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Archive for Olivier Wagner

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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US Expatriate Taxes: A Guide For Filing Taxes As An American Living Abroad

Olivier Wagner - Guide To Expatriate Tax Filings

Most of the Americans abroad agree that US expatriate taxes can be intimidating. The U.S. and Eritrea are the only two countries in the world which impose taxes on their citizens regardless of their residence. Taxes are an already complicated matter but it is even more difficult for U.S. expatriates who need to comply with two different tax systems and also keep an eye on ever-changing U.S. tax laws. Tax situations become more complicated when Americans abroad haven’t been filing for years or have foreign corporations and offshore bank accounts.

1. U.S. Taxes On Foreign Income: Who Needs To File A U.S. Tax Return?

Let’s gain an understanding of what the U.S. taxes on foreign income mean to Americans living overseas. First things first, who needs to file a U.S. tax return?

Firstly, you are a U.S. citizen or a Green Card holder living abroad. Secondly, your worldwide income is above the filing threshold. By income, we mean wages and salaries for any US and non-U.S. sources, dividends and interests, rental income etc. You can check here the tax table for U.S. expatriates. Self-employed Americans have to file the U.S. tax return if their annual income equals $400 or more.

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What U.S. Expat Needs To Know About Foreign Earned Income Exclusion

Olivier-Wagner- What U.S. Expat needs to know about Foreign Earned Income Exclusion

While all Americans are taxed in their worldwide income regardless where they reside, they also have Foreign Earned Income Exclusion to reduce the tax burden. And this is what our today’s tax infographic is about. In 2018 you can eliminate up to $104,100 of foreign earned income on your U.S. expat tax return. Let’s look into details and what this exclusion is about. Read more

Renouncing/Relinquishing Your U.S. Citizenship And Taxes

Citizenship, Expatriate taxes

We received a question from Denise from Canada.

The question is: “I’ve heard a lot of words to describe people who were no longer U.S. citizens – “surrendered”, “relinquished”, “renounced” U.S. citizenship. What is the difference between these three terms?” Read more

U.S. Expat Taxes For Americans Living In Germany

Olivier Wagner - Germany-US Expats Taxes

Are you a US citizen living in Germany? It’s important to understand the US tax liabilities for Americans living abroad. While you are enjoying your expat life in Germany, don’t forget to file your US taxes!

In this article we will cover the following topics:

  1. US expat taxes for Americans living in Germany,
  2. Double taxation Germany-USA and how to avoid it,
  3. Who is considered as a German resident,
  4. Germany taxes for US citizens, including Income tax for foreigners
US Expat Taxes: Filing US Tax Returns From Germany

First of all, you need to determine if you are required to file a US tax return. It doesn’t matter where you live in the world as the US government taxes their citizens regardless of their residence. Is your annual income above the filing requirement of USD 10,400? Well, then you are required to file taxes with the IRS.

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