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Expat Tax Blog

Nov 9

10 Proposed Tax Reform Changes & Impact On Americans Living Abroad (Expats)

by julie

1. No change to citizenship based taxation (CBT): First and most important – under the current House proposal the Worldwide Taxation system of the Individuals residing abroad would not change. The Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC)remain intact.

2. Potential for higher tax: Potential for higher tax for taxpayers with children in low-tax or no-tax countries. Despite doubling the standard deductions, this group of taxpayers will be negatively affected by elimination of personal exemptions.

Working example — UAE:

US taxpayer, married to non-US citizen, resides in UAE in a private house, has two dependent children. In 2016, from a salary of $130K, the taxpayer was able to exclude $101,300 through FEIE & standard deductions and personal exemptions for 3 people totaled $18,500. After calculations, the remaining US taxable income was $200.

Assuming all else being equal (passive income, housing arrangements, source of earned income, filing status), under the new rules, standard deductions are doubled to $12,000 but through the loss of personal exemptions, the taxpayer’s remaining US taxable income would be $6,500, taxed at a 25% rate.

3. Increased child credit, but families with children may be worse off: Increased child tax credit from $1,000 to $1,600 per child (even with proposed increase to $2,000 per child) does not compensate loss of personal exemptions. For qualifying households, child tax credit of $1k per child was available in addition to personal exemptions. Increased amount of credit per child of $1,600 now replaces the personal exemption of $4,050 but this credit is available only to those who qualify.

In 2017, the phase out income threshold was $55,000 for married couples filing separately; $75,000 for single or head of household filers; and $110,000 for married couples filing jointly. Unless the threshold for child credit is raised, families with children will face increase in taxable income.

Whole Story at TFX.

Nov 4

Green Card Holder Pleads Guilty of Failing to File FBAR and Report UBS Account, Will Pay More than Half the Assets in FBAR and Tax Penalties

by julie

A Connecticut man pleaded guilty October 26, 2017, to failing to report funds he maintained in foreign bank accounts to the Department of Treasury.

According to the information provided in court, Hyung Kwon Kim, a citizen of South Korea and, since 1998, a legal permanent resident of the United States, resided in Massachusetts and later in Connecticut. Around 1998, Kim traveled to Switzerland to open accounts for the purpose of receiving transfers of funds from another individual in Hong Kong. Over the next few years, Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann.

In 2004, the value of the funds in Kim’s accounts exceeded $28 million. U.S. citizens, resident aliens, and permanent legal residents with a foreign financial interest in or signatory authority over a foreign financial account worth more than $10,000 are required to file a Report of Foreign Bank and Financial Accounts (FBAR) disclosing the account.

As part of his plea agreement, Kim will pay a civil penalty of over $14 million dollars to the United States Treasury for failing to file, and filing false, FBARs, which is separate from any restitution the Court may order.

Kim faces a statutory maximum sentence of five years in prison. He also faces a period of supervised release, restitution, and monetary penalties, in addition to the FBAR penalty.

Original Story at TaxConnections

Oct 17

Gifts to Charity: Six Facts About Written Acknowledgements

by julie

During the whole year many taxpayers contribute money or gifts to qualified organizations which are eligible to receive tax-deductible charitable contributions. Those taxpayers who are going to claim a charitable deduction on their tax return must do two things:

  • Have a bank record or written communication from a charity for any monetary contributions.
  • Get a written acknowledgment from the charity for any single donation of $250 or more.

Taxpayers should also remember six things about these donations and written acknowledgements:

  • Taxpayers who make single donations of $250 or more to a charity must have one of the following:
    • A separate acknowledgment from the organization for each donation of $250 or more.
    • One acknowledgment from the organization listing the amount and date of each contribution of $250 or more.

Original Story at IRS website.

Oct 11

Self Employment Tax Considerations For Clergy

by julie

If you are a missionary or clergy working in another country (receiving form 1099 from a church), you may be liable for self-employment tax if your place of employment is in a country without a totalization agreement,

The income should be reported on Schedule C, Form 1040.  If the minister has incurred out of pocket expenses related to this income, they should be reported as expenses on the Schedule C.

Schedule SE will need to be completed to calculate SE tax on the minister’s Form W-2 wages, parsonage and utilities allowance.

This may open you up to self employment tax, which may wind up being greater than the potential social security payments you may receive in the future. This may certainly feel unfair, especially if you are up in age and are donating your time to better causes in the 3rd world – but we are not here to argue fairness, but to help explain your options.

Whole Story at TFX.

Oct 6

IRS Form 8832 and UK Corporations

by julie

Form 8832 is often cited as a source for entity classification. “According to form 8832, the only UK entity classified as a corporation is a public limited company. “ It is important to read between the lines – default entity classification on form 8832 is not all inclusive.

The instructions to form 8832 also contain interesting definitions which we will outline and explain below.

Foreign default rule

Unless an election is made on Form 8832, a foreign eligible entity is:

1. A partnership if it has two or more members and at least one member does not have limited liability.
2. An association taxable as a corporation if all members have limited liability.
3. Disregarded as an entity separate from its owner if it has a single owner that does not have limited liability.

What is a Foreign Eligible Entity?

https://www.irs.gov/irm/part4/irm_04-061-005.html

According to the IRS, a “foreign eligible entity” is generally defined as “an eligible entity that is not created or organized in the U.S. or under the law of the U.S. or any State.“

Now – to determine the classification, the key determinant is whether the members have limited liability.

Whole Story at TFX.