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Expat Tax Blog

Dec 16

Hobby Income: Five Things You Need to Know

by julie

There are thousands of Americans who earn income from their hobbies. Hobby or not – It is important to remember that this income must be reported on a taxpayer’s tax return, regardless of whether it is from a traditional job or a favorite pastime..

Hobby, or Business?  It depends. A business is operated with the intention to make profits. Hobbies are for recreation, not to get profit. The IRS has a list of nine factors that must be considered in the context of the entire set of circumstances when making the determination.

Whole Story at TFX.

Dec 10

Mail Bag #10: CAD accounts, Child Tax Credits, Inherited IRAs, Publicly Traded K-1 Income, Property Sales, and Saudi Job Offers

by julie

Inherited IRA

I have a friend in my neighborhood who is quite old and frail. She is English but lives in the US and earned all her money in the US. I promised her I’d find the answer to this question but cannot find a definitive answer on the internet.

She has most of her money in a Roth IRA. Two relatives in England – young – will inherit the Roth IRA. Will they have to pay tax on it do you think?

With an Inherited Roth IRA, you don’t pay taxes on distributions. With an Inherited Traditional IRA, you’ll pay taxes on any distributions you take.

Canadian accounts

I am a Canadian who moved down to the US (California) for work on October 10, 2016. I filed my taxes for the period October 10 – December 31, 2016 (using form 1040), but have recently been advised that: (1) Contrary to what I believed, I need to disclose all foreign accounts that were open in 2016 (not only those that were open when I moved to the US – I consolidated and closed many of my Canadian accounts prior to my move) – this is a FINCA or FATCA or some other type of form?; and (2) That I may also have had to file a 1040NR (though I don’t believe this to be the case).

Your service has been recommended to me by an expert in the area, and I am wondering if you might be able to help me. If so, may I ask for the fee structure that would apply?

Once you meet the Substantial Presence test you will be a U.S. resident for tax purposes. You will become subject to the same filing obligations as U.S. citizen, i.e. you are required to declare your worldwide income and non-US financial accounts.

For the 2016 tax year, you could have filed the dual-status alien return (form 1040NR for the nonresident part and form 1040 for the residne part). Alternatively, you could have filed 1040NR for the entire year as you did not meet the Substantial Presence test. You chose to file 1040 for the entire year, which could likely increase your US tax obligations. No worries – we can file an amended return to correct this. In short, form 1040NR is $450/$550 (over $100k). If you choose to amend to 1040NR then you would be not required to file FATCA (form 8938) for 2016 year, which is another incentive to amend the 2016 to 1040NR.

For the 2017 tax year, you will file form1040 and FBAR if applicable. Of course, we will determine all necessary forms after analyzing your completed tax questionnaire and reviewing your documents.

Whole Story at TFX.

Dec 8

What to Do After Getting A Letter From the IRS

by julie

Every year, the IRS sends out millions of notices to taxpayers. These letters are sent for a variety of reasons. Below is a list of seven simple things to do when that notice arrives.

1. First, stay calm. In the majority of cases, a simple response to the notice will be all that is required.

2. Carefully read the whole document. Letters from the IRS are usually sent to address a specific question or problem, and also contain specific information on what you need to do.

3. Look at your tax return. Often, these letters are sent to inform the taxpayer of a change or a correction to their tax return. Look at the information, then compare it to the tax return in question.

4. Don’t reply unless it is necessary. Most of the time, these notices are informational and a response is not necessary. The notice will tell you exactly what to do and if you need to respond. Don’t reply unless the notice asks you to, or if you need to make payment.

Whole Story at TFX.

Dec 7

ITINs Set To Expire Dec 31 2017 – Time To Renew

by julie

9N-72-NNNN – Does your ITIN look like this? It may be expiring on Dec 31 2017

ITINs are tax identification numbers for those that do not have a Social Security Number (SSN) and are not eligible for one. Each year, millions of ITINs expire and must be renewed. At the end of 2017, ITINs with middle digits 70, 71, 72, or 80 (For example: 9NN-71-NNNN) need to be renewed if the taxpayer will have a filing requirement in 2018.

This affects more than 1 million people, and disproportionately affects those residing abroad, as ITINs are only issued for those who are not eligible for a SSN.

As such, many ITIN holders who have a 2017 federal tax filing requirement, often to claim a refund, will need to renew their ITINs before filing. Do not delay, as allowing your ITIN to lapse will result in refund delays and possible loss of eligibility for some tax benefits until the ITIN is renewed.

Generally, the renewal process takes as few as 7 weeks, but given the sheer magnitude of expiring ITINs (1 million plus) we expect this to take almost 3 months.

Whole Story at TFX.

Dec 6

Are my accounts exempt from FATCA reporting?

by julie

Exemptions are for Foreign Financial Institutions (FFI), not individuals

Our recent article highlighting how tax deferral investments in non-U.S. countries may not receive the same beneficial treatment by Uncle Sam (we highlighted ISAs in the UK, TFSA accounts in Canada, and Aksjesparekonto in Norway). As a followup we received quite a few queries on whether Norwegian IPS (individuell pensjonssparing) accounts are reportable on FBAR/FATCA, as there is a specific clause in the Norway FATCA agreement.

“The following categories of accounts and products established in Norway and maintained by a Norwegian Financial Institution shall not be treated as Financial Accounts, and therefore shall not be U.S. Reportable Accounts or accounts held by a Nonparticipating Financial Institution, under the Agreement:

A. Certain Retirement Accounts or Products

Tax Favorable Pension Schemes (and paid-up policies or pension assets certificates)

covered by section 6-45 of the Norwegian Tax Act.”

As much as we love Norway, this clause is not unique.The U.S. Treasury has a list of exempt accounts for the purposes of FATCA for each country. As referenced above, the list includes for Norway indeed Tax Favorable Pension Schemes covered by section 6-45 of the Norwegian Tax Act.

Whole Story at TFX.