US IRS rules, regulations and laws, for US Citizens, Americans, green card holders, and nonresidents living abroad or moving to the US or out of the US.... valuable information on IRS rules concerning U.S. expatriates and their tax returns, and tax planning.... by an experienced International Tax Attorney
The link below leads to the IRS Comparison Chart showing what types of assets to include on Form 8938 and the FBAR form (TDF 90-22.1) or on both. Both of these forms must be filed for 2011 if applicable or you risk a $10,000 penalty for each for failing to report foreign financial assets and foreign financial accounts. If you need us to fill of these forms for you or review the form you self prepared for completeness and correctness, we do provide that service.
Many US expats wish to maintain a US mailing address or home in the US , or US state drivers license, etc. but do not want to risk having to pay any state income taxes (there is no Federal requirement that you maintain a state tax domicile if you live and work outside of the US). You should check the tax laws in your state of residency to see what difficulties you may encounter trying to stop paying state income taxes when you do chose to live and work abroad. Many states have laws which attempt to keep their residents paying state income taxes (even though an ex resident may have moved their residence abroad) while other states make it easy to stop paying state tax. California, Virginia, New Mexico and a few other states are those that make it difficult to stop paying state income tax when you change your domicile to one outside of the US.
One easy solution you can use to attempt to avoid paying state income taxes when living and working abroad, is to move your US address, tax domicile, voter registration, drivers licenses, etc. a state with no personal income taxes. The US states which do not have personal individual income taxes. Those include:
The Internal Revenue Service today announced another expansion of its "Fresh Start" initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems and in many cases more quickly than in the past.
The announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. This announcement also enables some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.
In certain circumstances, the changes announced today include:
Revising the calculation for the taxpayer’s future income.
Allowing taxpayers to repay their student loans.
Allowing taxpayers to pay state and local delinquent taxes.
Expanding the Allowable Living Expense allowance category and amount.
In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.
The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations. When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. All offers must be fully paid within 24 months of the date the offer is accepted. The Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.
Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.
Allowable Living Expenses
The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer in compromise requests.
The National Standard miscellaneous allowance has been expanded to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.
Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.
This is another in a series of steps to help struggling taxpayers under the Fresh Start initiative.
In 2008, IRS announced lien relief for taxpayers trying to refinance or sell a home. The IRS added new flexibility for taxpayers facing payment or collection problems in 2009. The IRS made changes to lien policies in 2011 and expanded the threshold for small businesses to resolve tax issues through installment agreements. And, earlier this year, the IRS increased the threshold for a streamlined installment agreement allowing individual taxpayers to set up an installment agreement without providing a significant amount of financial information.
See the article HERE from Forbes Magazine for these ten rules: Remember financial accounts also include foreign pension accounts, gold held in another's vault, foreign contracts you are collecting payments and interest on, cash surrender value of foreign life insurance, positive balances (you are owed the money) in foreign credit cards, foreign stock broker accounts, and any other manner of foreign financial asset. Interesting enough it does not include real estate if held in your own name. All of these items must also be included in Form 8938 if you are required to file.
Interestingly enough foreign real estate only has to be reported as a foreign assets if you hold it in a foreign corporation, partnership, LLC, or trust. If you hold it in your own name and do not rent it out, you do not have to tell the government anything about it. This also holds true with respect to gold, cash, diamonds, etc. located abroad and kept in your matters or personal foreign safe.
The increased pressure from the IRS has produced big results. The numbers of Americans filing the Report of Foreign Bank and Financial Accounts, or FBAR, soared from 276,386 in 2009 to 618,134 in 2011 (failure to file, the IRS warns, “subjects a person to a prison term of up to 10 years and criminal penalties of up to $500,000”).
Due to the increase IRS pressures, a growing number of Americans living abroad are renouncing once-valued U.S. passports and Citizenship. Some 1,780 people gave up U.S. nationality last year, eight times the 2008 level and the largest number in more than a decade.
In 2001, the IRS had only 13 agents in its international operations unit, and none specifically targeting what it calls “global high wealth.” By 2011, there were 71 for global high wealth — and 856 for international operations, up from 259 just a year before. The IRS in March announced it was going to hire 300 more international agents.
Unless Congress takes action and passes new tax law (and that will not happen until after the Presidential election , a tax Bomb will go off on January 1, 2013 which could cause you adverse consequences.
The Lowest income tax rate jumps from 10% to 15%
The top tax rate climbs from 35% to 39.6%
Long-term capital gains tax rate climbs from 15% to 20%
Dividends will be taxed at substantially higher rates
The 2% payroll tax credit expires, and much more...
The lifetime estate and gift tax exemption will decrease from $5 million to $1 million
Now is the time to do your income and estate tax planning in the event Congress does not take any action to stop these increases. We can help. www.TaxMeLess.com
The IRS for 2012 has increased the Expatriate Foreign Earned Income Tax Exclusion to $95,900. This could save single person (without any available tax credits) up to an additional.$616 in US taxes on their 2012 return over what they might pay on the same foreign earned income on their 2011 return.
Remember an an expatriate living abroad on 4/17/12 you got an automatic extension to file your return until 6/15/12. You can get a further extension to file the return until 10/15/12 by filing form 4868 prior to 6/15. If you owe any taxes at that time interest and penalties will continue to accrue (at a rather low rate) until those taxes are paid. Remember form TDF 90-22.1 (FBAR) must be filed to report your foreign financial accounts by 6/30/12 for 2011. It cannot be extended for any reason.
This combined with the fact the IRS increases the foreign housing exclusion or deduction each year for expats will provide additional benefits to those who live and work abroad for 2012. It just keeps getting better for expatriates so long as all of the special reporting forms (with high penalties for not filing) such as TDF 90-22.1, 8938, 3520, 8865, 5471, etc. are all filed in a timely manner. It is noteworthy that none of these forms are actual forms that produced more taxes, they are strictly informational and if filed, will result in no adverse consequences to the expat taxpayer. Read more on our website at www.TaxMeLess.com
Excellent article from Business Week about all of the US Taxpayers surrendering their US Citizenship. It does not include in the total tally all of the US Green Card holders who have surrendered there permanent residency under a similar program for those individuals READ BUSINESSWEEK ARTICLE HERE.
Our firm has advised or assisted in excess of one hundred Citizens or Green Card holders with the tax requirements of surrendering their US Tax Status over the past few years and we get inquiries daily. It is a two STEP process. The first STEP is easy. You must have citizenship in another country, pay the US State Department $450, and fill out forms and go through an exit interview.
The second STEP requires that you file a final "Dual Status" us tax return, and Form 8854 which gives the IRS information on your worldwide asset value on the date your surrendered your status. If the value of your worldwide assets exceed a certain amount, you may owe taxes on the gain you may have in those assets. Visit our website if you need more information on the process and tax aspects at www.TaxMeLess.com or www.expatattorneycpa.com. We can advise you on the process and your situation with the protection of the attorney-client privilege privacy rules.