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Expat Tax Blog

Aug 10

Time to Renew ITIN

by julie

ITINs with middle digits 70, 71, 72 or 80 are set to expire at the end of 2017. Ie – example, 2NN-72-NNNN)

More than 1 million taxpayers have expiring ITINs —- the IRS has begun mailing CP48 notices which break down the steps needed to renew ITIN.

If your ITIN has not been used at last once in the last 3 consecutive years, they will expire Dec 31, 2017 as well. If your ITIN expired last year middle digits 78 and 79) – they can be renewed at any time.

What is an ITIN?

If you are not eligible for an SSN (Social Security Number) – but have a U.S tax filing obligation, you are required to obtain an ITIN.

The most common request to get an ITIN for our client base is for non-resident alien spouses. With an ITIN, the U.S. taxpayer can elect to file jointly with their non-US spouse (election under IRC § 6013(g). Married filing jointly is the most beneficial filing status, and can be utilized to substantially reduce tax due). Such an election would require the non-US spouse to report their worldwide income, but able to exclude their own $100k of foreign earnings, as well as utilize foreign tax paid. In some instances, this can yield great tax savings.

Whole Story at TFX.

Aug 8

Mail Bag 6 – German Corp, Australian SMSF, French Capital Gains, Foreign Owned LLC, and Unreported ISAs

by julie

1. German GmbH, UG

I am a US Citizen living in Germany. I am an owner in a GmbH (80% owner), as well as a UG entity (100%) in Germany.

Am I required to file a US Form 5471 in both scenarios? Would the US consider my UG a disregarded entity for tax purposes and therefore I can reported my UG net income on a Schedule C? Or must I file a 5471 instead? I look forward to hearing back from you.

The GmbH is a corporation set up in a foreign country. It would require form 5471 – please review our guide to foreign corporations.

The UG (haftungsbeschränkt) is a simplified version of GmbH that can be founded with a minimum share capital of one Euro. It is still a company with limited liability. Limited Liability means it is not a disregarded entity. UG also required form 5471, however since you only own 20% filing will be simpler and include fewer schedules.

2. Australian SMSF

I’m an AUS/US dual citizen that just moved to Australia. I’ve never worked here before and I need to set up a super account in the next few days for my employer to contribute to. It seems I should avoid PFICs (ie non US mutual funds)? I’m looking urgently for a super fund that will have the least amount of US implications?

Australian SMSF (Self Managed Super Fund) is not treated as a foreign pension by the IRS. It is a foreign grantor trust. SMSF owner must annually file form 3520-a, whether they receive distributions from the fund or not.
If you want to avoid complicated tax filing in the US it is better to stay away from SMSF. Whereas employer-sponsored Superannuation is recognized as foreign pension plan. You will not be required to report PFIC holdings inside the plan. However, employer contributions to the plan need to be added to your annual taxable earnings in the US. From the IRS prospective this is a part of your compensation not allowed for deferral. When you start drawing money from the fund the distributions will be virtually non-taxable to you because your own contributions and employer contributions have been taxed while you earned. Annual growth in the plan may be taxable too if you meet certain income criteria.

Aug 1

5 Ways the IRS Can Fine & Penalize Taxpayers

by julie

You’ve done the work and your tax return is prepared – now what? In the unfortunate circumstance that you owe the IRS tax, your project is not done until you’ve paid the piper.

Let’s examine separately the various fees the IRS may charge you:

⋅ Interest
⋅ Failure to Pay Estimated Payments
⋅ Failure to Pay Tax
⋅ Failure to File
⋅ Negligence and Fraud

Interest

There is a big difference between the date when you must file your return, and the date when the IRS expects their money. If you owe tax to the IRS, they expect to be paid on April 15th.

Even if you reside abroad and have until Jun 15 to file https://www.taxesforexpats.com/expat-tax-advice/filing-deadlines.html – if you owe any tax, interest starts to accrue from April 15th.  You can request an extension to file until October 15, but interest will still accrue from April 15the.

However – interest charged by the IRS is fairly small on a monthly basis. The rate the IRS charges in 2017 is 4% annually (0.33% per month). In practice, if you owe the IRS $1000 and pay in October, you will only owe them $20 in interest.


Whole Story at TFX.Now, small numbers can add up over time. Floyd Mayweather, the world’s highest paid boxer, is 15 months overdue on his tax payment and owes the IRS 7.5% interest on top of what he was already scheduled to pay, $220 million; $16,500,000.

Jul 29

Mail Bag 5: California Tax Board, Wealth Tax, Housing Exemption, Filing without SS#, Startups, and Severance Payments.

by julie

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.

Jul 21

Mail Bag #4 – Green Card/FBAR In Year Of Expatriation/IRA Withdrawals/Undeclared ISAs/UN Allowances

by julie

1. Green Card

I am unsure if I was meant to file a tax return for this tax year.

I was a legal permanent resident of the US, until the beginning of March of this year, at which point the abandonment of my status was approved.

I assumed that this meant I no longer needed to file, but my friends in the US have just advised me that I should confirm whether this is the case with an accountant.

You will be required to file tax return for this year, even if you were a legal permanent resident for one day.

For selection of filing period, you have two options. You may file a resident tax return for the entire year because the default end of U.S. tax residency date is December 31 of the calendar year. Alternatively, you may file a dual status alien return with the end of U.S. residency on March 31. You qualify for the earlier end of U.S. tax residency because you left the United States after that date and maintain a closer connection to your home country.

During the course of tax preparation we will be able to advise which is most advantageous to you.

If you were a permanent resident longer than 8 years, see situation 3 for further detail.

2. Streamlined Help

In the Streamline progam must I report all accounts under 10,000 Dollars?

For any FBAR filing, if your aggregate non-US accounts exceed $10k at any point in the year, you must report all applicable accounts. For example, if you have 4 non-US financial accounts (checking, savings, retirement, and cash value of life insurance) each with $3k highest balance, your aggregate highest balance was $12k and FBAR must be filed, reporting all of these accounts.

Whole Story at TFX.