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Expat Tax Blog

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.

Jan 9

Other Impacts of Tax Reform

by julie

Article 4 of a Series

The first 3 articles in this series addressed some of the larger changes to the tax code due to the passage of the Tax Cuts and Jobs Act. In this final article, several less impactful changes, or changes affecting fewer people, are described.

Alternative Minimum Tax (AMT)

The alternative minimum tax has caught more and more taxpayers who were never meant to be the ones penalized by it. The tax reform law has made changes to remedy that situation, and has increased the income level for the AMT exemption so far fewer middle class taxpayers will owe it. The exemption amount has been increased to $109,400 for married couples and widow(er)s and $70,300 for singles or those filing separately. The exemption phaseout does not occur until $1,000,000 for married couples and $500,000 for singles and those filing separately.

Retirement plans

Retirement contributions is an area of tax law that have historically provided many benefits. The changes here are relatively minor. The ability to recharacterize Roth IRA conversions from traditional IRAs, SIMPLE plans, SEP plans, 401(k), and 403(b) plans was repealed. There is still the ability to treat regular contributions to traditional or Roth IRAs as being made to one another.

Previously, retirement account loan balances became immediately due upon termination of employment. Now, if a taxpayer’s employment is terminated while they have an outstanding retirement plan loan, the plan sponsor can offset the account balance with the loan balance. If the plan sponsor does this, the employee can now roll over the balance to another eligible plan any time until the loan due date.

Other laws that were passed in 2017 & 2018 give retirement plan owners access to their funds to help with disaster losses. These losses need to have occurred due to federally declared disasters in 2016 through 2018. The benefits include waiver of the 10% penalty, the ability to include certain distributions due to hurricanes in income across 3 years, the ability to repay distributions back into the plan, more options for loans, and extended terms for loans.

Whole Story at TFX.

Jan 6

Tax Reform and Reporting of Children and Other Dependents

by julie

As the saying goes, children are our future. Uncle Sam knows this, and he also knows how expensive it is to raise children. Taxpayers with children and other dependents have always received rather significant tax benefits to aid with the expenses associated with those dependents. The tax reform bill makes several changes that, depending on the specific situation, may either increase or decrease a person’s tax bill.

Personal exemption suspension

One of the few changes that will negatively impact taxpayers (although for many people, it will be more than offset by other changes) is the elimination of the personal exemption. This means that starting in the 2018 tax year, taxpayers can no longer claim the personal exemption deduction for themselves, their spouse, or their dependents.

Child tax credit increase

For parents, there is some very good news in the Tax Cuts and Jobs Act. The child tax credit has been increased up to $2,000 for each qualifying child under the age of 17. For lower income taxpayers, as much as $1,400 of that amount is refundable.

Many middle class taxpayers found that this substantial tax benefit was phased out for them. To remedy this, the tax reform bill increased the income level where the tax credit starts to be phased out to $400,000 (married filing joint) or $200,000 (single filers). This means more taxpayers who have dependent children can claim this tax credit, and those who do claim it can claim more.

Whole Story at TFX.