Mail Bag 5: California Tax Board, Wealth Tax, Housing Exemption, Filing without SS#, Startups, and Severance Payments.
1. California Tax Board
I live and file my taxes in Canada since 1974, but have not filed US taxes. I grew up in California and my sister sold the house we grew up in in 2015. We split the net proceeds 50-50. The value of the house at the time of my fathers death was around $330,000.00, the sale price was about $835,000.00. I have the documents showing the costs incurred for the sale.
I was contacted by the Calif. State Franchise Tax Board recently and they want me to pay capital gains tax on my portion of the sale. I have downloaded a copy of the 2015 non resident CA. tax form which asks on line 13 for federal AGI from Form 1040. I have Revenue Canada tax forms for 2015 but I have not filed IRS taxes for over 40 years now. I need some help to sort this out so I can be in compliance with the tax department in California.
There are two issues at hand.
1. Your overall non-compliance – we will cover this first
Because you have not filed for several years the best way to catch up with your US tax filing obligation is under the Streamlined Procedure.
We prepare thousands of tax returns for expatriates in your situation – breakdown of SP scenarios.
The Streamlined Program (SP) requires filing of the last 3 years of tax returns and 6 years of FBARs. In other words, you’ll have to file 2011-2016 FBARs and tax returns for 2014-2016.
2. Your issue with the California Tax Department (FTB). Tax on your share of capital gains from the sale of CA property cannot be avoided.
I recommend you sign up and begin with #1, and we will concurrently prepare #2 for you. Please upload the letters you have received from the FTB into your account once you create it.
2. Wealth Tax
I recently moved to Spain and I am in the process of working through my tax details for 2017. Most immediately, I’m looking for someone with deep PRACTICAL experience with the Spanish-US Dual Tax Treaty (I can find lots of people with general knowledge, but not with specific knowledge.). The central question revolves around whether I need to pay wealth tax (patrominio) or not. I’d like to schedule an introductory call with you, if you think you can be helpful here.
Wealth tax legislation has nothing to do with the US/Spain tax treaty. This is not an income tax as it is applied on assets, not on income. Therefore, patrimonio is beyond the scope of the tax treaty. Whoever tells you this is regulated by the treaty does not understand that document.
Whether you pay wealth tax in Spain or not depends on your net worth not on your income; therefore tax projection will not answer your question. If you also need our help for preparation of US tax return 2017 – please complete your tax questionnaire and come back when you are ready to proceed, we’ll be happy to help!
Whole Story at TFX.