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Expat Tax Blog

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.

Apr 24

Are You Required to Submit a 2018 Tax Return?

by julie

Tax season is open, and the IRS estimates it will process almost 155 million tax returns from individuals during the 2018 tax season. So the question is, are you required to file a tax return?

The tax system requires that income be reported for the previous year, so in 2018 you will report your income and deductions from the 2017 tax year. Note that even if you were paid for work you performed during 2017, if that pay was not received until 2018 it goes on your 2018 return.

But, just receiving income during 2017 doesn’t always mean you are required to submit a federal tax return. Most taxpayers can look at the following chart to determine if filing is required. Simply choose the correct filing status, age, and look at the minimum gross income required for filing. If your income exceeds this number, you must file.

Whole Story at TFX.

 

Apr 18

IRS provides additional day to file and pay for taxpayers through Wednesday, April 18; IRS processing systems back online

by julie

On April 17 IRS announced that it is providing taxpayers an additional day to file and pay their taxes following system issues that surfaced early on the April 17 tax deadline. Individuals and businesses with a filing or payment due date of April 17 will now have until midnight on Wednesday, April 18.

The IRS encountered system issues Tuesday morning.

The IRS advised taxpayers to continue to file their taxes as normal Tuesday evening – whether electronically or on paper.

Automatic six-month extensions are available to taxpayers who need additional time to file can visit https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return.

Original Story at IRS website.