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Archive for Gary Carter

Form 8621, Information Return By A Shareholder Of A Passive Foreign Investment Company Or Qualified Electing Fund

Form 8621, Information Return By A Shareholder Of A Passive Foreign Investment Company Or Qualified Electing Fund
What Is A PFIC?

A  foreign corporation is a passive foreign investment company (PFIC) if it meets either of the following two tests:

  1. 75% or more of its gross income for the taxable year is passive income (generally  investment income such as interest, dividends, royalties, rents and annuities), or
  2. At least 50% of its assets  are held to produce passive income.

This definition describes most foreign mutual funds, since mutual funds outside the United States tend to be organized as corporations (or organizations deemed corporations under US tax law). PFICs can also be ETFs, bond funds, currency tracking funds, precious metal funds, investment trusts, hedge funds, private equity funds, startups and more. Many expats own PFICs, either directly or indirectly, without understanding their toxic treatment under US tax law. Here is a look at Form 8621 and here are the Instructions. But really, forget about the instructions. You are not going to want to try this on your own.

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United States Tax Guide For Foreign Nationals

GARY CARTER PHOTO

This guide is dedicated to helping you comply with US tax laws if you are a foreign national (resident or nonresident alien) working or investing in the US.  We take you through the substantial presence test and show you how to determine your US tax resident status. Whether you are an H1b, L1, O1, or other non-immigrant visa holder, you will learn about the US resident tests for tax purposes, which are different than for immigration purposes.

If you are a nonresident alien, investing in US real estate or other US business activities from your home country, we give you an overview of deductions and credits available on Form 1040NR, with plenty of additional resources provided. We explain your tax filing options on a dual status or resident tax return if you have obtained permanent resident (green card) status.

You will also learn the more complex tax rules that apply if you are an F1 or J1 visa holder. Then we give you an overview of tax treaty benefits, which are particularly useful for F1 and J1 visa holders. Finally, you will learn about ITIN requirements, state tax requirements and social security and Medicare tax withholding rules. For most Americans, completing their tax return is a confusing and frustrating exercise. We can only imagine how ominous the task must seem for you, a foreign visitor. Hopefully the information you find here will make the job easier.

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U.S. States Are Creating Laws That Snag Taxpayers Everywhere

U.S. States Are Creating Laws That Snag Taxpayers Everywhere

New state tax laws are making more and more taxpayers tax cheats without them realizing it is happening. Think it can’t happen to you? Here are some examples:

  • Your small business registers for a sales tax in Texas and you receive a letter from some obscure Texas town that says you need to send them a registration fee. Where did this come from?
  • A Florida widower with income marries a retired woman who lived in Utah for nine months. The woman has no income. He has never been to Utah, even to visit. Per Utah tax law he must now pay income tax to Utah on his Florida income if he files a joint tax return.
  • A Delaware resident owes Minnesota income tax for consulting work even though she never steps foot in Minnesota.  This is because the company who the Delaware resident did work for has a physical presence in Minnesota. The same situation is true in California and other states.
  • You decide to retire in Nevada to enjoy the sunshine. You then receive an audit letter from New York that says you need to pay them income tax, even though you no longer live there. They demand credit card statements, your drivers license and more. You provide the information, yet their demands do not go away.

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Learn The Tax Rules For Non-Resident Aliens

Learn The Tax Rules For Non-Resident Aliens

This guide is dedicated to helping you comply with US tax laws if you are a foreign national (resident or nonresident alien) working or investing in the US.  We take you through the substantial presence test and show you how to determine your US tax resident status. Whether you are an H1b, L1, O1, or other non-immigrant visa holder, you will learn about the US resident tests for tax purposes, which are different than for immigration purposes.

If you are a nonresident alien, investing in US real estate or other US business activities from your home country, we give you an overview of deductions and credits available on Form 1040NR, with plenty of additional resources provided. We explain your tax filing options on a dual status or resident tax return if you have obtained permanent resident (green card) status.

You will also learn the more complex tax rules that apply if you are an F1 or J1 visa holder. Then we give you an overview of tax treaty benefits, which are particularly useful for F1 and J1 visa holders. Finally, you will learn about ITIN requirements, state tax requirements and social security and Medicare tax withholding rules. For most Americans, completing their tax return is a confusing and frustrating exercise. We can only imagine how ominous the task must seem for you, a foreign visitor. Hopefully the information you find here will make the job easier.
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Social Security Tax And Employer Withholding: Resident And Non-Resident Aliens

Social Security Tax And Employer Withholding: Resident And Non-Resident Aliens

Must You Pay Social Security and Medicare Tax?

Nonresident aliens who are F-1, J-1, M-1 or Q-1 visa holders are not subject to social security and Medicare taxes (FICA) on services are performed to carry out the purpose for which they are admitted to the United States [IRC sec. 3121(b)(19)]. This generally includes on-campus work for which authorization is granted on Form I-94, Arrival and Departure Record, or Form I-20, Certificate of Eligibility for Nonimmigrant Student Status.

A nonresident alien admitted to the US as a student is not permitted to work off campus for a wage or to engage in business unless given approval by the U.S. Citizenship and Immigration Services (CIS). This should be noted on the student’s copy of Immigration Form I-20, or Form I-688B, Employment Authorization Document.

Off-campus work due to severe economic necessity or for optional practical training is considered by the IRS to qualify for the exemption. The IRS does not consider other off-campus work performed by a nonresident alien student to be performed to carry out the purpose of a student visa.
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New Rules Mean Saving More For Retirement: The Secure Act

New Retirement Savings Rules

The Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act, was passed by Congress in late December 2019. Here are some of the features in the new legislation that will help you save more for retirement:

Money can continue to grow tax deferred
If you turn 70½ in 2020 or later, you can keep money in a tax-deferred IRA or 401(k) for another 18 months to help the account continue growing before starting to withdraw funds. This retirement benefit is now available thanks to the required minimum distribution age being raised from age 70½ to age 72.

Action: Review your retirement account distribution needs and use this extra time to help make your distributions more tax efficient. For example, if you must earn an additional $10,000 before you hit the next highest tax bracket, consider pulling more taxable income out of your retirement account to take advantage of this lower rate. Or use the extra time to consider converting some funds to a Roth IRA.
Contribute to a traditional IRA at any age
While taxpayers have always been able to contribute to a Roth IRA at any age, age 70½ was the cut-off for making contributions to a traditional IRA. You can now contribute to a traditional IRA at any age provided you have earned income.
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How To Tell If You Are A Non Resident Alien, Resident Alien Or Dual Status Alien When Filing Your Tax Returns

How To Determine To File Tax Return As An Alien

The community of tax professionals on www.taxconnections.com offers great knowledge and expertise. We noticed one of our members Gary W Carter has this fun analyzer that does not ask you your name, maintains your anonymity and tells you whether you need to file as either a non resident alien, resident alien or dual status alien when filing a U.S. tax return.

I took the quick analyzer test myself, even though I am a U.S. citizen born and living here simply because I wanted to know the value for our worldwide visitors and readers of TaxConnections Blogs. If you have the same question regarding your filing status as an alien tax filer, you will appreciate this quick and private analyzer.

Click Here To Determine Your Alien Tax Filing Status.

You Remain Anonymous!

 

A U.S. Tax Guide For Non-Resident Aliens With A Single-Member LLC

U.S. Tax Guide For Non-Resident Aliens

Reprinted here from gwcarter.com

Tax Reporting For Nonresident Alien LLC Members

A limited liability company (LLC) is a popular choice of entity for conducting business or holding rental real estate in the United States. It is a business structure that you, as a nonresident alien of the US, can legally form. It can be formed in any one of the fifty states.

An LLC is designed to protect the personal assets of its owners, similar to a corporation, but you have flexibility in how your business or rental activities are reported for tax purposes. It can also be used to hold personal use assets, such as a vacation residence.

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Options Available For U.S. Taxpayers With Undisclosed Foreign Financial Assets

GARY CARTER
What Happens If You Haven’t Filed These Forms?

There are options to file delinquent forms that could be easier and less financially painful than you think. The IRS has been given large weapons by Congress with an array of huge delinquency penalties, but instead of waving them around wildly, causing noncompliant taxpayers to dive for cover, the IRS would rather coax taxpayers into compliance using the carrot approach. We will briefly explain three programs the IRS currently offers to help taxpayers get caught up: 1) streamlined filing procedures, 2) delinquent FBAR submission procedures, and 3) delinquent international information return submission procedures. For additional information, see Options Available for U.S. Taxpayers with Undisclosed Foreign Financial Assets.

Streamlined Filing Compliance Procedures

The IRS created the original streamlined procedure in 2012. This program was offered only to taxpayers living outside the United States who qualified for the foreign earned income exclusion. It was further restricted to taxpayers with unreported income of $1,500 or less.

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Form 5471: Information Return Of US Persons With Respect To Certain Foreign Corporations

GARY CARTER

Filing of Form 5471 is required by certain United States citizens and residents who become an officer or director of certain foreign corporations, and certain United States persons (as defined for FBAR reporting) who are shareholders in certain foreign corporations.* The form is used to satisfy the requirements of multiple sections of the Internal Revenue Code – primarily Section 6038, Section 6046 and Section 957. Since these sections have conflicting rules and definitions, this form is particularly challenging.

The requirements are applied to separate categories of filers, each category specifying separate, but sometimes overlapping conditions. There are five categories of filers, numbered 1 through 5. Category 1 requirements were repealed in 2004, but reinstated for a different purpose for the 2018 tax year. Here are the Instructions to Form 5471. If you’re having trouble sleeping, give this a try. You’ll be asleep in about five seconds.

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United States Tax Guide For Foreign Nationals

GARY CARTER _U.S. Tax Guide For Foreign Nationals

This guide is dedicated to helping you comply with US tax laws if you are a foreign national (resident or nonresident alien) working or investing in the US.  We take you through the substantial presence test and show you how to determine your US tax resident status. Whether you are an H1b, L1, O1, or other non-immigrant visa holder, you will learn about the US resident tests for tax purposes, which are different than for immigration purposes.

If you are a nonresident alien, investing in US real estate or other US business activities from your home country, we give you an overview of deductions and credits available on Form 1040NR, with plenty of additional resources provided. We explain your tax filing options on a dual status or resident tax return if you have obtained permanent resident (green card) status.

You will also learn the more complex tax rules that apply if you are an F1 or J1 visa holder. Then we give you an overview of tax treaty benefits, which are particularly useful for F1 and J1 visa holders. Finally, you will learn about ITIN requirements, state tax requirements and social security and Medicare tax withholding rules. For most Americans, completing their tax return is a confusing and frustrating exercise. We can only imagine how ominous the task must seem for you, a foreign visitor. Hopefully the information you find here will make the job easier.

Form 1040NR Filing Requirements

Who Needs to File a US Tax Return?

If you are a nonresident alien doing business or working in the United States, you are required to file a tax return. To “file a tax return” means to send your completed and signed tax return to the Internal Revenue Service (IRS), either through the mail or electronically. If you work or invest in a state that has an income tax, a state tax return will also be required. This is a separate document you must prepare and send to a state tax authority. See the section below about State Taxation.

You are considered to be engaged in a business even if you are an employee working for wages. If you are a student or scholar entering the US as an F, J, M or Q visa holder, and are classified as a nonresident, you are deemed to be engaged in a trade or business. Therefore, you need to file a Federal income tax return each year if you have any income subject to US income tax.  Additionally, if you are an exempt individual (explained under “Residency Status” below), you are required to file Form 8843 regardless of your income.  Here is a description of the forms you are required to file:

  • Form 1040NRU.S. Nonresident Alien Income Tax Return, or if you qualify, Form 1040NR-EZU.S. Income Tax Return for Certain Nonresident Aliens With No Dependents, and
  • For exempt individuals, Form 8843Statement for Exempt Individuals and Individuals with a Medical Condition.

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