 10

For Tax Year 2016, E-File Closes on Nov. 18; After That, Disaster Victims, Others Need to File on Paper

by julie

The IRS reminded that those, including the ones in disaster areas, who want to file a 2016 tax return electronically to do it by Nov. 18, 2017. Filing of paper tax returns will remain available after that date.

While most individuals have already filed their 2016 federal tax returns, certain taxpayers may qualify for an extension until Jan. 31, 2018. This includes taxpayers who live in a federally declared disaster area, have a U.S. tax filing obligation, and had previously obtained a valid 6-month extension of time to file their federal tax return.

The federally declared disaster areas include hurricane and tropical storm victims in Georgia, Florida, Puerto Rico, the Virgin Islands and parts of Texas, Louisiana and South Carolina, as well as wildfire victims in parts of California.

Original Story at IRS website.

Nov 9

Failed to file Form 8854 – Now What?

by julie

In order to cease being a U.S. resident for tax purposes, simply filing I-407 (renounce Green Card) or giving up citizenship at the U.S. embassy, is not enough. The key in the entire operation is Form 8854. This article will address a few interesting scenarios, and how to proceed in order to mitigate your U.S. tax issues.

So, in order to stop being a U.S. person for tax purposes, you need to file form 8854. This begs the question – what do you need to do to file form 8854? You must have filed 5 years of tax returns.

No income to report, do I have to file 5 years of returns?

Yes – 5 years are required for 8854, even if not required to file (NRF) otherwise.

Whole Story at TFX.