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Tag Archive for expat tax

Tax Deductions And Credits Available For U.S. Expats

Olivier Wagner, Virtual Tax Advisor, Expatriate Tax Expert

There are a few deductions and exemptions available to a U.S. person who lives and works overseas. These will help you to lower your expat taxes and might even get you a refund.

If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. The most common deduction is the Foreign Earned Income Exclusion, which is calculated on Form 2555. If you qualify for this you may exclude up to $101,300 of your foreign earned income. To qualify, you will need to meet either the Physical Present Test or Bona Fide Resident Test for living outside of the U.S.

Foreign Housing Exclusion or Deduction is another option that can save you some money on your taxable income. You need to be either a salaried employee, a wage earner or a self-employed individual to qualify for this deduction. It’s in an addition to FEIE and increases the exempted income by the amount of your qualified housing expenses. Depending on the country of your residence, the allowable deductions for the foreign housing will vary and are subject to limitations.

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The IRS Tax Amnesty Programs – Fact Or Fiction

Despite the overall success of the IRS tax amnesty programs in recent years, many expats remain hesitant to enter the programs due to a number of misunderstandings surrounding their requirements and their outcomes. In this blog, we separate fact from fiction so that you can decide intelligently whether tax amnesty is right for you. Read more

I Hit The Jackpot! Now How Do I Get My Withholding Back?

For Canadians gambling in United States casinos, “What happens in Vegas, doesn’t have to stay in Vegas”.

Unlike Canada, the United States considers winnings from gambling and lotteries to be taxable. Under the Tax Law jackpots of $600 or more will incur a non-resident withholding tax of 30%. So if you win $10,000 you only go back to Canada with $7000.

But as a Canadian, can you get that money back? The short answer is maybe. The US-Canada Tax Treaty allows Canadians to deduct their U.S. gambling losses (with a few exceptions) in a given year from winnings.

How do you substantiate the losses? You don’t have to submit your receipts to the IRS. Read more

Israel/South Africa Expatriates Face Costly New Tax Rules

In terms of the Right of Aliyah doctrine (the right of every Jew to immigrate to Israel) every Jew going to or intending to go to Israel will be granted an Oleh’s visa. Oleh, for my colleagues not dealing with Israeli law (plural: olim) means a Jew immigrating into Israel. The Oleh Visa is granted by mere expression of the interest to “relocate” to Israel as a qualifying Jew (albeit born outside Israel after 1950).

A person shall not be registered as a Jew by ethnic affiliation or religion and will be denied Oleh Visa, despite being a Jew as defend, inter alia because of political status / activity (i.e. is engaged in an activity directed against the Jewish people or which is likely to endanger public health or the security of the state of Israel) or secondly, where a notification (issued under the Law of Return 5710-1950 as amended by Law of Return Read more

15 US 2012 Tax Facts for Americans Living and Working Abroad

By Don D. Nelson, Attorney, C.P.A.
Kauffman Nelson LLP

If you are a US Citizen you must file a US tax return every year unless your taxable income is less than $15,700 – for a joint return or $ 9,750 – for a single return (these amounts are for 2012 and are lower amounts for earlier years) or have self employment-independent contractor net self employment income of more than $ 400 US per year. You are taxable on your worldwide income regardless of whether you filed a tax return in your country of residence. You must file a tax return each year if you income exceeds the amounts stated above even if you owe no tax.

As an US expatriate living and working abroad 4/15, your 2012 tax return is automatically extended until 6/15 but any taxes due must be paid by 4/15 to avoid penalties and interest. The return can be further extended until 10/15/10 if the proper extension form is filed.

For 2012 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $95,100, but this exclusion is only available if you file a tax return. You must qualify under one of two tests to take this exclusion: (1) bonafide resident test or (2) physical presence test. You can read more about how to qualify in IRS Publication 54.

If your spouse works and lives abroad, and is qualified, she or he can also get at $95,100 foreign earned income exclusion.

If your foreign earnings from wages or self employment exceed the foreign earned income exclusion you can claim a housing expense for the rent, utilities and maintenance you pay if those amounts that exceed a minimum amount of $15,216 up to a maximum amount which varies by your country of residence.

You get credits against your US income tax obligation for income taxes paid to a foreign country but you must file a US tax return to claim these credits.

If you own 10% or more of a Foreign corporation or Foreign partnership (LLC) you must file special IRS forms each year or incur substantial penalties which can be greater including criminal prosecution if the IRS discovers you have failed to file these forms.

If you create a foreign trust or are a beneficiary of a foreign trust you may be obligated to file forms 3520 and /or 3520A each year to report those activities or be subject to severe penalties. Foreign foundations and non-profits which indirectly benefit you may be foreign trusts in the eyes of the IRS.

Your net self employment income in a foreign country (earned as an independent contractor or in your own sole proprietorship) is subject to US self employment tax of 15.3% (social security) which cannot be reduced or eliminated by the foreign earned income exclusion. The one exception is if you live in one of the very few countries that have a social security agreement with the US and you pay that countries equivalent of social security.

Forming the correct type of foreign corporation and making the proper US tax election with the IRS for that corporation may save you significant income taxes and avoid later adverse tax consequences. You need to take investigate this procedure before you actually form that foreign because it can be difficult to make that election later.

If at any time during the tax year your combined highest balances in your foreign bank and financial accounts (when added together) ever equal or exceed $10,000US you must file a FBAR form with the IRS by June 30th for the prior calendar year or incur a penalty of $10,000 or more including criminal prosecution. This form does not go in with your personal income tax return and is filed separately to a different address.

In the past several years the IRS has hired thousands of new employees to audit, investigate and discover Americans living abroad who have failed to file all necessary tax forms. These audits have begun and will increase significantly in the future. The IRS gets lists of Americans applying or renewing for US passports or entering the country. They will compare these lists with those who are filing US income tax returns and take action against those who do not.

Often due to foreign tax credits and the the foreign earned income tax expats living abroad who file all past year unfiled tax returns end up owing no or very little US taxes. The IRS has several special programs which will help you catch up if you are in arrears which will reduce or possibly eliminate all potential penalties for failing to file the required foreign asset reporting forms. We can direct you to the best program for your situation, prepare the returns and forms and represent you before the IRS.

Beginning in 2011 a new law went into effect which requires all US Citizens report all of their world wide financial assets with their personal tax return if in total the value of those assets exceed certain minimum amounts starting at $50,000 . Failure to file that form on time can result in a penalty of $10,000.

Certain types of income of foreign corporations are immediately taxable on the US shareholder’s personal income tax return. This is called subpart F income. The rules are complex and if you own a foreign corporation you need to determine if these rules apply to you when you file the required form 5471 for that corporation.

If you own investments in a foreign corporation or own foreign mutual fund shares you may be required to file the IRS forms for owning part of a Passive Foreign Investment Company (PFIC) or incur additional, taxes and penalties for your failure to do so. A PFIC is any foreign corporation that has more than 75% of its gross income from passive income or 50 percent or more of its assets produce or will produce passive income.

Visit my Tax Professional Profile Page to download your 2012 US tax return questionnaire prepared expressly for Americans living abroad.  Please “Connect” with me on TaxConnections and we will review your completed questionnaire for a fixed fee quote for the preparation of your return.

Don D. Nelson, US Attorney, CPA
Kauffman Nelson LLP
Dana Point, California 92629 USA

We have been preparing tax returns and assisting US clients located in over 50 countries around the the world for over 30 years. We also assist US Nonresidents meet their US tax obligations and return filing requirements. We offer mini consultations (with attorney client privilege) to answer your tax questions and resolve your tax issues.