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Expat Tax Blog

Mar 27

Federal Stimulus FAQ: Who Is Eligible, How Much Money Will They Get? U.S Based Taxpayers, Expats, Non-residents & More

by julie

The US Government has passed a sweeping 2 trillion dollar stimulus package. Part of the package includes direct monetary payments from Uncle Sam to US Taxpayers. We explain in detail below who is eligible, what they can expect, when they can expect it, and if they will have to pay tax.

Who is eligible for stimulus checks?

US Residents with social security numbers, residing anywhere, will receive checks depending on their income, which we outline below.

How much will taxpayers receive?

The amount will depend on the amount of adjusted gross income. If you earned less than the first table (low threshold), you receive the full amount. The amount is reduced by $5 for every $100 exceeding the lower threshold. Once you reach the upper threshold (right column), the amount is completely phased out. If you filed your 2019 return, the numbers will be based off of that. If you have not, the 2018 figure will be used. Line item to look for on your tax return: Adjusted Gross Income (Line 8b) If you have no income, you will still be eligible for a check if you have no income or if you rely solely on non-taxable government benefit programs (such as Supplemental Security Income benefits (SSI))

Lower threshold and below: $1,200 per adult & $500 per child under the age of 17.

Whole Story at TFX.

Mar 27

COVID-19 & 2020 IRS Tax Deadlines — What You Need To Know

by julie

We are in uncharted territory and the IRS and Treasury are acting accordingly to help businesses and individuals. There have been a few extensions of filing deadlines which we will outline below. Importantly, everything is fluid and there may be new changes. We will update as new information comes in. The IRS has created a special coronavirus page to keep track of latest updates.

Federal Tax Payments Deferred, Without Penalties and Interest to Jul 15, 2020

Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax This deferment refers to 2019 tax payments or estimated tax payments for 2020. This is not an abatement of tax – you will still owe your share, but you don’t have to pay it until Jul 15, 2020.

Whole Story at TFX.

Mar 19

U.S. delays April 15 tax payment deadline by 90 days for millions

by julie

US Department of Treasury announced that it was pushing back the April 15 deadline to pay taxes owed, giving individuals and many businesses 90 extra days to send checks to the government.

Delaying payment requirements will give businesses and individuals nearly three more months to meet their IRS obligations, potentially lessening cash-flow issues that some businesses are facing as many people stay home and spend less money on dining out, entertainment and transportation because of coronavirus pandemic.

“This is a commonsense step to afford individual Americans and businesses access to financial resources they need during this time of economic and social disruption,” Senate Finance Committee Chairman Chuck Grassley said in a statement.

As a rule, the IRS extends the filing deadline for victims of natural disasters.

Original Story at TFX.

Feb 26

U.S Tax Impact from portability between non-US retirement plans

by julie

Transfer of funds from one pension plan to another may be treated a taxable event in the US (there is no official document to substantiate the tax exemption).

Introduction

Many Americans are working abroad. Many of them will be participating in the retirement plan in a foreign workplace which they believe is similar to a section 401(k) plan in the US. Most taxpayers make crucial mistakes believing that IRS treats foreign retirement plans just like domestic ones as the IRS does not generally tax contribution to foreign plans, the accumulated yet undistributed income in foreign plans and distribution from foreign plans.

Normally US expats do the following steps on the suggestion of US accountant who lacks extensive experience with international tax matters

  1. Filing timely form 1040 reporting the wages from the foreign company
  2. Disclosing the existence and location of the foreign savings account on Form 1040 Schedule B(Interest and Ordinary dividends)
  3. Claiming the foreign earned income exclusion on Form 2555
  4. Reporting the interest income from the Foreign savings account
  5. Filing electronically an annual FinCEN form 114 to notify the IRS about the foreign savings account

A US accountant may mistakenly assume the foreign retirement plan is similar to sections 401(K) plan in the US and thinks will not have any issues until they start distribution from the plan. US expats will make the maximum annual contribution to the Foreign plan and the amount in the plan continues to grow and also gains on passive investments.

If the lack of tax deferral is not enough to get your attention, there should be a long-list of information reporting duties and the steep penalties for violations.

Based on a recent study by the US Government Accountability Office (GAO Report) criticizing the IRS and Congress for allowing the perpetuation of a complex, obscure and inconsistent system. The US tax and information reporting problem of US persons with foreign retirement plans are well documented in the GAO report issued in Jan 2018. The GAO reports start by underscoring the size of the problem, there are nearly nine million US citizens living abroad, many of whom have interests in local retirement instruments. It then describes the distinct way that the US tax system treats domestic versus foreign retirement plans. The GAO report says that – contributions by employees and employers and passive earnings such as interest, dividends and capital gains within a qualified retirement plan generally are not taxed until the employee receives the actual distribution from the plan. By contrast, the GAO report says that Foreign workplace retirement plans are not ordinarily considered “qualified plans” under the IRC so US expatriates working as employees do not receive the same benefits as their counterparts with “qualified” domestic plans.

Whole Story at TFX.

Feb 21

Gift Taxes Explained – are they really tax free?

by julie

1. Definition

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing or less than full value in return.

For Example,  Father gave gifts to his daughter $600,000, for which she pays father $100,000. Then $500,000 (600,000 – 100,000) is considered a gift. Payments exceeding the legal obligation for transferring money to a given person is always a gift in the eye of the IRS, except for transferring money to a spouse.

2. When does the tax apply?

The Gift tax applies to transfers made while a person is living. The generation-skipping transfer tax is an additional tax on a transfer of property that skips a generation.

Whole Story at TFX.