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Expat Tax Blog

Feb 25

Tax Reform – Impact on Education Credits & Deductions

by julie

The recent tax reform made some changes to the tax benefits available for people saving money for college along with those paying down student loans. But, most of the education tax benefits (such as deducting interest on student loans) remain the same.

This article will help explain what has changed starting in 2018.

Current College Students

The American Opportunity Credit – No Change.

The American Opportunity Credit, or AOC, was not affected by the tax reform bill. This credit is as much as $2,500 per student, with up to one thousand dollars of that being refundable. This credit is available for up to four tax years for each student. Students must not have completed their first four years of education (postsecondary) prior to the completion of the relevant tax year. They are required to be enrolled a minimum of half time during an academic period, as well as be studying for a credential or a degree.

This credit is usually claimed by parents. Students and parents will need to communicate about eligible expenses and ensure the paperwork is made available – transcripts, receipts, and Form 1098-T. This credit does not normally benefit graduate students and part-time students.

Whole Story at TFX.

Feb 21

Don’t pay sales tax for home improvements – NY, NJ, PA

by julie

New Yorkers – don’t pay sales tax for home improvement

We all want a new bathroom, kitchen, or other improvement to our home. None of us, however, want to pay tax on these improvements. The good news is that you don’t have to (at least in New York, New Jersey, or Pennsylvania)

What is a capital improvement?

A capital improvement is any addition or alteration to real property that meets all three of the following conditions:

– Substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property

– Becomes part of the real property or is permanently affixed to the real property so that removal would cause material damage to the property or article itself

– Intended to become a permanent

– For example, if a renter’s lease stipulates that the premises must be returned to original condition, this work would not count as a capital improvement.

– For example, building a deck, installing a hot water heater, or installing kitchen cabinets are all capital improvement projects.

Repairs or Maintenance are not Capital Improvements

On the other hand, when a contractor performs a job that constitutes a repair, maintenance, or installation service to real property, sales tax must be collected from the customer.

Whole Story at TFX.

Feb 12

Not all tax paid in France is eligible for U.S. income tax purposes

by julie

If you ever took the SATs, you should be fairly familiar with analogies. If we were to ask – which of these does NOT apply.

Q: France: Romance

  1. France: Fluffy croissants
  2. France: World Class Museums
  3. France: Beautiful Beaches & Mountains
  4. France: High Taxation in the Eyes of the IRS.

Unlike the first three choices which are all synonymous with France, in the eyes of the IRS the 4th is not fully true. For U.S. Citizens & Green Card holders in France, what seems like high tax in French is mostly social contributions & not available for deduction as foreign tax credit.  How can it be that you pay 60+% in tax, but the IRS does not recognize it as such?

Social Contributions

For U.S. Tax purposes, ‘Contribution Sociale Généralisée” (CSG) and the “Contribution pour le Remboursement de la Dette Sociale” (CRDS) are not creditable or deductible taxes under the Internal Revenue Code or the U.S.-French Income Tax Treaty. These contributions do not reduce taxable income and cannot be applied as a deduction.

Unfair? That depends. The main reason that these are not eligible for deductions is that the premise is that you, as a resident of France, benefit from these social contributions. You receive healthcare, education, and other benefits that your Social contributions provide.

Wealth Tax – L’impôt de solidarité sur la fortune

French residents with assets in excess of €1,300,0000 face an additional “wealth tax” – known as ISF.  For U.S. tax purposes, this tax is not allowed as a foreign tax credit but can be deducted as a part of itemized deductions on U.S. tax returns.

Whole Story at TFX.

Feb 7

Tax Extensions – Why you need one (or more than one)

by julie

April 15 is known as “Tax Day”. In fact, the real Tax Day wrapping up tax season is October 15. The  IRS allows a generous “automated” 6 months extension to every taxpayer – but it is not automatic. The extension must be requested by filing Form 4868 (TFX can file this for you).

Some taxpayers are reluctant to file an extension. Commonly cited reasons are:

– An extension may raise a red flag before the IRS and increase the risk of audit
– I am a natural procrastinator. If I file an extension I may be late in October too.
– I have all my tax documents ready. It is just the matter of getting the forms filled. Why file an extension if I won’t use it?

In truth, none of those reasons matter. You can file your tax return at any time up until the extension date. Giving up this free gift from the IRS is akin to rafting without a life vest; you don’t expect the raft to turn over but if this happens that little vest will be your life saver. And, importantly, you don’t get extra points for finishing your trip without wearing one.

Whole Story at TFX.

Feb 2

Qualified Education Expenses – Same, Same, But Different

by julie

Qualified Education Expenses – this term is used in taxation of education expenses interchangeably, but the definition of what is qualified is not always the same. Let’s break it down.

 

Student Loan Interest Deduction

The price of secondary education has been skyrocketing – see graph from the Bureau of Labor Statistics.

As the cost of college increases dramatically, so does the amount of student loans that today’s youth need to take on in order to pay for college – image below from WSJ. in 2016, the record was set at over $37k, with 70% of graduating students in debt.

Once you’ve received a student loan, unfortunately you have to pay monthly interest payments in addition to the principal balance. The interest may be deducted from your taxable income up to $2,500 per year.

Whole Story at TFX.