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Expat Tax Blog

Jun 4

What is a Teacher or Trainee for Tax Purposes?

by julie

Teacher Or Trainee?

A person who is in the US temporarily under either a “Q” or “J” visa, and is not a student, and who is substantially compliant with that status’ requirements, is considered a trainee or teacher. Substantial compliance with that status is considered to be not having engaged in any activities prohibited by immigration law that could cause loss of that nonimmigrant status.

In other words, “Teacher or Trainee” includes any non-student, nonimmigrant who is temporarily in the United States using a “Q” or “J” visa. As examples, this includes au pairs, physicians, summer camp employees, scholars, and cultural visitors.


Immediate Family is Also Included

If someone holds the status of “Teacher or Trainee”, their immediate family (spouse and any unmarried children) are also exempt whether by adoption or by blood – but their nonimmigrant statuses must be dependent on, or derived from, the exempt person’s nonimmigrant status. There are three requirements for unmarried children to qualify:

  • They must not be members of a different household
  • They must regularly reside in the household of the exempt person
  • They must be less than 21 years old

Immediate family doesn’t include employees, servants, or attendants.

Whole Story at TFX.

May 25

IRS to issue guidance on state efforts to circumvent tax-law provision

by julie

The Treasury Department and IRS announced Wednesday that they will issue guidance relating to blue states’ efforts to circumvent limits on state and local tax deductions under the GOP-backed tax law.

Under the new law, the state and local tax (SALT) deduction is capped at $10,000. The new limit has been a concern for elected officials in high-tax states such as New York, New Jersey and Connecticut, who worry that it will lead to an increase in their residents’ federal income taxes.

Politicians in blue states have proposed or enacted measures to provide workarounds to the cap on the SALT deduction. Blue-state politicians have noted that many states already have arrangements in which taxpayers get a credit against their state taxes for donations to private education, and the donations have been tax deductible.

The agencies also said that “taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.”

Original Story at The Hill.

May 21

Tax Reform & Retirees

by julie

Although there wasn’t a change to how Social Security payments are taxed, or the amount of taxes due on retirement plan withdrawals, the larger standard deduction is likely to be beneficial to most retirees.

The tax reform law almost doubles the allowed standard deduction – $24,000 (married filing jointly) and $12,000 (individual). For younger people, itemizing their charitable contributions, state taxes, and mortgage interest often provides the most tax benefit. But, for retirees without a mortgage, this increased standard deduction may be the best choice.

The tax reform bill also kept the “additional standard deduction” that was available for those at least 65 years of age. This additional deduction is $1,300 each for married couples, or $1,600 if filing individually.

Because of the changes to the standard deduction, many retirees can plan on keeping more of their money, even after the tax bill eliminated the personal exemption.

Whole Story at TFX.

May 11

Will Tax Reform reduce charitable contributions?

by julie

Although the tax reform bill did not make significant changes to charitable deductions, the near doubling of the standard deduction will mean fewer taxpayers choosing to itemize.

The reason for this is simple. The allowed standard deduction will rise to $12,000 (up from $6,350) for individuals, and to $24,000 (up from $12,700) for married couples. For taxpayers choosing to forego itemizing write-offs of charitable contributions, mortgage interest, state taxes, etc. on their Schedule A, they can simply choose the standard deduction. So, itemized deductions will have to be more than the standard deduction for the taxpayer to see the benefit of itemization.

An unexpected consequence may be that fewer taxpayers choose to pursue charitable deductions as they are less impactful on their personal bottom line.

Real Life Example

Mike and Katie are a very charitable couple, contributing over $10,000 in deductions annually. If Tina and Bill make $10,000 in charitable donations each year, they don’t have a mortgage, and only have additional itemized deductions of $10,000 in state taxes, they can itemize $20,000.

Prior to the tax reform, Mike and Katie likely would have itemized their deductions (20,000 > 12,700 standard deduction). Post tax return, where the couple’s standard deduction rises to $24,000, itemizing does not make sense. Will this impact MIke and Katie’s contributions for 2018?

Whole Story at TFX.

May 7

Mail Bag #15: Inherited Retirement, PFIC funds, Rent Deposit, France SS, FBAR disclosure, State tax, Contractor in Japan, Repatriation Tax

by julie

Inherited Retirement

My tax circumstances have changed due to my mother’s passing away & having inherited her house & IRA – 50% with my brother).

Does that require any special filing?

I am sorry to hear about your mother’s passing.

As far as the inherited IRA – it is good that you contacted us. You have limited time to transfer your portion of your mother IRA to your own IRA. If you miss that period you will have to pay tax on the entire inherited amount. Contact the plan administrator ASAP to arrange transfer to your own (and your brother) inherited IRA accounts. Hope you already did that – then this is just another reminder.

PFIC funds

What should I do with my non-US Mutual Funds before the end of fiscal year 2017? I had to file form 8621 for 2016, I because the value of my Mutual Funds was over $25,000 USD. If I sell my Mutual Funds before end 2017, will I still have to file form 8621 with Fed Form 2017?

For 2017, yes, you must file Form 8621, because the disposition of PFIC stock itself is a reportable event for 8621, even if you no longer hold any non-US mutual funds by year end.

Rent Deposit

In regard to the Foreign Housing Deduction, can a rent deposit paid in 2017 be applied to 2018’s housing deduction? I wont actually move into the home abroad until 2018.

A rent deposit paid in 2017 may be applied only to 2017 year, as per cash accounting. Since you do not move until 2018 you cannot deduct this amount.

Whole Story at TFX.