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Expat Tax Blog

Sep 26

Mail Bag #16: Delaware Partnership, ​State tax obligations, German with US K-1, Pension on FBAR, Retirement rollovers, US Visits 35

by julie

Delaware Partnership

I have the opportunity to invest in a Delaware limited partnership that will in-turn invest in a Swedish corporation (a tech startup). The DE partnership will have a minority stake in the business (I’m not sure how much) and a board seat on the Swedish co. But me, personally, I will have no control, will be a tiny indirect investor in the Swedish co (less than 5%) and my investment in the DE partnership is completely passive (I have no control rights)

As a limited partner in DE LP you will receive Sch K-1 like from other partnership and will report it on your annual tax return. The fact that DP partnership invest in a foreign company will be reflected on partnership tax return but you personally are not responsible for that filing.

State tax obligations

I am an American living permanently in NZ . I have no financial or property connection in my former state of Colorado. All my finances and property are in NZ. I am choosing to ignore the possibility of owing state taxes there. I haven’t lived there for over 18 years. I am about to retire this year and plan to stay in NZ. I filed tax returns with your company for the streamlining process a couple of years ago to get caught up on my previously non filed federal tax returns. I am up to date with my federal tax filing. Am I at risk of penalties with Colorado, considering my circumstances?

From the CO Dept of Revenue:

Living Out of the Country

Individuals who abandon their Colorado domicile and become permanent residents of a foreign country no longer have to file Colorado returns. However, they would have to file a Colorado tax return as a nonresident if they had Colorado-source income (e.g., rental income). Such individuals bear the burden of proving their abandonment of Colorado residency. Continued Colorado residency will be presumed if the individual has not severed all Colorado connections; for example, if the individual still carries a Colorado driver license, votes in Colorado by absentee ballot, and/or still owns a home in Colorado, or returns to Colorado. Thus, you may not file CO state return yet be prepared to provide the proof your abandonment of CO residency should the CO state tax department ever contact you.

Whole Story at TFX.

Sep 16

OVDP Ending – Streamlined Procedure still ideal amnesty program

by julie

OVDP Ending – non-event for most expats

The famed OVDP program is nearing its end on Sep 28, 2018. We at TFX have not been fans of OVDP because of the draconian penalties attached, as well as the high compliance fees (read: lawyer fees)  instead of providing an optimal scenario for the taxpayer. The only time we recommended pursuing the program as an option is when the IRS had already started a civil investigation, which is not relevant for 98% of delinquent expats.

Streamlined Program – best option

Although OVDP is ending, they have kept alive the Streamlined Foreign Offshore Program. This program has several key features which made it a far more attractive option than OVDP.

Whole Story at TFX.

Sep 6

Executive order on retirement savings a win-win

by julie

On Fri Aug 31, 2018, President Trump signed an executive order to review the Retirement Enhancement and Savings act of 2018 (RESA). The bill, originally proposed in 2016, was introduced to the Senate in March 2018. The aim of the Act, referred to as Tax Reform 2.0 is to allow retirement money to be spread out over a longer period and make 401(k) plans more accessible to small businesses. Employers will obtain greater freedom in terms of plan administration. In exchange, they will provide more flexibility to employees and better communicate to them all aspects of their retirement savings.

The plan is to overhaul a number of existing rules impeding the growth of deferred compensation and putting a barrier to use of the funds in case of hardship.

  1. Created one deferred saving vehicle for all needs. Now there are 3, each for a different purpose: 401 for retirement income; 529 for education and HSA for medical spendings. Trump wants to combine one that can be used for all purposes.
  2. Revoke required minimum distributions after 70 1/2 to let people continue investing

Whole Story at TFX.

Aug 28

Sec 965 Tax & Disregarded Entity Election

by julie

Transition Tax in simple terms



Can you explain the transition tax on the corporation? Is it based on the revenue or the amount of cash left at the end of the year? In other words will I have to pay comes next year, assuming I have very little revenue, but still money left in the corp account?

Transition tax is based on two factors, cash left at the end of the year and amount of untaxed earnings. By paying the transition tax you will start with a clean slate. It does not matter that you have money left in the corporate account. It has been already taxed.

For 2018 and the following years your corporation will pay tax on net corporate earnings (income remaining after expenses, losses and capital improvements). This is referred to as “GILTI” income.

It will be taxed as ordinary income like Subpart F income. If you pay yourself a salary from the corporate earnings, it is eligible for exclusion from your taxable income under the foreign earned income exclusion. This salary will be counted as an expense to your business, thus reducing the GILTI component.

If you do not take the exclusion for any reason but you pay yourself a salary or dividends then tax paid on that income in your resident country (ie France) will be applied as a foreign tax credit to reduce potential tax due.

Corporate taxes do not qualify for a credit on personal return.

The cash balance will not trigger tax in future years because you will not have previously unpaid earnings.

Quote — Had you elected to be treated as a disregarded entity, you would have paid US tax in the US in the past on those deferred earnings that are now subject to mandatory inclusion to your 2017 personal income.

Whole Story at TFX.

Aug 27

New York and other states try creative accounting

by julie

The cap on state and local tax deductions was one of the more controversial provisions of the tax reform.

New York lawmakers have passed a proposal to let state residents skirt the new $10,000 federal cap. Under the proposal, New York taxpayers will be able to make a charitable contribution to new state-run charitable funds to finance education and healthcare. For doing so, they will get a state tax credit worth 85% of their contribution — which effectively reduces their state tax bill by that amount. They could then deduct 100% of their contribution on their federal return since there is no federal cap on charitable deductions. Similar tax credits were introduced by other states.

Whole Story at TFX.