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Expat Tax Blog

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.

Aug 21

How to use Head of Household Status to File your Taxes

by julie

The head of household filing status is one that few people understand. But it is important to understand all of your filing options to minimize the taxes you owe. If you meet the criteria to qualify, head of household status can result in lower taxes than single status. To qualify, a taxpayer must:

  • Be unmarried during the tax filing year
  • Have a dependent or qualifying child
  • Pay over half of the expenses of the household

As with many tax issues, there are specific definitions for some of these that are important to understand when deciding if you qualify for head of household status. These are explained in more detail below.

Original Stort at TFX.

Jul 9

Five Things You Thought You Knew About Cryptocurrency and Taxes

by julie

In the world of cryptocurrency, there are many myths floating around about taxes that simply are not true. We discuss them below.

Number 1

Many people believe that cryptocurrency gains or losses are not taxable if they were incurred due to an exchange between two different currencies. Additionally, many were under the impression that this was specifically true for exchanges prior to January 1st of 2018.

The truth is that every time a cryptocurrency is sold, whether it is exchanged for another cryptocurrency or for fiat money, the transaction must be reported and the loss or gain calculated for tax reporting.

Additional confusion was caused by the tax law the President signed in December of 2017. The new tax law stipulates that like-kind exchanges under section 1031 only applies to real property starting on January 1, 2018. But, neither the old tax law nor the new tax law ever treated cryptocurrency in a way that qualified it as a like-kind exchange.

Number 2

Another myth is that if cryptocurrency is stored on an exchange or in a cryptocurrency wallet, but is not sold and exchanged for fiat money, it is not a taxable event. But, the IRS explained in Notice 2014-21 that any cryptocurrency received as payment must be reported at its fair market value in dollars on the date it was received. This amount becomes the basis for calculations of gains or losses in the future.

Whole Story at TFX.