GILTI Tax For US Expatriates: What You Need to Know

In this blog post, we will provide a comprehensive overview of the GILTI tax, who is subject to it, and how it affects multinational corporations. We will also discuss the tax rates for GILTI income, and how to comply with GILTI tax regulations. We understand that GILTI tax can be a complex topic, which is why we encourage readers to consult with a tax professional to ensure compliance with the law and to determine their specific tax liability.

GILTI tax is a provision of the U.S. tax code that applies to U.S. taxpayers who own at least 10% of the shares of a controlled foreign corporation (CFC). The purpose of GILTI tax is to discourage profit shifting to low-tax countries by taxing the U.S. shareholder’s share of the CFC’s global intangible low-taxed income (GILTI). GILTI income is the CFC’s income from intangible assets, such as patents, trademarks, and copyrights, that is subject to a low rate of foreign tax.

The GILTI tax is calculated by taking the taxpayer’s net CFC tested income (which is the CFC’s gross income minus certain deductions) and reducing it by a deemed return on the CFC’s tangible assets. This deemed return is calculated as 10% of the CFC’s qualified business asset investment (QBAI), which is the CFC’s average aggregate adjusted bases in its tangible property used in its trade or business. The resulting amount is then multiplied by the GILTI tax rate, which is currently 10.5%.

It is important to note that the GILTI tax is a separate tax from the regular income tax and is calculated and reported on a taxpayer’s Form 8992 (Part of the IRS form 5471).

If the taxpayer takes the money out of the corporation as wages or dividends or if their corporate income tax rate is more than 18.9%, they may not have to pay GILTI tax.
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A Guide To Recovery Rebate Credit For U.S. Expats

If you’re one of the many U.S. expats who are owed stimulus money, you can still claim it through Recovery Rebate Credit. As the matter of fact, 2023 is the last year to get all the stimulus checks you might have missed! It will either boost the amount of your tax refund or reduce the taxes you owe to the IRS. Either way – you win! Don’t miss out on the opportunity to get the money you’re entitled to. Keep reading to find out how the credit works and what makes you eligible to qualify.

What is Recovery Rebate Credit?
Recovery Rebate Credit is part of the Covid-19 Economic Relief program. The credit makes it possible for those who didn’t receive Economic Impact Payments (also known as stimulus payments) to claim their missing money. So if you were eligible for stimulus payments but did not receive them (or you received a partial payment), you can claim them through Recovery Rebate Credit on your tax return.

How to claim Recovery Rebate Credit
Getting your Recovery Rebate Credit is not too complicated. You just need to file the right tax return and you’re good to go. For stimulus payments made in 2020 that you haven’t already received, you can claim the Recovery Rebate Credit on your 2020 tax return. And for payments made in 2021, you will need to file a 2021 tax return.

Even If you don’t usually file taxes but are otherwise eligible for stimulus checks, you will still need to file in order to get your money. And keep in mind – 2023 is the last year to do it! If you need any help along the way, don’t hesitate to reach out to us.

Recovery Rebate Credit vs Stimulus Checks
To put it simply – stimulus payments were actually just advanced payments of the tax credit. The U.S. government provided them in response to COVID-19, aiming to get money into the hands of taxpayers as fast as possible, without having to wait for them to file their tax returns.

In total, three rounds of stimulus checks have been paid out. The amounts you were eligible to receive varied depending on your filing status and other factors.

Recovery Rebate Credit 2020
The first and the second stimulus checks were advance payments of the 2020 Recovery Rebate Credit claimed on a 2020 federal tax return. They were sent out in 2020 and early 2021. Here’s how much the first 2 rounds of Stimulus Checks are worth:
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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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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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Even if you have left the United States for a brighter future elsewhere, you  (something not as strong) take a moment and think about any obligations you have towards the IRS. The US retains its right to tax globally its citizens and resident aliens who are a citizen or national of a country with which the United States has an income tax treaty in effect. Only two countries have such a citizenship-based taxation system: the United States and Eritrea.

What Is A Foreign Earned Income Exclusion For U.S. Expats?

The Foreign Earned Income Exclusion (FEIE) is offered to US citizens and resident aliens that are living abroad on a consistent basis, have earned income in a foreign country and can prove that they have done so for the past tax year by satisfying either the Physical Presence Test or the Bona Fide Residence. Read More