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Expat Tax Blog

Feb 21

Don’t pay sales tax for home improvements – NY, NJ, PA

by julie

New Yorkers – don’t pay sales tax for home improvement

We all want a new bathroom, kitchen, or other improvement to our home. None of us, however, want to pay tax on these improvements. The good news is that you don’t have to (at least in New York, New Jersey, or Pennsylvania)

What is a capital improvement?

A capital improvement is any addition or alteration to real property that meets all three of the following conditions:

– Substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property

– Becomes part of the real property or is permanently affixed to the real property so that removal would cause material damage to the property or article itself

– Intended to become a permanent

– For example, if a renter’s lease stipulates that the premises must be returned to original condition, this work would not count as a capital improvement.

– For example, building a deck, installing a hot water heater, or installing kitchen cabinets are all capital improvement projects.

Repairs or Maintenance are not Capital Improvements

On the other hand, when a contractor performs a job that constitutes a repair, maintenance, or installation service to real property, sales tax must be collected from the customer.

Whole Story at TFX.

Feb 12

Not all tax paid in France is eligible for U.S. income tax purposes

by julie

If you ever took the SATs, you should be fairly familiar with analogies. If we were to ask – which of these does NOT apply.

Q: France: Romance

  1. France: Fluffy croissants
  2. France: World Class Museums
  3. France: Beautiful Beaches & Mountains
  4. France: High Taxation in the Eyes of the IRS.

Unlike the first three choices which are all synonymous with France, in the eyes of the IRS the 4th is not fully true. For U.S. Citizens & Green Card holders in France, what seems like high tax in French is mostly social contributions & not available for deduction as foreign tax credit.  How can it be that you pay 60+% in tax, but the IRS does not recognize it as such?

Social Contributions

For U.S. Tax purposes, ‘Contribution Sociale Généralisée” (CSG) and the “Contribution pour le Remboursement de la Dette Sociale” (CRDS) are not creditable or deductible taxes under the Internal Revenue Code or the U.S.-French Income Tax Treaty. These contributions do not reduce taxable income and cannot be applied as a deduction.

Unfair? That depends. The main reason that these are not eligible for deductions is that the premise is that you, as a resident of France, benefit from these social contributions. You receive healthcare, education, and other benefits that your Social contributions provide.

Wealth Tax – L’impôt de solidarité sur la fortune

French residents with assets in excess of €1,300,0000 face an additional “wealth tax” – known as ISF.  For U.S. tax purposes, this tax is not allowed as a foreign tax credit but can be deducted as a part of itemized deductions on U.S. tax returns.

Whole Story at TFX.

Feb 7

Tax Extensions – Why you need one (or more than one)

by julie

April 15 is known as “Tax Day”. In fact, the real Tax Day wrapping up tax season is October 15. The  IRS allows a generous “automated” 6 months extension to every taxpayer – but it is not automatic. The extension must be requested by filing Form 4868 (TFX can file this for you).

Some taxpayers are reluctant to file an extension. Commonly cited reasons are:

– An extension may raise a red flag before the IRS and increase the risk of audit
– I am a natural procrastinator. If I file an extension I may be late in October too.
– I have all my tax documents ready. It is just the matter of getting the forms filled. Why file an extension if I won’t use it?

In truth, none of those reasons matter. You can file your tax return at any time up until the extension date. Giving up this free gift from the IRS is akin to rafting without a life vest; you don’t expect the raft to turn over but if this happens that little vest will be your life saver. And, importantly, you don’t get extra points for finishing your trip without wearing one.

Whole Story at TFX.

Feb 2

Qualified Education Expenses – Same, Same, But Different

by julie

Qualified Education Expenses – this term is used in taxation of education expenses interchangeably, but the definition of what is qualified is not always the same. Let’s break it down.

 

Student Loan Interest Deduction

The price of secondary education has been skyrocketing – see graph from the Bureau of Labor Statistics.

As the cost of college increases dramatically, so does the amount of student loans that today’s youth need to take on in order to pay for college – image below from WSJ. in 2016, the record was set at over $37k, with 70% of graduating students in debt.

Once you’ve received a student loan, unfortunately you have to pay monthly interest payments in addition to the principal balance. The interest may be deducted from your taxable income up to $2,500 per year.

Whole Story at TFX.

Jan 30

Do Puerto Rico Residents Owe US Tax?

by julie

Puerto Rico is considered an unincorporated United States territory, so the rules for residents of Puerto Rico are a little different than for residents of the 50 states. The determination of whether you owe US income taxes depends on your residency status and your income source.

Residents

In general, if you made your principal residence in Puerto Rico for a minimum of 183 days in the tax year, you are a bona fide resident of Puerto Rico and are exempt from submitting a United States federal income tax return. However, if you earn income from places not in Puerto Rico, are an employee of the federal government, or a military member, you do need to submit a tax return and pay tax on that portion of income. Even then, income from a source in Puerto Rico is still excluded.

Non-Residents

If you do not meet the PR residency requirements, you must submit a tax return to report your income from any source. Therefore Puerto Ricans who move abroad or to the mainland must file US tax return.

There is one exception. This exception applies to those taxpayers who were residents of Puerto Rico for a minimum of two years prior to their move to the mainland. Income received from sources in Puerto Rico during the year the move occurred can be excluded from income reporting.

Whole Story at TFX.