US Expatriates and US Citizens Abroad- How to Vote on US Elections

VOTING IN 2018 U.S. ELECTIONS

Your vote counts!  Did you know that many U.S. elections for house and senate seats have been decided by a margin smaller than the number of ballots cast by absentee voters?  All states are required to count every absentee ballot as long as it is valid and reaches local election officials by the absentee ballot receipt deadline.

Follow a few simple steps to make sure that you can vote in the 2018 U.S. elections:

1.     Request Your Ballot:  Complete a new Federal Post Card Application (FPCA).  You must complete a new FPCAafter January 1, 2018 to ensure you receive your ballot for the 2018 elections.  The completion of the FPCA allows you to request absentee ballots for all elections for federal offices (President, U.S. Senate, and U.S. House of Representatives) including primaries and special elections during the calendar year in which it is submitted.  The FPCAis accepted by all local election officials in all U.S. states and territories. 

You can complete the FPCA online at www.FVAP.gov.  The online voting assistant will ask you questions specific to your state.  We encourage you to ask your local election officials to deliver your blank ballots to you electronically (by email, internet download, or fax, depending on your state).  Include your email address on your FPCA to take advantage of the electronic ballot delivery option.  Return the FPCA per the instructions on the website.  FVAP.gov will tell you if your state allows the FPCA to be returned electronically or if you must submit a paper copy with original signature.  If you must return a paper version, please see below for mailing options.

2.     Receive and Complete Your Ballot:  States are required to send out ballots 45 days before a regular election for federal office and states generally send out ballots at least 30 days before primary elections.  For most states, you can confirm your registration and ballot delivery online.

3.     Return Your Completed Ballot:  Some states allow you to return your completed ballot by email or fax.  If your state requires you to return paper voting forms or ballots to local election officials, you can use international mail, a courier service such as FedEx or DHL, or you may also drop off completed voting materials during regular business hours at the U.S. Consulate General in Tijuana.  Place your materials in a postage paid return envelope (available under “Downloadable Election Materials” on the FVAP homepage) or in an envelope bearing sufficient domestic U.S. postage, and address it to the relevant local election officials.

4.  New this year – email to fax service by FVAP! - the Federal Voting Assistance Program (FVAP) will provide an email-to-fax conversion service for voters who have difficulty sending election materials to States that do not accept emailed documents.  Get more information here.

Researching the Candidates and Issues:  Online Resources.  Check out the FVAP links page for helpful resources that will aid your research of candidates and issues.  Non-partisan information about candidates, their voting records, and their positions on issues are widely available and easy to obtain online.  You can also read national and hometown newspapers online, or search the internet to locate articles and information.  For information about election dates and deadlines, subscribe to FVAP's Voting Alerts (vote@fvap.gov).  FVAP also shares Voting Alerts via Facebookand Twitter.

Learn more at the Federal Voting Assistance Program's (FVAP) website, FVAP.gov.  If you have any questions about registering to vote overseas, please contact U.S. Consulate General in Tijuana's Voting Assistance Officer at VoteTIJUANA@state.gov.

New Tax Law Changes for 2018, and How They Will Apply to US Expatriates

The President has signed the biggest tax changes in over 30 years. When you file your 2018 tax returns
— about a year from now — your tax return will look very different. And because most changes don’t happen
until then, we have some time to learn about the changes and plan for next year. Here are a few of the biggest
changes that may affect you.

Tax rate changes: Both individual and corporate rates have changed. The maximum individual rate is reduced
to 37% and the corporate rate is now a flat 21%. The rate chang could benefit you — or in some cases
cause your tax liability to go up.

Standard deduction increases:  However, there are no more personal exemption deductions allowed.
So this may help you — or hurt you.

Increased Child Tax Credit and new Dependent Credit: The credit is increased for each child to $2,000
(up to $1,400 of which is refundable for each child) and each non-child dependent can now receive a new
credit of $500. But you will have no exemption credit or deduction for yourself, your spouse, or your depenDeardents.

The phaseout thresholds for these credits are drastically increased. Married taxpayers filing a joint return can
claim the full credits if their adjusted gross income is $400,000 or less ($200,000 for all others). The credits
are fully phased out for married taxpayers filing a joint return when their adjusted gross income reaches $440,000 ($240,000 for all others). This means that many more taxpayers will be able to claim these credits in 2018 and beyond.

Disappearing deductions: Beginning with the 2018 tax year, you will no longer be able to deduct:

• State income tax and property taxes above $10,000 per year in total;
• Moving expenses (with an exception for certain military);
• Employee business expenses such as mileage, travel, entertainment, home office expenses, union dues
• , tax preparation fees, and investment fees, among others;
• Mortgage interest beyond interest on $750,000 of acquisition debt, if you purchase a new home; and
• Mortgage interest paid on equity debt (this is no longer deductible for any taxpayers).

Some new benefits for individuals: These new benefits include:

• The medical expense AGI threshold will temporarily drop to 7.5% of AGI for 2017 and 2018;
• The AMT threshold is increased, so fewer middle-income taxpayers will be subject to AMT;
• The estate tax exclusion has nearly doubled, to $10 million (adjusted for inflation); and
• The annual gift tax exclusion remains the same ($14,000 for 2017 and $15,000 for 2018)
• but the maximum rate on gifts is 35%.

Small business benefit: Beginning in 2018, there will be up to a 20% deduction from net business income
for a sole proprietorship, LLC (excluding those taxed as a C corporation), partnership, S corporation, and
rental activity. The rules are incredibly complex but there is a lot of planning that we can do to maximize this
deduction for you. More on this later

For expatriates, the foreign earend income exclusion, housing exclusion and foreign tax credits have not been changed at all.
As stated above, you will have some changes with respect to any foreign corporations you own all or part
of, but the exact nature of those changes awaits IRS interpretations and regulations.

Remember all of these changes take effect in 2018 and your 2018 tax return. All of the old rules still apply to your 2017 tax returns which you will need to file shortly.

Let us know if we can help with your 2017 return, and 2018 tax planning. Email us at ddnelson@gmail.com and visit our website at www.taxmeless.com

New U.S. tax law for owners of non-U.S. corporations – action to consider by year-end!

Posted on December 22, 2017 

By Kyle Lodder, CPA

President Trump has signed significant U.S. tax legislation into law today, namely the “Tax Cuts and Jobs Act”.

There are many favorable tax provisions that will benefit many taxpayers, for individuals and businesses. But there are also some quite unfavorable international tax provisions which may adversely impact business owners of non-U.S. corporations.

One specific new provision relates to U.S. persons who own an interest in a non-U.S. corporation.

Under prior law, U.S. shareholders generally are taxed on all income, whether earned in the U.S. or abroad. Foreign income earned by a foreign (non-U.S.) corporation generally is not subject to U.S. tax until the income is distributed as a dividend to the U.S. shareholder.

Under this new law, certain U.S. shareholders owning at least 10% of the foreign corporation generally must include in income starting in 2017 the shareholder’s pro-rata share of the net post-’86 historical earnings and profits “E&P” (i.e. accumulated unrepatriated earnings) to the extent it hasn’t been previously taxed in the U.S.  This is a one-time tax as the U.S. attempts to transition from a worldwide tax system to a territorial type of tax system.

The portion of the historical earnings comprising of cash or cash equivalents is taxed at a reduced rate of 15.5%, while any remaining E&P is taxed at a reduced rate of 8% (it works out to a bit higher rate in some cases). The lower tax rate is intended to recognize that non-cash assets are illiquid and/or in productive use in the business. Nonetheless, this could be a significant tax hit for this upcoming tax season, although there is an option to elect to defer the payment over eight years.

Another problem with this tax is that it’s on deemed income. There isn’t an actual dividend. Rather, it’s deemed income for U.S. purposes. In most foreign countries, this deemed income isn’t considered taxable income. The challenge then is that it’s taxed in the current year for U.S. purposes but not in the foreign country. And when the money is distributed in the future, it typically is treated as a dividend in the foreign country, but not in the U.S. It causes a mismatch and often the lack of use of foreign tax credits, resulting in true double taxation.

 
What to do by year-end?

If you have significant retained earnings, it’d be worth contacting us to see if there are some planning moves to be made prior to year-end. Perhaps it makes sense to withdraw money from the company before year-end to trigger an actual dividend in the U.S. and the foreign country. This will trigger income in both countries to allow for utilization of foreign tax credits. Furthermore, simply withdrawing the money by year-end will allow for us to then determine after year-end how to classify the withdrawal (as a dividend, wage or loan for example).

If there remains tax exposure after considering foreign tax credits, it could make sense to gift shares to a non-resident alien spouse before year-end to a smaller ownership percentage level to avoid this tax.

This is a very new tax concept and not a lot of time has been granted to us to plan around this matter.  Yet, it makes sense to look at this before year-end to see if any moves can be made prior to year-end to put you in a better tax position.

If you require additional information on any aspect of these complex rules, please contact Kyle Lodder CPA at 360.599.4340 or kyle@loddercpa.com.  You can also contact Don D. Nelson International Tax Attorney at ddnelson@gmail.com or 949.480.1235. Kyle works with our firm.

The material appearing in this communication is for informational purposes only and should not be construed as legal, accounting, or tax advice or opinion provided by Lodder CPA PLLC. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by a professional, the user should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information

5 WAYS TO EXPLOIT NEW TAX BILL BEFORE YEAR END (12-31-17)

There is still time to take advantage of old tax laws that will go away under the new tax law. Time Magazine sets for five ways you can take action now before year end.  READ MORE HERE.

What Are Changes in GOP Final Tax Bill?

The final GOP tax bill is complete. Here’s what is in it. READ ALL ABOUT IN IN THE WASHINGTON POST 

THE BASICS OF CRYPTO CURRENCY FROM THE NATIONAL LAW REVIEW

The following is a very high-level discussion from the National Law Review of the consequences generally applicable to U.S. individual holders of cryptocurrencies, and will not be applicable to all taxpayers depending on their particular situation.  Failure to follow these rules will without a doubt result in future criminal and civil action by the IRS against those taxpayers that ignore these rules.   Best to amend past returns which did not take into account these rules and come forward before the IRS takes action.  Contact us if you need help.

The IRS always treats those that come forward first to correct past  mistakes, better than if they discover the taxpayer'ś error first.  READ MORE ABOUT CRYPTO CURRENCY RULES HERE

Winners And Losers in New. TAX Bill Passed by Senate

Winners and losers in the Senate GOP tax bill from the Washington Post. A little bit for middle class and a lot for the wealthy and large  corporations.  READ MORE HERE 

WHAT EXPATRIATES NEED TO KNOW ABOUT NEW REPUBLICAN TAX BILL AS OF 11/5/17

- by Don D. Nelson, Attorney at Law.

All US expatriates are concerned what effect the pending Republican Tax Plan might have on their taxes while abroad.  The good news is that the foreign earned income exclusion  which is $102,100 for 2017 so far has not been mentioned in the bill and therefore if currently likely to remain the same for 2017 and perhaps beyond.  This means if you are living and working abroad, you can earn (either as self employed or as an employee) up to this amount and not be liable for any US tax on that income. Remember that the exclusion is not automatic. You must file a timely tax return to claim it.  If you file your return 18 months after its due date the IRS can disallow the exclusion.

Some items that if passed (in the bill as of 11/5/17) will affect your US return are:

• Increase the standard deduction (if you do not itemize) to $24,000
• Deletion of dependent exemption which is currently $4,050 for your self and your dependents
• Eliminate the possibility to deduct  state income taxes
• Eliminates the deduction for casualty losses (such as those incurred from hurricanes and floods)
• Decreases the deduction for home mortgage interest to that incurred on a $500,000 loan (previously $1.100,000 loan interest)
• Require that you live in your primary residence for 5 out of past 8 years to get the $500,000 gain exclusion.

Many more deductions  which primarily benefit the middle  class are scheduled to be eliminated. The entire pending bill if taken as a whole significantly benefits the wealth and large corporations and in most situations give no or only a small benefit to the middle class taxpayer.  Those politicians who claim it will benefit the middle class are using smoke and mirrors.

Note that everything mentioned above is subject to change as the tax bill moves through the legislative process and until the fina tax bill is passed and signed by the President.

All Expat Taxpayers Can Learn from Manaforts Indictment

The criminal charges filed against former Trump campaign manager Paul Manafort and Richard Gates are serious. They are only accusations at this point. All criminal defendants are presumed innocent until they are proven otherwise in a court of law. Still, the 12-count 31-page indictment here is a daunting list of accusations. Manafort and Gates stand accused of conspiracy against the United States, conspiracy to launder money, failing to report foreign bank and financial accounts, acting as an unregistered foreign agent, and making false statements. It’s tough to unpack most of those charges. Even so, there’s a lot in it from which regular taxpayers can learn about how to handle their own taxes and the IRS.

READ MORE HERE IN FORBES ARTICLE

Want to discuss your situation under the absolute privacy and legal confidentiality of attorney client privilege?  Email Don at ddnelson@gmail.com 

Manaforts Failure to Report Foreign Finanical Accounts (Form 114 - FBAR) could result in 70 year Jail Term

Forbes magazine article states this is the same way they got Al Capone....tax evasion. Make certain you report all foreign financial accounts that you own or sign on to the IRS to avoid Manafortś problem. READ MORE IN THE FORBES ARTICLE

EVERYTHING YOU WANTED TO KNOW ABOUT FOREIGN TAX CREDITS

Generally, the following four tests must be met for any foreign tax to qualify for the credit:

1. The tax must be imposed on you
2. You must have paid or accrued the tax
3. The tax must be the legal and actual foreign tax liability
4. The tax must be an income tax (or a tax in lieu of an income tax)

Tax Must Be Imposed on You

You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U.S. possession. For example, a tax that is deducted from your wages is considered to be imposed on you.

Foreign Country

A foreign country includes any foreign state and its political subdivisions. Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit.

U.S. Possessions

For foreign tax credit purposes, all qualified taxes paid to U.S. possessions are considered foreign taxes.  For this purpose, U.S. possessions include Puerto Rico and American Samoa.

Tax Must Be Paid Or Accrued

You can claim a credit only if you paid or accrued the foreign tax to a foreign country or U.S. possession.

Joint Return

If you file a joint return, you can claim the credit based on the total of any foreign income tax paid or accrued by you and your spouse.

Combined Income

If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income.

Example. You and your spouse reside in Country X, which imposes income tax on your combined incomes. Your filing status on your U.S. income tax return is married filing separately. If you earned 60% of the combined income, you can claim only 60% of the foreign taxes imposed on your income on your U.S income tax return. Your spouse can claim only 40%.

Mutual Fund Shareholder

If you are a shareholder of a mutual fund, or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. You should receive from the mutual fund a Form 1099-DIV, or similar statement, showing the foreign country or U.S. possession, your share of the foreign income, and your share of the foreign taxes paid. If you do not receive this information, you will need to contact the fund.

Tax Must Be the Legal and Actual Foreign Tax Liability

Your qualified foreign tax is only the legal and actual foreign tax liability that you paid or accrued during the year. The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. The amount of the foreign tax that qualifies for the credit must be reduced by any refunds of foreign tax made by the government of the foreign country or the U.S. possession.

Example 1:  You received a $1,000 payment of interest from a Country A investment.  
Country A’s withholding tax rate on interest income is 30% ($300), but you are eligible for a reduced treaty withholding rate of 15% ($150) if you provide a reduced withholding statement/certificate to the withholding agent. Your qualified foreign tax is limited to $150 based on your eligibility for the  reduced treaty rate, even if $300 is actually withheld because you failed to provide the required withholding statement/certificate.

Example 2:  You are sent to Country A by your U.S. employer to work for two weeks. You earn $2,500 while in Country A. Under Country A tax law, non-residents are not taxed on personal services income earned in the country if working for a non-Country A employer, earn less than $3,000, and are in the country for less than 30 days. However, in order to leave Country A, you are required to pay tax on the $2,500, but you can file a claim for refund and have the full amount of tax refunded to you later. Because it is fully refundable, none of the tax is a qualified tax, whether or not you file a refund claim with Country A.      

Example 3:  You are a shareholder of a French corporation. You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as dividend. The French government imposes a 15% withholding tax ($15) on the refund you received. You receive a check for $85. You include the $100 in your income. The $15 of tax withheld is a qualified foreign tax.

Tax Must Be an Income Tax or Tax In Lieu of Income Tax

Generally, only income, war profits, and excess profits taxes (collectively referred to as income taxes) qualify for the foreign tax credit. Foreign taxes on wages, dividends, interest, and royalties generally qualify for the credit. The tax must be a levy that is not payment for a specific economic benefit and the predominant character of the tax must be that of an income tax in the U.S. sense.

A foreign tax is not an income tax and does not qualify for the foreign tax credit to the extent it is a soak-up tax. A soak-up tax is a foreign tax that is assessed only if a tax credit is available to the taxpayer. This rule only applies if and to the extent the foreign tax would not be imposed if the credit were not available.

Foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. The tax must be a foreign levy that is not payment for a specific economic benefit and the tax must be imposed in place of, and not in addition to, an income tax otherwise generally imposed.

See Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for Taxes in Lieu of Income Taxes.  Examples of such taxes in lieu of foreign income taxes may include:

1. The gross income tax imposed on nonresidents on income not attributable to a trade or business in the country, where residents with a trade or business are generally taxed on realized net income.
2. A tax imposed on gross income, gross receipts or sales, or the number of units produced or exported.

If a foreign country imposes a tax in lieu of an income tax that is a soak-up tax imposed in lieu of an income tax, the amount that does not qualify for the foreign tax credit is the lesser of:

1. the amount of the tax that would not be imposed unless a foreign tax credit would be available; or
2. the foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax.

Foreign Taxes for Which You Cannot Take a Credit

The following are some foreign taxes for which you cannot take a foreign tax credit:

• Taxes on excluded income (such as the foreign earned income exclusion),
• Taxes for which you can only take an itemized deduction,
• Taxes on foreign mineral income,
• Taxes from international boycott operations,
• A portion of taxes on combined foreign oil and gas income,
• Taxes of U.S. persons controlling foreign corporations and partnerships who fail to file required information returns,
• Taxes related to a foreign tax splitting event, and
• Social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. For more information about these agreements, refer to Totalization Agreements.

Reduction in Total Foreign Taxes Available for Credit

You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U.S. income under the foreign earned income exclusion or the foreign housing exclusion.   Need help taking a foreign tax credit in addition to the foreign earned income exclusion or in lieu of that exclusion?  Email us at ddnelson@gmail.com for a mini consultation.

Determining if FBARS (forms 114, TDF 90-22.1) were filed for Prior Years or Securing Copy of Prior Year Filed FBARS

Unfortunately  in the BSA E-file system there is no  paper copy of  electronically file forms. The system allows you to save a copy of the form prior to submission  but you cannot retrieve FBAR form 114 or TDF 90-22.1  after submission . The form cannot be read except with Adobe Acrobat Reader.

 If  you were unable to save the file or your files were corrupted you need re-file the FBAR ‘s.  

You can call  313 234 6146  we can tell you what years were filed  if  you  provide the  name and  SSN and I can tell your  what years were file . but again there is not copy of an electrically file form .

Request for copies of FBAR 114 form must be made in writing :

Requests must include the following information:

Filer Name and Social Security Number or Taxpayer Indentation Number  Calendar Year (s) and a contact number 

•             A Flat fee of  $5.00 for five or fewer FBARs,

•             $1.00 for each additional item

•             Copies  will be an additional $0.15 per document .

Check or money order should be made payable to the Internal Revenue Service.

If an attorney or someone else on behalf of the citizen, attached a copy of a 2848 specific to TD F 90-22.1 or form 114 ( called FBAR) or other documentation that gives the authorization to the requestor on behalf to the citizen(s) , for questions and concerns please provide a contact number. 

Allow 90 days for completion upon receipt .    Request and payments should be mailed to:

Detroit –Federal Building ( Formally  IRS Enterprise Computing Center-Detroit)

ATTN: Verification

P O Box 32063

Detroit, MI 48232-0063

IRS Streamlined Program - Allows you to Surface with IRS with limited Penalties, and Exposure

he following streamlined procedures are referred to as the Streamlined Foreign Offshore Procedures.

Eligibility for the Streamlined Foreign Offshore Procedures

In addition to having to meet the general eligibility criteria, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Foreign Offshore Procedures described in this section must:  (1) meet the applicable non-residency requirement described below (for joint return filers, both spouses must meet the applicable non-residency requirement described below) and (2) have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and such failures resulted from non-willful conduct.  Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

For information on the meaning of foreign financial asset, see the instructions for FinCEN Form 114, which may be found at FinCen and the instructions for Form 8938, which may be found at Instructions for Form 8938.

Non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents (i.e., “green card holders”):  Individual U.S. citizens or lawful permanent residents, or estates of U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days.  Under IRC section 911 and its regulations, which apply for purposes of these procedures, neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States.  For more information on the meaning of “abode,” see IRS Publication 54, which may be found at Publication 54.

Example 1:  Mr. W was born in the United States but moved to Germany with his parents when he was five years old, lived there ever since, and does not have a U.S. abode.  Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.

Example 2:  Assume the same facts as Example 1, except that Mr. W moved to the United States and acquired a U.S. abode in 2012.  The most recent 3 years for which Mr. W’s U.S. tax return due date (or properly applied for extended due date) has passed are 2013, 2012, and 2011.  Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.

Non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents: Individuals who are not U.S. citizens or lawful permanent residents, or estates of individuals who were not U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the last three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not meet the substantial presence test of IRC section 7701(b)(3).  For more information on the substantial presence test, see IRS Publication 519, which may be found at IRS Publication 519.

Example 3:  Ms. X is not a U.S. citizen or lawful permanent resident, was born in France, and resided in France until May 1, 2012, when her employer transferred her to the United States.  Ms. X was physically present in the U.S. for more than 183 days in both 2012 and 2013.  The most recent 3 years for which Ms. X’s U.S. tax return due date (or properly applied for extended due date) has passed are 2013, 2012, and 2011.  While Ms. X met the substantial presence test for 2012 and 2013, she did not meet the substantial presence test for 2011.  Ms. X meets the non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents.

Read More about Procedures, etc. Here.

If you need assistance of wish to discuss entering the program, etc. email us at ddnelson@gmail.com.