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Expat Tax Blog

Jan 23

IRS Publishes Final Guidance On The 20% Pass-Through Deduction: Putting It All Together

by julie

It was less than 13 months ago that Congress dumped 500 pages of sloppy statutory language on the Service in the form of the Tax Cuts and Jobs Act, and somehow, in that span the IRS has managed to provide final regulations on the most controversial, convoluted and complicated provision of the new law: Section 199A, better known as the “20% pass-through deduction.”

Before final regulations could be published, a LOT had to happen. As 2018 tax filing season is to begin on January 28th, the IRS published 274 pages of final regulations — along with two key Revenue Procedures — yesterday afternoon. A Herculean effort, indeed.

Let’s see what those final regulations have to say.

Original Story at Forbes.

Jan 21

Which tax return to file first – U.S. or local country (U.K, Canada, etc)?

by julie

Where does one begin?

As we all know by now, U.S. citizens and green card holders are required to file U.S. tax returns no matter where they live. Now, which return do you file first? It not matter which tax return is filed first – foreign country or U,S.

You can claim credit in either country, but a refund received in one country reduces your remaining credit pool in other country. For the remainder of the article, we will use Canada as an example (but you can insert any country and the answer will remain the same.)

For example – the less you pay in Canada one year, the more you pay in the US the following year.  If you had filed US return 2016 in 2017 before you filed your Canadian return, then the result would be the same.

In 2016 you received refund in Canada for tax paid in the US that fully offset Canadian taxes. Thus, this year, with the increased US income, we do not have any foreign tax paid during 2016 year to offset your US tax bill.

Whole Story at TFX.

Jan 17

IRS waives penalty for many whose tax withholding and estimated tax payments fell short in 2018

by julie

Yesterday the IRS announced that it was waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.

The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding (threshold to avoid a penalty is 90 percent).

The waiver computation announced would be integrated into commercially-available tax software and reflected in the forthcoming revision of Form 2210 and instructions.

Original Story at IRS website.

Jan 15

Non-Resident Sells Property Abroad, Becomes Resident – Do They Owe U.S. Tax?

by julie

Situational analysis

A UK citizen (Mike B) purchased a home in the UK in 1998 for $100,000 USD, selling it 20 years later for $600,000, resulting in a capital gain of ~$500,000. Coincidentally, Mike moved to the U.S in July 2017 on an L visa.

Questions to consider 

  1. Does MIke owe any tax to the U.S?
  2. If Mike owes tax, on what amount is it calculated?
  3. What, if any, are Mike’s options to mitigate this unfortunate situation?

Cost Basis – is step-up an option?

What is Mike’s cost basis? Is it $100,000 (1998 cost), or can he use the ‘step up’ basis?

Step up basis, allows the taxpayer to ‘recalculate’ the cost basis not from the date of purchase, but from a new date in the future. Unfortunately, in general, this is not an option for a non-US person immigrating to the U.S.

Whole Story at TFX.

Jan 12

Nonresident Aliens Can Still Be Subject to US Taxes

by julie

The United States government’s reach can extend to non-citizens (including those who have recently expatriated), so it is important that you don’t assume you’re exempt from filing US tax returns just because you are not a US person. Here are five ways that you could find yourself drawing the attention of the government.

Estate Tax

Even as a non-citizen, owning “situs property” in your estate at the time of death could trigger estate tax. Situs property is property either in the United States, or being connected to the United States. Remember that property consists not only of tangible property, but also the stock of an American company, no matter where you keep that stock. In other words, holding a US stock in a Swiss account doesn’t keep the IRS away.

At the time of death, if the estate holds over $60,000 in situs property, estate tax can be triggered. A few treaties between countries do exist that might provide a little relief.

Whole Story at TFX.