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Expat Tax Blog

Sep 23

Mail Bag #9: Home Purchase, Donations, Personal Exemptions, Foreign Dividends, and U.K. retirement accounts

by julie

1. Personal Exemption

My wife is German and quit working last year. She is 60 and has no income. Can I deduct her from my taxes? And do you know if she will be eligible for Social Security at 62? I have done some research and it appears that she could?

You can claim a personal exemption for your NRA spouse provided he/she has no income from the US and cannot be claimed as a dependent on another taxpayer’s US tax return.

2. Donations

I am planning to make a donation to a US charity association.
How does it work to calculate tax deductions?
If I donate 1000 dollars for example, how much a tax deduction will I get? Is there a complicated calculation involved or is it predictable? In France it is very simple to predict: if I give 1000 than I get a deduction of 666 euros, independently of any other item of my taxes.

We have an article on charitable contributions that should be helpful.

Whole Story at TFX.

Sep 22

Mail Bag #8: Job Prospects, Home Sale, IRA Withdrawals and Social Security Considerations

by julie

1. New Job

I am thinking of taking a civilian contractor job at Ramstein, AFB, Germany. They are proposing a salary in the mid 70K. What is my tax burden? Am I completely tax exempt? I would be under SoFA. No housing allowance.

We have actually published an article regarding advice for military contractors here on this.

Also, we’d be happy to prepare a projection for you to determine the tax hit. For our tax projection service visit this link:. In short, this service requires a $350 retainer, but $250 remains as credit for when your tax return is ready to be prepared. Thus net cost (if we prepare your return thereafter) would be $100.

2. W-9

I’m an American citizen who has been living in Canada since I was thirteen and in June I got a W9 from my bank, with very little explanation.

I’ve read multiple websites indicating that I should not send in my W9 before I’ve gone through the streamlined program or I could be at risk of worse penalties. Is this true? How much time do I have to file?

I am a student who works a minimum wage job so I do not think I have a very complex tax situation. I’ve worked only the past two years and earned under filing thresholds until 2017. I also have not had more than US 10k in my accounts up until this year. In Oct, 2016 when my student loans came in it put the maximum amount in my account to $9k USD. In Jan, 2017 that the rest of my student loans came in, which put me over the 10k threshold from my understanding for 2017.

It’s my understanding from what I have read that in the streamlined program you are supposed to do 3 years of tax returns and 6 years of FBARs put if I do not meet the thresholds until 2017, do I just not file anything?

Another issue also very unfortunately, since apparently it makes US taxes more complicated, is that I opened a TFSA in Oct, 2016, and I’m not sure if I should report it in a special way if there’s only 5k in it. I’ve made about 19$ in interest since I opened it. Is it less of a hassle to just switch it to a regular savings account?

If you did not meet the minimum filing requirements before 2017, you were not required to file a return. Your TFSA is considered a bank account over which you have signatory authority. Therefore you must report them on FBAR and form 8938 if applicable. Keep in mind – the $10k bank account balance for FBAR is aggregate. Your $5k balance in TFSA and $8k bank balance would require FBAR filing for 2016 tax year. Yes, we can take care of this for you.

In 2018, you will need to file a tax return and FBAR for the 2017 tax year.

Form W-9 is a confirmation of the American tax residency status. It is not a request for proof of your tax compliance. Bank will use your completed form W-9 as the proof of their own FATCA compliance. Please fill out the form, sign it and send to the bank.

Whole Story at TFX.

Sep 19

Sailing Permits

by julie

What is the Sailing Permit & do I need to file one?

Unfortunately this form is not as appealing as the name may indicate. The Sailing permit is a type of the document that exists but rarely obtained. The main reason is that most aliens leaving the US are either unaware of it or find themselves in the same situation – i.e., timing for obtaining this document is narrow and hard to meet. In 2006 only 1000 forms 1040-C were filed throughout the entire U.S.

Low level of compliance

In April 2010, the Government Accountability Office  published a document that referenced the low level of compliance with regard to this Certificate of Tax Compliance: – http://www.gao.gov/assets/310/303328.pdf

“Some nonresidents must file a certificate of compliance, referred to as a sailing permit, before departing the U.S. to ensure that tax obligations have been satisfied. The requirement is difficult to enforce and few nonresidents fulfill it, potentially leading to broader noncompliance if individuals assume the lack of enforcement extends to other tax rules….That few individuals file sailing permits and IRS does not enforce the filing requirement may not represent a significant compliance risk”

The GAO report indicated that officials at the IRS indicated that the “IRS cannot realistically enforce the sailing permit requirement given the volume of foreign foreign individuals who depart the U.S. daily.

Whole Story at TFX.

Sep 8

401k & Retirement Rollovers Explained

by julie

401k to Traditional IRA

Rollover from a 401K to a Traditional IRA is a non-taxable event. You can rollover the 401K from your former employer to a Traditional IRA for more options and better control of your retirement portfolio (please contact your financial advisor for investment advice)

401k, 403(b) or Traditional IRA to ROTH IRA

If you want to rollover a 401K, 403(b) or a Traditional IRA to ROTH IRA the rollover amount would be taxable as if it were a regular distribution (however, with a rollover the 10% penalty for early withdrawal will not apply).

If your employer plan or Traditional IRA consists of pre-tax and after-tax money then the amount that you choose to rollover to ROTH will be pro-rated the same way as your total portfolio is distributed between the deductible and the non-deductible parts. You cannot choose to roll over the non-deductible part to avoid tax on the transfer.

Whole Story at ATX.

Sep 7

Mail Bag 7: Freelancers, Partnerships, Italian Social Security idiosyncrasies, ROTH contributions, and Student Stipends

by julie

1. Freelancer

I’m a current client of yours – and very happy about it, by the way! Until now I have been employed in Germany but had a small amount of freelance income. Since July of this year I have been unemployed, and am launching a full-time freelance career either later this year or at the beginning of next year. Are there any tax considerations that I should take into account when planning the start date? The business will be registered in Germany, but I would like to know if it makes a significant difference to my US if a product is sold primarily to customers in the US or to customers in Germany. Thank you for your help!

Good luck with the business!

You can sell to whomever you wish from a US tax standpoint. Please note that if you have a foreign tax corp – there are implications from that (positive ones from a tax standpoint, but heavier on compliance).

If your business is registered as GmbH, this will be your additional filing requirement.

2. ROTH contributions

I currently work overseas as a teacher in Myanmar and my salary is tax free and I am a U.S. citizen. I have a roth and a rollover ira through vanguard. My question is, if I contribute money out of my checking account into my rollover ira or roth ($9000) to purchase stocks or index funds does my whole salary I earn from overseas become taxed, meaning I am no longer tax exempt?

Your tax exemption status would not be compromised. However , if all of your income exempt through the Foreign Earned Income exclusion, you cannot make contributions to ROTH IRA. However, there are methods that allow you to leave a portion of your foreign earned income not excluded.

Contributions to Traditional or ROTH IRA account can be made until April 17, 2018 (for 2017 tax year). We recommend to do your tax return early next year, and we will calculate how much you can put towards your IRA account while preparing your return. This way there will be no need for a potential amendment.

Whole Story at TFX.