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Top Year-End Tax Planning Strategies for US Expats in 2017



Hugo Lesser, Tax Advisor

Year-end tax planning is slightly different this year due to the proposed changes to the tax system. Despite this uncertainty however, there is still plenty that expats can do before the holidays to make their lives easier in 2018. They can even save some money, too!

Assemble your 2017 records

The first step is to gather all your records for 2017. These should include:

– Proof of your income and deductible expenses. While exactly which expenses can be deducted may change next year, for now assume that they are the same as last year.

– Travel records. Expats claiming the Foreign Earned Income Exclusion often need to prove that they spent at least 330 days outside the US in the year, so having records of travel dates pertaining to the US is critical to enable expats not to pay US taxes on their income earned in 2017.

– Proof of rental housing expenses. Expats who claim the Foreign Earned Income Exclusion but earn above $100,000 and who rent their homes may also wish to claim the Foreign Housing Exclusion, for which they’ll require proof of their housing expenses.

– Bank and investment account statements. Expats who have over $10,000 in bank and investment accounts outside the US have to report them by filing an FBAR (or Foreign Bank Account Report). When filing an FBAR you have to report your maximum balances during the year for all of your foreign bank and investment accounts; having your statements ready makes this easy.

Reduce your 2017 taxable income through retirement contributions

Expats who owe US (and in many cases foreign) income taxes for the year can reduce what they owe by making further contributions into qualifying retirement plans before December 31st. Qualifying plans include 401(k), 403(b), Deductible IRA, SIMPLE IRA, and SEP plans.

Utilize investment losses

It may be an old strategy, but it’s still an effective one for expats with losses on investments in 2017.

So long as you sell the loss making investments before the end of the year, you can offset the loss against investments that have risen in value. Or, if your overall portfolio has made a loss in 2017, you can offset up to $3,000 of loss against your income, potentially reducing your US tax liability.

Plan your travel to the US carefully

Maintaining the ability to claim the Foreign Earned Income Exclusion allows millions of expats not to have to pay US income tax. Many of them choose to use the Physical Presence test when claiming the Foreign Earned Income Exclusion, which requires that expats prove that they spend at least 330 days a year outside the US. As such, tax planning in the form of ensuring that expats don’t spend too long in the US in a year should form part of expats’ travel planning for 2018. (Also, consider downloading and utilizing our mobile app, which counts the days you spend outside the US each year and automatically creates a travel log for you, saving you from going through your records at tax time).

Aim to file your foreign tax returns promptly

Looking ahead to 2018, there are several other things that expats can plan to do now to ensure that their US tax filing goes smoothly. For example, expats who claim the Foreign Tax Credit should aim to file their foreign tax return promptly, in order to document the foreign income tax paid or accrued on their 2017 US income.
If you live in a country where the tax return is filed later in the year (ex. Australia, UK) though, be sure to request that your CPA file an US filing extension on your behalf.

If you owed US tax in 2016, prepare to pay estimated 2017 tax

If you did owe US taxes last year, estimate how much you will owe for 2017 so you can make estimated payments in advance of April 15th. Even though expats aren’t required to file their US tax return before June 15th, any taxes due are still due by April 15th, and after this date interest and possible penalties may be incurred.

Catch up now

We strongly advise expats who haven’t been filing their US taxes to catch up with their filing before the IRS comes to them.
The IRS now has global reach, so it’s a much better strategy to catch up with US tax filing from abroad using the Streamline Procedure amnesty program, which allows expats to claim the exemptions that can reduce or eliminate their US tax liability, than sitting back and waiting for the IRS to notice.

Have a question? Contact Katelynn Minott

Your comments are welcome!

Hugo Lesser

With clients in over 150 countries, Bright!Tax is a leading provider of US tax services to the estimated 9 million Americans living abroad. I’m responsible for client experience, communications, and branding. Since I joined, turnover has been growing at a rate of 80% per annum.

I excel at surpassing competition by disrupting and transforming the playing field through innovation.

20 comments

  1. Please note that it is important for Americans overseas to think first before entering or re-entering the US tax system. Each case must be weighted on its own merits. There are many cases where it is best to stay away from the US tax system.

    Additionally, if you are an Accidental American, generally speaking, you should not, and I repeat, you should not enter the US tax system. As with Americans overseas, each case must be weighted on its own merits.

    Hence it is EXTREMELY important to think first and do NOT let fear and/or desperation guide your decision.

    Keith REDMOND
    American Overseas Global Advocate

  2. Nononymous says:

    Before the usual replies from tax compliance professionals pour in – “the IRS will find you, and will make you pay” or “you can’t tell people to hide, that’s illegal” – I would like to pose the following challenge:

    Cite ONE instance of an accidental American (i.e US birthplace but with citizenship in their country of residence) with no US assets or financial ties who has been identified, penalized and compelled to pay monies to the US government. One name, is all I ask. Voluntary compliance does not count.

    Two recent cases in Canada illustrate the point. Dewees was compelled to pay “form crime” penalties and Canada assisted, but he was a permanent resident who had never taken Canadian citizenship, so vulnerable. Pomerantz was assessed FBAR penalties but as he lives in Canada with none of his assets in the US, the IRS can’t even serve him papers, let alone collect.

  3. Em R. says:

    Looking at this writer’s list of things for overseas filers to collect prior to preparing to commence to thrash out their 2017 tax returns will make anyone who has renounced his/her US citizenship, thereby having exited the complex, burdensome and punitive US tax system, celebrate that wise decision all over again.

  4. Karen says:

    Great advice for some recent expats or those who plan to return to the US after a few years abroad. However, the vast majority of the 9M Americans abroad have not lived in the US for decades. For Accidental Americans (those born in the US to foreign parents who have lived their entire lives in their non-American home country), those born outside the US to US parents, or those who have permanently emigrated, US tax compliance can be financial suicide.

    Even for short term expats, it is important to remember that you’re working between TWO (possibly very different) tax systems. What’s good advice for minimising US taxes may NOT be good advice for minimising host country taxes. US investments used to avoid PFIC rules or US retirement accounts may be taxed punitively as foreign investments where you live.

    With regard to retirement accounts, for example, Australian employees have no choice about participating in superannuation (unless you’re a short-term employee of a US employer who is willing to use the provisions of the Social Security Agreement between Australia and the US). All Australian employers are required to contribute 9.5% of salary to a nominated superannuation account. While a very small number of US tax preparers treat this as the equivalent of social security (therefore excluded from US tax under the tax treaty), the vast majority will include these employer contributions in US taxable income (generally as earned income eligible for FEIE). Any contributions to a US retirement account on top of this (assuming you can even find an institution willing to open a US IRA for someone resident overseas) will not be deductible in Australia. It is unclear how Australia would tax the income inside such an account (or withdrawals) if opened or funded while resident in Australia. Furthermore, taking advantage of generous Australian provisions for extra contributions can result in disasterous US tax consequences.

    And for those expat entrepreneurs with local businesses where they live, US tax rules will undo any local tax planning.

    Is it any wonder that those long term expats who have come into compliance are the ones who choose to renounce their US citizenship?

  5. @Nononymous

    My interpretation of the Pomerantz is that the FBAR penalties were based on years that Mr. Pomerantz was actually living in the USA.

    See an earlier article on Tax Connections:

    https://www.taxconnections.com/taxblog/did-mr-fbar-pay-a-surprise-visit-to-canada/#.WguLcIZOm8U

    • underation says:

      John Richardson, thank you for that link. Do you think then that the IRS is not likely to try to impose $10,000 penalties on a citizen of another country for failing to report accounts held in the country in which the person resides and is a citizen?

      • @Underation

        Obviously I don’t and can’t know what the IRS would or not attempt to do.

        That said, the vast majority (if not all) of the reported FBAR penalties who:

        1. Were Homeland Americans; and

        2. Failed to report accounts that were associated with tax evasion.

        Although I agree that FBAR is really a tool of civil forfeiture, I think that to impose these penalties on those who are:

        1. citizen/residents of other countries

        2. On accounts located in those countries

        3. Where any investment income earned in the account was reported to the tax authorities where the account was located (and therefore creating foreign tax credits)

        would create political problems for the USA and expose FBAR for the arbitrary confiscation that it surely is.

        So, to answer your question, I don’t know. But, I don’t think the IRS would view the situation you describe as analagous to that of Homeland Americans.

        It is becoming increasingly clear that U.S. citizenship is completely incompatible with the modern/global world.

        Interesting many are renouncing U.S. citizenship and I expect that most of those renouncing ARE U.S. tax compliant.

        • underation says:

          John Richardson. Thanks.

          I hadn’t thought about the political problems. I was thinking about money laundering (not in connection with Pomerantz but generally). Thinking that a country might not help collect FBAR penalties as a tax debt, if the account and the account holder were both resident, but they might assist if it was a cross-border account, under AML provisions.

          Thanks for your comments.

  6. Semesiente says:

    Totally impossible to comply with IRS, FBAR, Obamacare, etc… when you have been living for decades in another country with another language, another tax system, another currency, another banking system, another social security system, another payroll and benefits system…

  7. Fred says:

    It is indeed impossible to comply fully with the IRS when one is living abroad. Further, it is costly to try. And trying too hard is a recipe for guaranteed disaster, loss of money and time and health.

    I made the decision to get back in the system when a bank threw me out in 2014 because of my US birthplace. I fed carefully sanitized data to a tax preparer. One issue I have, for instance: my taxes (in the country I live in) are not finalized until, for 2015, well into 2017. But that’s way beyond any date for US filing. Therefore I feed an estimation to my preparer.

    I now wonder if I made the right choice in filing again, since it costs me money every year (filing only, because I of course owe no tax). What this does, though, is allow me to open an account and fill in my US TIN, and it allows me to file for renunciation, should I so choose.

    Plenty of people have just continued to ignore the US, and will never be bothered for it. It is CLEAR that if you don’t have a US birthplace (and you have another passport) you can live your life abroad with no trouble whatsoever.

    We must remember that the US revolution was largely based on not accepting British taxation. It is highly ironic that the US now reaches into the pockets of foreign countries because of citizenship based taxation.

    As for the outrageous renunciation fee of $2350 (+tax compliance), it certainly contradicts President Kennedy’s speech at the Berlin Wall, where he notes that democracies don’t need a wall to keep people in. The renunciation fee is truly an administrative Berlin Wall. And, as is the case with the latter, it’s not working.

  8. underation says:

    Nononymous. I take your point that the US-Canada treaty doesn’t provide for mutual assistance in collection of tax debts against Canadian citizens. But since the case against Pomerantz is proceeding and he appears to be taking an active part, apparently he doesn’t feel able to rely on that treaty provision for protection.

    • Nononymous says:

      Or he might wish one day to set foot in the US. Hard to know what his motivation might be. But for now his money is safe in Canada.

    • Nononymous says:

      Also FBAR fines fall outside the tax treaty – they are “administrative penalties” not tax debts – so no provision for collection assistance at all, even against US citizens in Canada without Canadian citizenship. (See Dewees – the IRS invented a new form crime to collect on because FBAR fines weren’t collectible.)

      • underation says:

        I think you may be giving too much weight to the tax treaty. There may be other treaties which come into play where cross-border accounts are concerned. For instance, the “Treaty Between the Government of Canada and the Government of the United States of America on Mutual Legal Assistance in Criminal Matters“ (http://www.treaty-accord.gc.ca/text-texte.aspx?id=101638)

        However, Pomerantz’s situation is very different from that of a US-Canadian dual citizen with accounts only in Canada. He’s just not a good example to point to, if you want to reassure Canadian duals.

  9. Nononymous says:

    Pomerantz was up to all kinds of fishy stuff and did some dumb things, details of which I don’t fully remember.

    But I stand by my original challenge – name one “accidental” dual without US ties who has been identified, penalized and had penalties collected. (Without the victim voluntarily coming into compliance of course.)

    • underation says:

      Indeed. And that’s presumably why there are no examples to point to, to encourage duals not to be needlessly worried about those FBAR penalties. The IRS doesn’t waste time pursuing what it knows can’t be collected.

      People will go on worrying though, and that’s entirely understandable . Renunciation is the best safeguard, if achievable.

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