2014 Fast Tax Facts for US Expatriates and Green Card Holders Living and Working Abroad

If you are a US Citizen you must file a US tax return every year unless your taxable income is less than

$20,300 - for a joint return or $ 10,150 - for a single return or married filing separately (these amounts are for 2014 and are lower for earlier tax 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 a US expatriate living and working abroad 4/15, your 2014 tax return is automatically extended until 6/15/15 but any taxes due must be paid by 4/15/15 to avoid penalties and interest. The return can be further extended until 10/15/15 if the proper extension form is filed. An even further extension may be available.

 For 2014 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $99,200, 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. This exclusion only applies to income taxes and does not apply to US self employment tax (social security plus medicare). You spouse who lives and works abroad with you will also be able to use this exclusion against any earned income they have abroad.

 For 2014 if you qualify for the entire year for the foreign earned income exclusion (form 2555) you will be excluded from having to comply with the health insurance rules (or possible penalties) of Obamacare (ACA).

 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 $15,872 (for an entire year) up to a maximum amount which varies by your foreign 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 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 (medicare and social security) of 15.3% 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. Your investment income (passive income) may also be subject to a 3.8% additional medicare tax if you income as a married filing jointly exceeds $250,000 or $200,000 if filing as single.

 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 114 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 can only be filed separately on the web at:

 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 8938 on time can result in a penalty of $10,000. The form is complex and has different rules that apply to you if you live abroad or live in the US. This form is required in addition to the FBAR form. 114.

 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.

Download your 2014 US tax return questionnaire prepared expressly for Expatriates at www.TaxMeLess.com or www.expatattorneycpa.com Send us your completed questionnaire and we will immediately provide you with a flat fee quote for preparing your return.

Don D. Nelson, US Attorney, CPA, Kauffman Nelson, LLP
Dana Point, California 92629 USAUS Phone: (949) 481-4094, US Fax: (949) 606-9627Email:ddnelson@gmail.com or ustax@hotmail.com Skype: dondnelson

Visit our International Tax Blog for the Latest Expat and International Tax Developments at www.usexpatriate.blogspot.com.

We have been preparing tax returns and assisting US clients located in over 60 countries around the the world for over 35 years. We also assist US Nonresidents meet their US tax obligations and return filing requirements. Email, skype or phone us for immediate assistance. We offer mini consultations (with attorney client privilege) to answer your tax questions and resolve your tax issues.

For additional useful informaton and tax assistance go to www.TaxMeLess.com and www.usexpatattorneycpa.com

Disclaimer and Conditions: The information contained herein is general in nature and is not to be construed or relied on as tax or legal advice with respect to you individual tax situation or questions. Your use of this material does not create any attorney/CPA relationship between you and this firm or any other obligation. You are advised to retain competent tax professionals help with your individual tax matters and for appropriate answers your specific tax questions.

Examples of Willful and Nonwillful FBAR (form 114) Excuses for Streamlined Program and Other Purposes

Following article gives excellent FBAR unwillful excuse guidance for the streamlined program and filing foreign reporting forms outside of the streamlined program from the International Tax Blog.

http://intltax.typepad.com/intltax_blog/2014/11/willful-vs-non-willful-fbar-violations.html

If you need help with drafting your unwillful failure to file or report income excuse or a review of what you have written, we can provide that service.

Hidden Costs of living in UAE - United Arab Emirates0

The UAE may have no income taxes but is is very expensive to live there. Remember you will still have file a US tax return  and pay us taxes after deducting the $99200 (2014) foreign earned income exclusion and housing deduction.  Read more at www.taxmeless.com

Read more about hidden other costs at: 

http://www.arabianbusiness.com/expats-need-count-hidden-costs-of-living-in-uae-report-572603.html

When is Social Security Taxable to Those Retired Abroad or Expatriates

Read the following ARTICLE FROM USA TODAY to find out when your social security is taxable. 

Remember, to collect social security you must pay in a minimum amount and qualify. Go to the Social Security Administration Website to find out how much you must pay in, your possible benefits, and collecting social security while living abroad or after surrendering your green card or citizenship.  That website is at www.ssa.gov 

Obamacares Impact on US Expats Explained

It may be surprising, but Americans overseas may not actually be exempt from Obamacare’s provisions. Obamacare, or the Affordable Care Act, is a new initiative created to ensure that every American has proper health care coverage. There are ‘minimum essential requirements’ that your plan must meet in order to satisfy Obamacare’s provisions and the Act applies to all US citizens, regardless of where they live. So depending on your personal circumstances, you may be required to purchase an acceptable policy. Those who don’t comply are subject to an Obamacare tax on their Federal tax returns.  Read more from Costa Rican News

What Unwillful excuse to use for the IRS when entering the Streamlined Program or Offshore Disclosure Programs?

Read this excellent article on writing your "Unwillful excuse" when entering the Streamlined  or Offshore Disclosure Program to file the various international tax forms which you failed to file in earlier years.

http://www.forbes.com/sites/irswatch/2014/08/08/am-i-non-willful-under-the-ovdp-streamlined-procedures/

If you need help with the forms or filing your Offshore Disclosure or Streamlined Filing email us at ddnelson@gmail.com. We have assisted hundreds of clients with these complicated forms and procedures with great success.

Wyoming Deemed Best of Income Tax Free States

If you are a nonresident or expatriate and need to set up a US corporation for your business, Wyoming is a good choice. Other states that are  state income tax fee and excellent include Nevada, Washington, Florida and Texas.  Operating the US side of your business in one of these states can save you having to pay state taxes.

Read more about Wyoming below:

http://tucson.com/ap/commentary/wyoming-the-fairest-of-the-low-tax-states/article_dcab31e2-289d-5998-84db-08fef5ddfd78.html

Some Nonresidents with U.S. Assets Must File Estate Tax Returns

Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets. 

U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.

Exceptions: Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.

Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to nonresidents by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation. Executors for nonresident estates should consult such treaties where applicable.

Executors for nonresidents must file an estate tax return, Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States, if the fair market value at death of the decedent's U.S.-situated assets exceeds $60,000. However, if the decedent made substantial lifetime gifts of U.S. property, and used the applicable $13,000 “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s U.S. situated assets is less than $60,000 at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). See Unified Credit (Applicable Credit Amount) Section in Publication 559, Survivors, Executors, and Administrators, and the Form 706NA Instructions for more information.

American citizens are subject to U.S. estate taxation with respect to their worldwide assets. An estate tax return, Form 706, United States Estate (and Generation-Skipping) Tax Return, Estate of a citizen or resident of the United States, is required for a deceased American citizen, if the fair market value at death of the decedent's worldwide assets exceeds the "unified credit exemption" amount in effect on the date of death. However, if the U.S. citizen made substantial lifetime gifts, and used the applicable “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s worldwide assets is less than the “unified credit exemption” amount at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). To determine the “unified credit exemption” amount for American citizens for any particular year, refer to the Instructions to Form 706 or to Publication 559, Survivors, Executors, and Administrators.

The Internal Revenue Service may collect any unpaid estate tax from any person receiving a distribution of the decedent’s property under transferee liability provisions of the tax code.

Special Rules Applicable to Gifts or Bequests from Covered Expatriates

U.S. citizens and long-term residents who relinquished their U.S. citizenship or ceased to be U.S. lawful permanent residents (green card holders) on or after June 17, 2008, and who meet specific average tax or net worth thresholds on the day prior to their expatriation are considered “covered expatriates” – subject to IRC section 877A. See Expatriation Tax for more information on covered expatriates.

U.S. citizens and residents who receive gifts or bequests from covered expatriates under IRC 877A may be subject to tax under new IRC section 2801, which imposes a transfer tax on U.S. persons who receive gifts or bequests on or after June 17, 2008, from such former U.S. citizens or former U.S. lawful permanent residents.

In addition, covered expatriates under IRC 877A are not considered U.S. expatriates for purposes of Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States.

The Scariest Halloween Costume

5 Biggest Tax Differences Between LLCs and Corporations

Read article from Entrepreneur Magazine:  http://www.entrepreneur.com/article/238844

If you need a US corporation or LLC for your expat or International business that is our specialty. Email. ddnelson@gmail.com.

IRS Continues to Prosecute for Failing to File FBAR (form 114) forms and Collect Large Penalties

Howard Bloomberg, a forensic account and certified fraud examiner of Atlanta, Georgia, pleaded guilty on Friday to failing to file a Foreign Bank Account Report (FBAR) for the year 2008. Mr. Bloomberg opened a bank account at UBS AG in July 1997. The value of Mr. Bloomberg’s account increased to approximately $930,000 in 2001, and he routinely wired funds from the UBS account to his U.S. accounts. He closed the UBS account in April 2008 and wired the balance of over $540,000 to the U.S.

For having admitted to not filing the 2008 FBAR, Mr. Bloomberg has agreed to pay a penalty of $278,397, representing 50% of highest balance in 2008, and file accurate FBARs from 1997 to 2008. At sentencing, currently scheduled for December, Mr. Bloomberg faces a maximum of five years’ imprisonment and 3 years’ supervised release. According to the U.S. Attorney for the Northern District of Georgia, Sally Quillian Yates:

IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans and Annual Reporting Requirements

The Internal Revenue Service today made it easier for taxpayers who hold interests in either of two popular Canadian retirement plans to get favorable U.S. tax treatment and took additional steps to simplify procedures for U.S. taxpayers with these plans.

As part of this, the IRS provided retroactive relief to eligible taxpayers who failed to properly choose this benefit in the past. In addition, the IRS is eliminating a special annual reporting requirement that has long applied to taxpayers with these retirement plans.

Under this change, many Americans and Canadians with registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) now automatically qualify for tax deferral similar to that available to participants in U.S. individual retirement accounts (IRAs) and 401(k) plans. In general, U.S. citizens and resident aliens qualify for this special treatment as long as they filed and continue to file U.S. returns for any year they held an interest in an RRSP or RRIF and include any distributions as income on their U.S. returns.

The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed. Otherwise, U.S. tax is due each year on this income, even if it is not distributed.

In the past, however, taxpayers generally would get tax deferral by attachingForm 8891 to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. Before today’s change, a primary way to correct this omission and retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, a costly and often time-consuming process.

Many taxpayers also failed to comply with another requirement; namely that they file Form 8891 each year reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether they chose the special tax treatment. The IRS is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present.

The revenue procedure does not modify any other U.S. reporting requirements that may apply under the Bank Secrecy Act (BSA) and section 6038D. SeeFinCEN Form 114 due by June 30 of each year, and Form 8938 attached to a U.S. income tax return for more information about the reporting requirements under the BSA and section 6038D. Different reporting thresholds and special rules apply to each of these forms.

Further details on today’s change can be found in Revenue Procedure 2014-55, posted on IRS.gov.

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US Expatriate Mini Consultations and Reviews of Self Prepared Returns - Offshore Disclosure and Citizenship Surrender

What our CPA/Law Firm can do for US expatriates:

1. We  can review your self prepared expat returns or special international tax forms and provide you with suggestions, comments and corrects. This will help avoid potential IRS audits or problems.

2. If you are moving abroad, need to understand your personal expatriate tax or US international tax situation, we offer a mini consultation with an attorney that can give you guidance and resolve your questions. This consultation is subject to attorney/client privilege and its totally confidential.

3. Considering giving up your US Citizenship?  We have assisted over a hundred clients with this process and can provide you with guidance on all aspect of the legal and tax requirements, including assisting with the special required tax forms.

4. Haven't been filing your tax returns or special foreign tax forms (FBAR, Foreign Corp, etc) while living abroad?  Omitted your foreign income or failed to disclose foreign bank accounts to the IRS. We can help with the expertise and confidentiality of an Attorney/CPA.  We provide you with complete legal tax advice and can prepare all of the returns necessary to enter the IRS Offshore Disclosure Program or the new Streamlined Disclosure Programs (that can significantly reduce your penalties).

Email us if you need help at ddnelson@gmail.com or visit our websites at www.TaxMeLess.com or www.expatattorneycpa.com  

2014 California Tax Rates and Other Information

Many of our expat clients also pay taxes in California due to real estate, businesses, etc located in that state.  We also have many clients who have moved to California from abroad. The link below leads to a complete chart of the 2014 California Tax Rates and Other Information.

LINK TO 2014 CALIFORNIA TAX INFORMATION

IRS OVDP vs. Streamlined: What To Do?

Read the great article below from Forbes in you are not certain whether to enter the  IRS Streamlined

 program or the Offshore Voluntary Disclosure Program (OVDP).   Due to the new rules in the Streamlined program many can now enter that program which has significantly lower monetary penalties and much less paperwork.

Link to Forbes Article:  http://www.forbes.com/sites/irswatch/2014/07/07/irs-ovdp-vs-streamlined-what-to-do/

The disadvantage of the Streamlined Program is that it does not protect you from criminal prosecution and if you are rejected, your entire situation may be sent to the audit department and regular penalties may then be imposed which can be very high.

We have advised or represented in excess of a hundred clients in connection with the Streamlined program or the Offshore Voluntary Disclosure Program. We can advise you which program is best for you after you read the article above.

STATE DEPARTMENT RAISES FEE TO SURRENDER CITIZENSHIP

The US State Department has raised the fee they charge (for their costs) to surrender Citizenship from $450 to $2,350 effective 9/6/14.  If you are born here it costs nothing to become a citizen. This fee is in addition to the time and expense you must incur to file necessary forms with the IRS.