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Expat Tax Blog

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.

Jul 20

Death of the Straw Man: Foreign Owners of U.S. LLC’s Face Additional Reporting Requirements – IRS Form 5472

by julie

U.S. Government Takes Steps Towards Full FATCA Reciprocity

Since the inception of the Bank Secrecy Act of 1970, the United States has considerably advanced and succeeded in its efforts to combat offshore tax evasion and other financial crimes. Metaphorically, no country is an island; Intergovernmental agreements (IGA) with more than 100 governments enabled collection and remittance of information on U.S. owners of foreign financial accounts to the IRS & Treasury. These agreements have been instrumental in the implementation of the Foreign Account Tax Compliance Act (FATCA).

Background and Reasons for New Reporting Requirements

Up until recently, the aforementioned agreements on the exchange of financial information worked mainly in one direction: from the partner countries to USA. There was no legislation in place allowing the Treasury Department to fully reciprocate the information exchange. There were even discussions amongst members of the Financial Action Task Force (FATF), the global organization combating money laundering, as well as members of the European Union, about designating the United States as a tax haven.

With global interest rates at record low rates, money needs to be parked somewhere (preferrably safe & stable). As a result enormous flows of money from all over the world have gone into the U.S. real estate.

On Jul 18, 2017 the National Association of Realtors released a report showing that the amount of properties bought by foreign buyers surged 32% YoY. The total dollar value of purchases by foreign buyers and recent immigrants totaled $153 billion; 10% of the total dollar value of existing home sales. This value is up 49% from 2016. Half of all foreign sales were were in three states: Florida, California, and Texas.

Foreign nationals have placed large amounts of cash into limited liability companies (LLCs) in U.S. states such as Delaware or Nevada that have minimal disclosure requirements.

These LLCs would then purchase real property in the United State. Foreign buyers mainly use the wholly owned U.S. LLCs for liability protection and for estate planning reasons. These transactions did not require disclosure of the “real owner” of the LLC, and phantom buyers all over the world purchased tremendous amounts of real estate.

The absence of IRS reporting obligations, in addition to the lack of public disclosure of legal entities ownership, has created opportunities to hide copious amounts of wealth using the LLCs as money-laundering vehicles. These properties would usually remain disregarded entities in the eyes of the IRS, and without being rented out, the foreign owner would remain outside of the U.S tax system.

For example – a foreign owner could purchase a $10MM property in Manhattan through a Delaware LLC, thus achieving complete anonymity of the property’s natural owner.

Whole Story at TFX.

Jul 19

Effectively manage the timing of Restricted Stock Units (RSU) to receive optimal tax treatment

by julie

Startup culture is booming. You’re on your way to disrupting every industry known to man – but first, make sure you’ve got a handle on your finances. As a founder or early stage employee of a startup, not only do you have to worry about your burgeoning service or product, but you must learn to wade through the world of venture capital as well as understand the tax implications of your company stock.

83(b) Election

In essence, the Section 83(b) election is a letter sent to the IRS indicating that you’d like to pay tax on the shares or RSUs you receive on the date the equity is granted to you, not on the date of vesting.

Aside from being able to push back the date of paying tax, this election will allow you to move the tax rate from a less favorable ‘Ordinary Income’ to a more favorable (read: lower) ‘Long Term Capital Gains’.

This important election must be done within 30 days of the grant date of the restricted stock.This date is usually the date the board approves the grant – not when you actually receive it. 

Whole Story at TFX.

Jul 12

Mail Bag #3 – W8-Ben/RRSP/Selling Personal Residence/Retirement Distributions/Incorporating Abroad/Job offer in the U.S.

by julie

1. Capital Gains/W8-BEN/1040NR

I work for an Australian Stockbroker and we provide access to US markets for our clients via our US entity. One of our clients was charged a non-resident withholding tax (“NRWT”) at the rate of 28% on a sale transaction valued at approximately USD 132,000. Consequently approximately USD 37,000 was deducted in NRWT.

The clients W-8BEN form that had been provided by the client in September 2012 was voided by the US broker in early 2013 and the Australian entity had not become aware of this. We understand that had a valid W-8BEN form been in place at the time of the sale, the treaty rate of 15% (approximately USD 20,000) would have been applied to the NRWT rather than 28%.

Our client is a trustee of a superannuation account in the pension phase (I believe this is similar to 401(k) plans in the US).Under Australian taxation law, such entities do not pay tax. We are not sure whether the 15% treaty rate should apply or zero. Could you please confirm? Additionally, we are puzzled as to why the NRWT was applied to the whole of the sale proceeds instead of the profit on the transactions (i.e. the difference between the purchase and sale prices). Could you please confirm?

The capital gain from disposition of US stocks is exempt from US tax for nonresident aliens. If a correct form W8-BEN was filed, the entire amount of sale proceeds would be tax exempt, not on the net gain.

In order to get a refund, the account holder has to file a US tax return and claim the excess of tax withheld. Now – if the taxpayer is a US person (which the US brokerage does not know without the form W8-BEN), then the taxpayer would report the cost basis (i.e – purchase price of the securities) to the IRS and pay tax only on net proceeds, getting the refund for the excess.

If the taxpayer is a non-US person then they can claim treaty benefits directly on their non-resident US tax return form 1040NR and receive a full refund of tax withheld on capital gains. In either scenario, we can assist.

Regarding the superannuation account: it does not matter whether the funds were included in the Superannuation portfolio (which, by the way, is not identical to the US 401K) or if it was just an investment account.

Whole Story at TFX.

Jul 5

Mail Bag #2 – Social Security Tax Abroad / FEIE & ROTH IRA / Bringing Foreign Inheritance to the US

by julie

1. Dealing with SS / Medicaid tax abroad.

I am currently a US citizen living in Brazil and will start working for a Brazilian company in August. I know I have to pay SS / Medicaid tax abroad as well as income tax. How do i know how much I need to pay? When is it due? Can I pay my social security tax through the Social Security website or through the IRS?

Brazil does not currently have a Social Security totalization agreement with the US. If you were self-employed, you would be subject to SECA (Self Employment) tax in both countries.  The two countries signed an agreement in June 2015, but it has not yet been ratified. Until this is ratified, unfortunately in many scenarios US citizens residing in Brazil are subject to double taxation (paying into the social security system of both countries).

However, as an employee of a foreign company you are exempt from paying Social Security tax in the US. Although you are still required to pay income tax in the US, your final bill will be significantly reduced through the variety of tax saving mechanisms available to expats (i.e. foreign tax paid in Brazil will be applied as a credit towards the US tax due). Your full tax payment will be due  tax by April of next year. We can determine the amount you will pay during tax preparation, please get in contact in early January so that we can prepare your return with plenty of time to spare.  Any payments of tax due will be made to the IRS and not SSA.gov.

Whole Story at TFX.