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Expat Tax Blog

Mar 17

How much should retirees withdraw from their traditional 401(K) or IRA?

by julie

By April 1 of the year following the year that you turn 70½ you must start taking the Required Minimum Distribution (RMD) from a traditional IRA or 401(k). The amount you must withdraw is determined based on your age and account value.

If you don’t take the required amount you are at risk of an excise penalty equal to 50% of the amount you should have withdrawn but did not. This is the simple part. The difficult part is the decision whether you should withdraw only the required amount or more.

Another challenging question is when to start making withdrawals. There is a 20 year gap between the age of 59 ½ when distributions are allowed and the age of 70 ½ when they become mandatory.

How do pension distributions get taxed? Tax Deferral Explained.

Except for funds saved in a ROTH IRA, money saved in Traditional IRA and employment retirement plans are pre-tax. At the time when contributions to the plan were made, your earnings contributed to the plan were tax free. The common agreement was to pay tax later on plan distributions. This principle is called “tax deferral”.

Importantly – the tax rate on pension distributions will depend on the total taxable income of the retiree. If total income is below the taxable level then plan distributions will remain tax free for the recipients.

Whole Story at TFX.

Mar 6

How to Determine Maximum Annual Account Balance for FBAR

by julie

Due to recent changes, the FinCEN Form 114 (FBAR) due date was moved from June 30th to April 15th. As anyone who has filled out this form knows, this form requires declaration of all non-US financial accounts and the highest balance for each account during the year. Even though this sounds like an easy question to answer, it can actually be quite complex if transfers between accounts occur during the year. This article will address the frequently asked questions related to this issue.

I have transferred funds between accounts; do these balances get counted twice?

Simply put, yes.

But don’t be too concerned. It is understandable if you don’t want to appear to have more assets than you actually have, but the government is not going to give you extra scrutiny for the differences between USD 550,000 and USD 700,000. The US Department of the Treasury is aware that transfers can cause funds to be double counted.

The regulations require you to report “the maximum account value of each account” within the timespan of the FBAR reporting period. Notice that there is no reference to tieing out the balances to the total worth.

So, not only do you not need to adjust your balances to avoid double counting, but in reality it is not the correct way to do it. It is the maximum account balance of each account that must be reported.

Whole Story at TFX.

Feb 25

Tax Impact of Name Change – Whom to Contact and What Forms to Complete

by julie

While marriage is the most common reason for changing your name, it is not the only reason.

Whatever the impetus, you must now make sure that you are all set from a legal and taxation standpoint.

The primary identifier for the IRS is your social security number – and your tax return must match your Social Security records. Failure to take appropriate steps can delay your tax refund or other logistical annoyances you can avoid.

Notify Social security

– Fill out and print an Application for a Social Security Card

– Review https://www.ssa.gov/ssnumber/ss5doc.htm for what documents you may need

Until you change your name with SSA, you must continue to file tax returns under your prior name.  This holds true even if you were married, are now divorced, and want to change your name back.

The Whole Story at TFX.

Feb 25

Non-US Citizen With US Income Subject to Withholding Do Not Ignore Form 1042-S

by julie

1042-S – What Is It and Who Needs to Complete It?

This form has to be completed by a Withholding Agent – this obscure term generally refers to bank or broker that pays passive income and must withhold tax on the disbursals, but the overall scope is broader than that.

-“You are a withholding agent if you are a U.S. or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. A withholding agent may be an individual, corporation, partnership, trust, association, or any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies. You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment.

Great – How Does This Affect Me (Taxpayer)?

If you are a Non-US citizen who receives passive income from a US source, there is a strong likelihood there is tax withheld from payment disbursal.  You are likely then in receipt of form 1042-S, which must be added to your US tax return.  Potentially your withholding may be too large and you may be eligible for a refund as this income may be non-taxable due to your treaty benefits. Or effective tax rate is lower than default amount of withholding.  WIth correctly filed form 1042-S attached to your US non-resident tax return, potential refunds will not be delayed.


Whole Story at TFX.

Feb 18

American Business Owners Abroad – Top 6 US Tax Issues To Be Aware Of

by julie

Congratulations, you’re a business owner! You’ve finally done it; you quit your job and sprung out on your own, you are your own boss! Aside from the painful realization that it’s not all peaches and cream and you actually wind up working more when working for yourself, you also face additional tax reporting burdens (and that’s especially true if you are a US person – which requires you to file special tax forms in the US). This article will summarize your requirements and go over the common pitfalls you should avoid.

1. Most importantly – what forms do I need to file?

You must remember that different countries have different reporting requirements. What may be a simple venture in your residence country may not be treated as such in the U.S. We’ve compiled a table breaking down different business types by country, indicating what the U.S. filing requirement is for your business.

Whole article at TFX.