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Archive for Olivier Wagner

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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U.S. Taxes On Foreign Income: Who Should File A U.S. Expatriate Tax Return?

Olivier Wagner- Filing An Expatriate Tax Return

While many Americans abroad wonder if they have to pay US taxes on foreign income, the real question is about filing tax return itself. Many of US citizens living overseas do not owe any taxes to IRS. However, it doesn’t mean they don’t have to report their income on Form 1040. Majority of US expats confuse the filing threshold with Foreign Earned Income Exclusion. The latter one doesn’t determine your filing liabilities. It is there to exclude all or part of your foreign-source wages and self-employment income from U.S. federal income tax. Yet you need to file federal tax return and form 2555 to use Foreign Earned Income Exclusion.

There are a few things to remember about US tax filing obligations. First of all, determine if you are a U.S. person for tax purposes, as you do not necessarily need to have a US passport to possibly have US tax filing obligations. You may even need to file even if you don’t earn any money yet you are married to someone who has income. Yes, we know that US taxes can be quite complicated!

Tax Tip 1: Even though we have already mentioned FEIE above, don’t rush to select Foreign Earned Income Exclusion on your US expat tax return. In many cases, choosing Foreign Tax Credit is more beneficial. Tax professionals prefer the latter for a number of reasons.

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U.S. Expatriates Can Claim Foreign Tax Credit Filing Form 1116

Olivier Wagner - Form 1116
What Is Form 1116 And Who Needs To File It?

When talking about US taxes and taxation of US citizens who live abroad, you may have heard of Foreign Tax Credit and the possibility to offset the US tax owing by using the taxes paid to another country. That way you can narrow the tax owing down to zero!

Most of the US international tax experts prefer claiming Foreign Tax Credit (Form 1116) on client’s U.S. tax return rather than preparing form 2555 (Foreign Earned Income Exclusion), since it is more beneficial. Read further to learn why FTC is a better way to save money on your US expat taxes.

Here are 5 quick facts about IRS Form 1116 and US tax returns:

  1. You claim Foreign Tax Credit on your US expat taxes by filing Form 1116
  2. You attach this form to a Form 1040, your individual US tax return
  3. The credit reduces your US tax liability on expat income dollar for dollar
  4. You cannot take Foreign Tax Credit against income which you have previously excluded by the Foreign Earned Income Exclusion
  5. And you can’t receive a refund of foreign taxes paid through your US tax return

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