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Archive for Olivier Wagner

Impact Of Joe Biden’s Tax Plan: Considerations When Renouncing U.S. Citizenship

Impact Of Joe Biden’s Tax Plan: Considerations When Renouncing U.S. Citizenship

A U.S. citizen who renounces U.S. citizenship would be classified as either an expatriate or a covered expatriate. An expatriate is not subject to exit tax and would thereafter be treated the same way as any non-resident alien.

Who is a covered expatriate?

If you meet one of these three tests you would be a covered expatriate (there are some exceptions for people born with U.S. citizenship who remained a tax resident of the other country of citizenship, as well as for people who went out before the age of 18.5 years old):

  • The asset test would apply if your net wealth is worth more than two million dollars on the day you renounce.
  • The income tax test that would be if your tax liability was over 168 000 (as of 2019) over the prior five years. This only includes income tax (after foreign tax credits).
  • The compliance test, meaning that you can certify that they’ve been compliant for the five year period prior to renouncing.


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COVID Stimulus Checks: The Latest Edition Of “Where is my refund I didn’t apply for?”

Olivier Wagner - Covid Stimulus Checks

By way of background, the IRS is issuing stimulus checks/direct deposits to most US taxpayers who have an SSN. If your income was less than $75,000, you would get $1,200 and another $500 per dependent.Interestingly enough, US citizens living overseas are eligible. You can find more details here.

Part 1: It might not be a check
The first payments were in the form of physical checks (or direct deposit for those who had their direct deposit information on their 2018/2019 tax returns).

While they are still issuing physical stimulus checks, the federal government is sending 4 million “economic impact payments” in the form of prepaid debit cards. The IRS noted that individuals cannot specifically opt to receive the “EIP cards,” as they’re known, over a paper check. According to the Treasury Department, they are distributing the cards to individuals who don’t have their bank account information on file with the IRS. Also, to those whose tax returns were processed by the IRS service centers in Austin, Texas, and Andover, Mass. The first cards were mailed out last week. Austin, Texas is the center which processes tax returns for American overseas. They might receive a debit card.

It can be a good thing for those whose ties to the US are so weak that they don’t have a US bank account to cask it to.

It also leads to confusion with some taxpayer discarding that envelope as spam.
Here are the signs that that debit card is indeed the stimulus check money you’re been waiting for:
– It will arrive in a plain envelope from “Money Network Cardholder Services”
– The name Visa will appear on the front of the card
– The back of the card has the name of the issuing bank: MetaBank
– Information will explain that card is your EIP card
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How To Return An Incorrectly Received Stimulus Check

How to return an economic stimulus payment

By way of background, the IRS is issuing checks/direct deposits to most US taxpayers who have an SSN, if your income was less than $75,000, you would get $1,200 and another $500 per dependent.
Interestingly enough, US citizens living overseas are eligible.

You can find more details here.

As the IRS focused on relative speed, millions of stimulus payments have already been sent in error. The IRS confirmed it on May 6, along with guidelines to return it. Stimulus payments made by mistake have been issued to, among others, non-resident aliens, detainees, and deceased taxpayers. The IRS is now asking these recipients, or their family members, to return the money.

If one of these situations might apply to you, first check the following:

Your income in 2020 exceeds the income threshold – no mistake. No need to pay it back; The CARE act based taxpayers’ eligibility on their 2018 or 2019 income level.
You renounced US citizenship or surrendered a green card in 2019. The IRS issued a stimulus payment based on the information on your 2018 tax return – this payment is a mistake. You have to return it.
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U.S. Shareholders Of A Passive Foreign Investment Company

OLIVIER WAGNER - US Expats With Passive Foreign Investment Company

The IRS found the way to congratulate U.S.expats who are shareholders of a Passive Foreign Investment Company(PFIC) by adding one additional form you need to file. Together with your tax return, you need to file Form 8621.

This applies for each separate PFIC you are a shareholder if you:

-Receive direct or indirect distributions from a PFIC.
-Recognize a gain on a direct or indirect disposition of PFIC stock.
-Report information with respect to a QEF or section 1296 mark-to-market election.
-Make an election reportable in Part II of the form.
-File an annual report pursuant to section 1298(f).

Who must file Form 8621?
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Passive Foreign Investment Corporation “PFIC” And Form 8621

Olivier Wagner - PFIC

US citizens living overseas naturally invest in foreign investment vehicles as that’s where they live. With it may come some bad surprise, a punitive taxation regime that can sidetrack you if not planned. Anyone who has made investment outside the USA or is considering making an investment in foreign companies, it is important for him/her to understand associated tax obligations. This blog post covers a summary of US tax rules related to passive foreign investment companies or PFIC. The PFIC rules apply to US persons i.e. individuals, corporations, estates and trusts who are US residents or US citizens.

So, what is a PFIC and why should you care about it?
Congress dislikes the idea that taxpayers would be able to defer income, especially when it comes to foreign investment vehicles. As such, it created a very punitive excess distribution regime, taxing income at the maximum tax rate and adding interest to it.

A relief was that it allowed US persons to treat income earned through PFICs in the same way as the income through US mutual funds is treated, which would be a QEF election. Or alternatively on a mark-to-market basis, which would be a mark-to-market election.
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Here Is What You Need To Know If You Are Filing Form 8938

Form 8938 - Olivier Wagner

In the USA, there have been so many intricacies involved with respect to your income tax return filing and compliance with the federal tax laws. Recently, there have been a number of administrative requirements for disclosing local and foreign financial assets. One such requirement is filing of FATCA-form 8938 for disclosing foreign-held assets, interests, partnerships, bank accounts, mutual funds or stockholdings, etc. It is very similar to the FBAR but the FBAR gets recorded with the US treasury and form 8938 goes to the IRS.

Who are the persons that come under the radar of FATCA compliance?

The law states that you need to file form 8938 if you are either a specified person or a specified domestic entity and you have rights or interests in a specified foreign financial asset. Now, every citizen of the USA who is earning more than $10,000 per annum or hold a specific amount of foreign financial assets come under the definition of specified persons for the purpose of FBAR reporting or filing form 8938.

What is FBAR?

FBAR is the report of foreign bank and financial accounts. It is separate from your tax return and is not filed with your tax return. It is filed directly with the Treasury. It has to be electronically filed. There is also no tax based on the FBAR, instead, it is simply an informational reporting form, through which you are essentially just conveying information to the Treasury.
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How Could The IRS Find Out That I Am Not Tax Compliant As An Expat?

Olivier Wagner

You’re living your adventure and you’re settled in your new home, having non-US bank accounts, a non-US employer and a non-US social life. You have limited ties with the US and since the people who pay you (banks, employer) are not in touch with the IRS, you consider simply not filing US tax return. What could go wrong?

As you might know, on some level… US citizens are required to report their worldwide income on a US tax return, regardless of where they live.

Think AGAIN…

IRS has a few proven ways they use to track people down.

Below you will find the most common ways that IRS can track you down and check if you filed your US tax return, no matter where you live in the World.

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Using Foreign Earned Income Exclusion: Bona Fide Residence Test For U.S. Expatriates

Olivier Wagner

U.S. citizens and Green Card holders living abroad must pass either the Bona Fide Residence Test or the Physical Presence Test in order to qualify for Foreign Earned Income Exclusion. Using this exclusion is one of the most popular and legal ways to reduce your tax burden. However, just living overseas doesn’t automatically make you pass either of the tests. In this blog post, we will explain what the Bona Fide Residence Test really is. We will also share with you how to qualify for it and the most common mistakes by U.S. expats make with this test.

How To Qualify For Bona Fide Residence TestAas American Living Overseas

As we mentioned earlier, sometimes just living abroad isn’t enough to qualify for the Bona Fide Residence Test. Out of two tests, which make you eligible for Foreign Earned Income Exclusion, the Bona Fide Residence test is slightly more complicated. In practice, it gives you more days to spend in the US per year. However, it has more challenging requirements to meet.

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Who Needs To File Form 1040NR – Nonresident Alien Tax Return

Olivier Wagner

It’s crucial for nonresident aliens to understand U.S. tax obligations, which come along with “U.S.-sourced income”: investments or employment in the U.S.. As many nonresidents aren’t familiar with U.S. tax system, they fail to file a tax return. It may lead to a variety of consequences. But on a positive note, you could receive a refund if you file a tax return on time. What if you are a U.S. citizen or Green Card holder with U.S. investment but ready to give up your citizenship/green card? In cases you consider going this route, you need to be aware of your tax obligations changes.

Who Should File Form 1040NR And Who Is A Non-Resident Alien?

First, let’s determine who is a nonresident alien. The IRS considers anyone who is not a U.S. citizen, Green Card holder, or met the substantial presence test but has U.S. tax filing obligation to be a nonresident alien. For example, you have income from the US but you do not meet the substantial presence test. Or you are engaged in a trade or business in the US and you are a nonresident alien. It doesn’t matter if the business activities generated any income, or if it’s exempt under tax treaty from US tax.

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Moving To Canada: Learn About Canadian Tax Residency

Olivier Wagner

The Canadian tax system is based on residency and not on citizenship, unlike its neighbor to the South. That means the main element of the tax system in Canada is your residency. It leads to the laws that those who are residents of Canada should declare their worldwide income. However, non-residents are only taxed on Canadian-sourced income. Hence you need to correctly determine your residency status to be aware of your Canadian tax liability.

Canadian Non-resident Vs. Resident For Tax Purposes

To find out if you are non-resident or resident for tax purposes, you need to take into consideration a few factors. Do you know what matters when you ascertain your residency status? That would be the following: reason and duration of your stay inside and outside Canada, the ties you form in another country, how frequently you visit Canada and residential ties you have with Canada. Based on these circumstances you can determine your residency status for tax purposes.

There are over 1,5 million Americans residing in Canada, either full-time or part-time. If you are one of them, you better be aware of Tax traps for U.S. citizens living and working in Canada. And besides a large number of Americans living in Canada, every year there are 300,000 new immigrants moving to Canada. We want to help each of you to understand the topic of Canadian tax residency and your tax obligations.

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What Is Child Tax Credit And How To Claim It On U.S. Expat Tax Return

Olivier Wagner On Child Tax Credit

As a U.S. expat parent, you can claim The Child Tax Credit available for individuals with a qualifying child. A tax credit is better and more valuable than a deduction. Are you wondering why? Because it creates a dollar-for-dollar reduction of your tax bill as a subtraction from actual taxes you owe. Another advantage of Child Tax Credit is a refund. It means you can get your money back and not just a subtraction of taxes owed. The story of CTC starts back in 1998 when it was introduced as a small non-refundable credit of 400 USD. Read further to learn what CTC is in 2019 and who can benefit from it. 

What are the changes to the Child Tax Credit in 2018-2019?

Tax Cuts and Jobs act introduced a few important changes to the Child Tax Credit in 2018-2019. Generally speaking, Uncle Sam has been generous to taxpayers who have children and have U.S. tax filing obligation. Trump’s tax reform actually sort of merged Child Tax Credit and Additional Child Tax Credit. It also decreased the earned income threshold and even introduced new credit for other dependents. 

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Americans Abroad On Self-Employment Taxes On Foreign Income

Olivier Wagner - Self Employment Taxes On Foreign Earned Income

How does self-employment tax work for those Americans, who live abroad, travel the world and work for themselves? Well, you still have to pay US taxes on foreign income if you are a freelancer, independent contractor, digital nomad or entrepreneur abroad. Yes, US tax laws apply no matter where in the world you live and perform the work.

The self-employment tax is a social security and Medicare tax on net self-employment income. You must pay this tax if your net self-employment earnings are at least USD$400 in a year. But don’t panic, we know the ways to legally minimise tax burden for self-employed Americans abroad.

1. Filing Requirements For Self-Employment Taxes 

You fall under different filing threshold category if you are self-employed US person who reside abroad. As we mentioned earlier, earning USD$400 in a year already triggers a filing requirement for a tax return. As the US is one of the two countries which practice citizen-based taxation, it’s necessary to take care of US tax obligations even while living abroad. Who does the IRS consider to be self-employed? If you belong to any of the following categories:

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