Gilti Tax - John Richardson

In December 2017 the U.S. Tax Cuts and Jobs Act imposed confiscatory taxation on the U.S. citizen shareholders of many small business corporations located outside the United States. Canadian residents have been severely impacted by this. Monte Silver is a U.S. citizen tax lawyer based in Israel who has been very active in both tax advocacy on behalf of Americans abroad and litigation.

On December 24, 2019 his lawsuit against U.S. treasury achieved a major victory in the ongoing quest for “tax justice” for individuals living outside the United States who are also U.S. citizens. This is the fourth time that John Richardson has interviewed Monte Silver on these issues. This story is far from over!

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You Should Also Read This Blog By John Richardson.

Olivier Wagner, Expatriate Tax Advisor

As you may know, if you have lived outside of the country most of the year, you can have up to $102,100 ($104,100 for 2018) of your income excluded from federal taxes under the Foreign Earned Income Exclusion (FEIE) (Form 2555). You can also claim a credit for taxes you paid to foreign governments, the Foreign Tax Credit (FTC) (Form 1116).

Generally speaking, if your foreign tax rate is greater than your US tax rate, the FTC would be more advantageous, or else the FEIE would be more advantageous. But don’t worry. I will be there to help you determine the most advantageous way to file your taxes.

In addition to these credits, it is important to establish your U.S. residence in a state which does not impose state income tax.

Many states have tax laws that mirror the federal exclusions, allowing either the FEIE or FTC for state tax purposes. Others have so called “safe harbor” laws – that is, you would be taxed as a non-resident even though you list your main residence in that state. They apply to people who have been out of the state for a specific number of days through the year, so it’s important to keep track of where you were.

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Some Americans who go abroad have already been non-compliant for years before they ever get on a plane. Others figure that since they won’t be within US borders, it would be impossible or highly impractical for the US government to take any realistic measures toward collection. Before you decide to take this route, it’s a good idea to fully understand the consequences you might encounter if you fail to file.

The first thing to understand is that anything you owe the U.S. that you don’t pay while living overseas is subject to 3.25% interest. Though imprisonment is unlikely, you could face fines. Nonpayment of taxes can not only hurt your finances, but your travel plans as well.

How do expatriates become compliant with the US tax system? The 1040 isn’t the only form you need to file. Many activities that seem benign would trigger specific filing requirements, and you may have to file these forms as well. The rules are the same for Americans living in the US, but Americans living abroad are much more likely to have these “foreign” activities.

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