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Archive for Olivier Wagner

Filing Form 1116 Foreign Tax Credit (With Examples)

Filing Form 1116 Foreign Tax Credit (With Examples)

When talking about US taxes and taxation of US citizens who live abroad, you may have heard of Foreign Tax Credit. A U.S. citizen or resident alien who pays income taxes in another country can claim a tax credit against their U.S. federal income tax bill. You can offset your US tax liability by claiming the foreign taxes paid to another country. This way, you can bring your tax owing down to zero.

What is Form 1116 and who needs to file it?

You must complete Form 1116 in order to claim the foreign tax credit on your US tax return. The form requests the information about the country your foreign taxes were paid in, the value of foreign taxes paid and the types of income.

Most of the US international tax experts prefer claiming Foreign Tax Credit (Form 1116) on client’s U.S. tax return rather than the Foreign Earned Income Exclusion.

Read further to learn about how to file Form 1116 Foreign Tax Credit and why it is a better way to save money on your US expat taxes.

Related: Foreign Earned Income Exclusion vs. Foreign Tax Credit: which one is better? (Infographics)

Advantages of Foreign Tax Credit and General Rules

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Foreign Earned Income Exclusion For US Expats

OLIVIER WAGNER - Foreign Earned Income Exclusion for US Expats

Even if you’ve moved abroad for a brighter future, you still might have obligations towards the IRS. What happens if you earn income from sources outside the United States? If you live abroad, you might qualify for the foreign earned income exclusion (FEIE). This article explains what FEIE is and how it works, and provides some examples of situations where you might benefit from claiming it.

The U.S. retains its right to tax citizens and Green Card holders who live abroad and they must file their taxes even if they’re not physically present in the country. The foreign earned income exclusion (FEIE) allows U.S. taxpayers to exclude from their taxable income certain amounts they earn outside the United States. The FEIE was created in 1954 to relive American Citizens from the burden of double taxation when they move overseas.

What is the Foreign Earned Income Exclusion?

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U.S. / Canadian Treaty Relief From Double Taxation

U.S. / Canadian Treaty Relief From Double Taxation

Those who renounce their U.S. citizenship and those who have severed ties with Canada and become non-residents risk being taxed twice: once for assets they owned, giving up tax residency, and another time when they sold their assets.

The double taxation issue is primarily resolved for expats living in Canada but not (as far as I know) for residents of other countries.

What is the double taxation problem?

Let’s first talk about what double taxation is. This is because both countries want to tax you, and neither country cares whether the other taxes you or not.

Two countries claim you.

If you are a taxpayer in two different countries, both countries will enforce their tax laws against you and insist on your right to enforce a tax on your income.

Example

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U.S. /Canadian Treaty Relief From Double Taxation

U.S. / Canadian Treaty Relief From Double Taxation

Those who renounce their U.S. citizenship and those who have severed ties with Canada and become non-residents risk being taxed twice: once for assets they owned, giving up tax residency, and another time when they sold their assets.

The double taxation issue is primarily resolved for expats living in Canada but not (as far as I know) for residents of other countries.

What is the double taxation problem?

Let’s first talk about what double taxation is. This is because both countries want to tax you, and neither country cares whether the other taxes you or not.

Two countries claim you.

If you are a taxpayer in two different countries, both countries will enforce their tax laws against you and insist on your right to enforce a tax on your income.

Read more

U.S. /Canadian Treaty Relief From Double Taxation

U.S. / Canadian Treaty Relief From Double Taxation

Those who renounce their U.S. citizenship and those who have severed ties with Canada and become non-residents risk being taxed twice: once for assets they owned, giving up tax residency, and another time when they sold their assets.

The double taxation issue is primarily resolved for expats living in Canada but not (as far as I know) for residents of other countries.

What is the double taxation problem?

Let’s first talk about what double taxation is. This is because both countries want to tax you, and neither country cares whether the other taxes you or not.

Two countries claim you.

If you are a taxpayer in two different countries, both countries will enforce their tax laws against you and insist on your right to enforce a tax on your income.

Example

Read more

How To Avoid Paying U.S. Social Security Tax When Working Overseas

Olivier Wagner - How To Avoid U.S. Social Security Tax When Working Overseas

Americans who work abroad face a challenging job preparing their tax returns. So let’s happily ignore today’s income tax issue and focus instead on Social Security taxes.

Technically, I’m talking about the FICA tax: the tax you pay for your pension, survivor’s pension, disability insurance, and Medicare benefits. But for the sake of simplicity — to match the way ordinary people talk about these taxes — I’ll call these taxes “Social Security” taxes.

Let’s take a look at digital nomads. You are a U.S. citizen and own a business incorporated as a corporation and operates in the United States. You plan to travel abroad for a few years. During the trip, you will continue to work and receive a salary from your business.

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Tax Law Updates For Americans Overseas In 2022

Tax Law Updates For Americans Overseas In 2022

2021 is ending and 2022 is coming. Post-holiday is tax filing season and Americans living abroad need to file their taxes. Just like Americans living in the United States, federal tax returns are filed every year. However, applying from abroad is more complicated. Below is new information about the taxes collected abroad for 2022 that Americans file with the United States.

Some things stay the same

First, it might be helpful to look back at what’s not new for Americans overseas in 2022.

Americans living abroad must submit US tax documents and report that foreign accounts, assets, and businesses remain unchanged. This year there was hope that President Biden’s tax reform might be accompanied by some kind of exemption for Americans living abroad, but that has not materialized.

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

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

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, and when they have an obligation to file Form 1040NR. As many nonresidents aren’t familiar with the 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 case 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?

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What Is Form W-8BEN, And Why Is It So Important?

What Is Form W-8BEN, And Why Is It So Important?

Form W-8BEN is a tax document used to certify that the country of residence for tax purposes is not the United States. It is required because Canada and the United States have entered into an intergovernmental agreement under which Canadian financial institutions must provide this information.

The completed W-8BEN form confirms:
1) That you are not a resident of the United States;
2) That you own the income to which the form relates;
3) It is also used to take advantage of  a reduced rate of withholding tax by virtue of being a resident of a country which has a tax treaty with the United States.

Why do I have to complete the W-8BEN form?

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

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

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, and when they have an obligation to file Form 1040NR. As many non-residents aren’t familiar with the 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 case 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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What To Do If The IRS Freezes Your Assets As An Expatriate

What To Do If The IRS Freezes Your Assets As An Expat

How would you feel if you found your bank account frozen? After all the sweat and the sacrifice, you make after hours of working and putting together all your resources only for the IRS (Internal Revenue Service) to freeze them. Can the IRS freeze your foreign bank account?

When you delay paying your taxes, the IRS can access your bank account, savings, or assets such as a house or a car. They can take your salary before it gets to your pocket. Two, they can place a tax lien on your personal property. Finally, they can freeze your bank account and use the money to pay your tax due. When you move overseas, the IRS does no longer has such power.

However, don’t believe that your money is safe just because it is in an offshore bank account. The IRS can issue a levy to any bank within the US. If you’re an account holder of a foreign bank that has a branch in the US, the IRS can easily issue a levy notice to the US office and empty your account overseas.

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Expats: Everything You Need To Know About Dividend Taxes

Expats: Everything You Need To Know About Dividend Taxes

Many Americans living abroad are unaware about their US tax filing obligations and those who know often find themselves struggling to navigate through the complex tax laws. The US tax system is unusual, because it not only taxes its residents but also citizens and permanent residents living overseas. Filing from abroad becomes more complicated than filing within the US, as a new set of rules and forms applies to US expats.

What are dividends? 

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