2018 Fast Tax Facts for US Expatriates and Green Card Holders Living and Working Abroad

by Kauffman Nelson LLP CPAS and Don D. Nelson , Attorney,  Charles Kauffman CPA

If you are a US Citizen or green card holder you must file a US tax return every year unless your taxable income is below a certain threshold.  Even if your income is below that threshold, you may still be required to file certain forms to report foreign assets, etc. Failure to file these forms can result in severe IRS penalties.   If you do not itemize your health, tax, interest, charitable and miscellaneous deductions you get a standard deduction of $12,000 if single or filing as married filing separately or $24,000 if you file jointly with your spouse.

As a US expatriate living and working abroad 4/15/19, your 2018 tax return is automatically extended until 6/17/19  but any taxes due must be paid by 4/15/19 to avoid penalties and interest. The return can be further extended until 10/15/19 if the proper extension form is filed. An even further extension until December may be available if the proper letter is sent to the IRS.

✦  For 2018 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $104,100, 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. You can lose this exclusion if you file your return more than 18 months late. The exclusion can only be claimed on filed tax return and does not apply if you fail to file a tax return.

✦  For 2018 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). These rules are complex and should be reviewed if you do not qualify for the expat exclusion for the entire year of 2017 because you may have an obligation to purchase health insurance or be penalized.

✦  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 non-deductible amount.   There is a limit to the housing amount and certain “high-cost” locations there is a higher amount of housing expense which can be considered. (For “high-cost” country limitations see Form 2555 instructions).

✦   You get credits against your US income tax obligation for foreign income taxes paid to a foreign country but you must file a US tax return to claim these credits. This avoids double taxation of the same income.

✦   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 the equivalent of social security in that country.

✦   Forming the correct type of foreign corporation and making the proper US tax election (to cause the income and foreign taxes  the foreign corporation pays to flow through to your personal US tax return) 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 and only certain types of foreign business entities are eligible to make this election..

✦   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 October 15, 2019 for the 2018 calendar year or incur a penalty of $10,000 or more including criminal prosecution. Foreign financial accounts often include accounts in you sign on for a foreign corporation, foreign partnerships foreign pension plans, stock brokerage accounts, and cash surrender value of foreign life insurance.  This form does not go in with your personal income tax return and can only be filed separately on the web at: http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

✦   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 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 worldwide 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. For 2018 a new tax was enacted with the acronym of GILTI tax. This may or may not cause every Controlled Foreign Corporation to owe taxes on the income it does not distribute to its owners. LEARN MORE HERE

✦   If you own investments in a foreign corporation or own foreign mutual fund shares you may be required to file the IRS form 8621 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.

There are many more special tax laws too numerous to mention here that apply to expatriates, green card holders and US  taxpayers with foreign assets, businesses, etc. Please consult a tax expert if you have other offshore matters to be certain what is required to be filed.

Download your   2018 US tax return questionnaire prepared expressly for Expatriates HERE. Send us your completed questionnaire and we will immediately provide you with a flat fee quote for preparing your return(s).

Don D. Nelson, US Tax Attorney, Charles Kauffman CPA, Kauffman Nelson, LLP, CPAs
Huntington Beach, California USA
US Phone: (949) 480-1235, US Fax: (949) 606-9627
Email:ddnelson@gmail.com or ustax@hotmail.com
Skype address: dondnelson

Visit our International Tax Blog for the Latest Expat and International Tax Developments at www.usexpatriate.blogspot.com    /   http://us-mexicantax.blogspot.com/

We have been preparing tax returns and assisting US clients located in over 123 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.

MINI TAX CONSULTATIONS BY PHONE, SKYPE OR EMAIL: We offer mini consultations (with attorney client privilege) to answer your tax questions and resolve your tax issues.  Email: taxmeless@gmail.com to learn more or request a consultation

For additional useful information and tax assistance go to our website at. www.TaxMeLess.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.

2018 Tax Return Preparation For US Expatriates, US Nonresidents and Others Doing Business in USA

Attached is  our 2018 basic expat tax questionnaire form for your use in sending us the necessary information for this  year's tax return preparation.  We will send you back a fee estimate once we receive and review the questionnaire.

If you are subject to the foreign bank account filing requirement, the form is due to be received by the US Treasury Department by April 15, but there is an automatic extension to October 15.  This form is separate from the tax return itself.  We can prepare this form for you OR you can prepare and submit via this on-line yourself at the BSA website (more information can be found in the questionnaire).   

If you need additional questionnaires for self-employment, rental properties, a foreign corporation, or multiple foreign bank accounts please let us know and we would be happy to send over.  Also if you were living in the US for all of 2018, we can send you a different questionnaire (this questionnaire is set up for those living abroad at least part of 2018).  Some of the other questionnaires are available on the resources tab at MORE TAX FORMS

If you need your tax return completed (or an estimate of tax due) by April 15, we would need your complete tax data no later than March 15, 2019.  If you will be living outside the U.S. on April 15, 2019, you receive an automatic extension for tax return filing until June 17, 2019 (therefore if you want to file on-time for June 17 please send in early May).  We can also file for an additional extension to October if desired or needed.  At peak periods our turnaround time can range to 35-40 days from the date complete information is received.

NOTE:  The tax act passed in December 2017 changed but did not simplify the way the federal government will tax most individuals and businesses.  In particular, the changes to self-employed individuals and those who own non-US businesses are substantial (and hopefully favorable in many cases from a tax point of view).  Given the significance of these changes it is fair to say that fees will increase on the clients affected by the more complex changes.  Those with very straight-forward fact patterns may not be affected significantly.  The training and software cost increases for CPA’s across the board due to these changes has been the biggest our industry has seen in decades.  We would like to thank you in advance for your patience this year and we have taken steps to ensure the change to the new tax law goes as smoothly as possible.

2018 Expatriate Tax Return Questionnaire (Download)

Email us with questions or for additional help; ddnelson@gmail.com.  Visit our website at www.taxmeless.com 

We offer mini tax consultations on your questions concerning US expatriate, nonresident and  international tax questions. To learn more or request one write us at taxmeless@gmail.com 

CHANGES IN TAX LAW THAT MIGHT AFFECT YOUR TAX RETURN FOR 2018 FOR EXPATS AND NONRESIDENTS

The following is a summary of important tax developments that occurred in October, November, and December of 2018 that may affect you. 

Business meals. One of the provisions of the Tax Cuts and Jobs Act (TCJA) disallows a deduction for any item with respect to an activity that is of a type generally considered to constitute entertainment, amusement, or recreation. However, the TCJA did not address the circumstances in which the provision of food and beverages might constitute entertainment. The new guidance clarifies that, as in the past, taxpayers generally may continue to deduct 50% of otherwise allowable business meal expenses if: (a) the expense is an ordinary and necessary expense paid or incurred during the tax year in carrying on any trade or business; (b) the expense is not lavish or extravagant under the circumstances; (c) the taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages; (d) the food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and (e) in the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

For more information, see IRS guidance on the deductibility of meals purchased in an entertainment context.

Depreciation and expensing. IRS provided guidance on deducting expenses under Code Sec. 179(a) and depreciation under the alternate depreciation system (ADS) of Code Sec. 168(g), as amended by the TCJA. The guidance explains how taxpayers can elect to treat qualified real property, as defined under the TCJA, as property eligible for the expense election. The TCJA amended the definition of qualified real property to mean qualified improvement property and some improvements to nonresidential real property, such as: roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; and security systems. The guidance also explains how real property trades or businesses or farming businesses, electing out of the TCJA interest deduction limitations, can change to the ADS for property placed in service before 2018, and provides that such is not a change in accounting method. In addition, the guidance provides an optional depreciation table for residential rental property depreciated under the ADS with a 30-year recovery period.

For more information, see Guidance issued on expense election and alternate depreciation changes under TCJA.

State & local taxes. IRS has provided safe harbors allowing a deduction for certain payments made by a C corporation or a "specified pass-through entity" to or for the use of a charitable organization if, in return for such payment, they receive or expect to receive a state or local tax credit that reduces a state or local tax imposed on the entity. Such payment is treated as meeting the requirements of an ordinary and necessary business expense. For tax years beginning after Dec. 31, 2017, the TCJA limits an individual's deduction to $10,000 ($5,000 in the case of a married individual filing a separate return) for the aggregate amount of the following state and local taxes paid during the calendar year: (1) real property taxes; (2) personal property taxes; (3) income, war profits, and excess profits taxes, and (4) general sales taxes. This limitation does not apply to certain taxes that are paid and incurred in carrying on a trade or business or a for-profit activity. An entity will be considered a specified pass-through entity only if: (1) the entity is a business entity other than a C corporation that is regarded for all federal income tax purposes as separate from its owners; (2) the entity operates a trade or business; (3) the entity is subject to a state or local tax incurred in carrying on its trade or business that is imposed directly on the entity; and (4) in return for a payment to a charitable organization, the entity receives or expects to receive a state or local tax credit that the entity applies or expects to apply to offset a state or local tax described in (3), above, other than a state or local income tax.

For more information, see  IRS: Sec. 162 deduction available for payment by businesses to reduce certain state taxes.

Personal exemption suspension. IRS provided guidance clarifying how the suspension of the personal exemption deduction from 2018 through 2025 under the TCJA applies to certain rules that referenced that provision and were not also suspended. These include rules dealing with the premium tax credit and, for 2018, the individual shared responsibility provision (also known as the individual mandate). Under the TCJA, for purposes of any other provision, the suspension of the personal exemption (by reducing the exemption amount to zero) is not be taken into account in determining whether a deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction.

For more information, see IRS clarifies effect of suspending personal exemption deductions on certain healthcare provisions.

Limitation on deducting business interest expense. IRS has provided a safe harbor that allows taxpayers to treat certain infrastructure trades or businesses (such as airports, ports, mass commuting facilities, and sewage and waste disposal facilities) as real property trades or businesses solely for purposes of qualifying as an electing real property trade or business. For tax years beginning after Dec. 31, 2017, the TCJA provides that a deduction allowed for business interest for any tax year can't exceed the sum of: (1) the taxpayer's business interest income for the tax year; (2) 30% of the taxpayer's adjusted taxable income for the tax year; plus (3) the taxpayer's floor plan financing interest (certain interest paid by vehicle dealers) for the tax year. The term "business interest" generally means any interest properly allocable to a trade or business, but for purposes of the limitation on the deduction for business interest, it doesn't include interest properly allocable to an "electing real property trade or business." Thus, interest expense that is properly allocable to an electing real property trade or business is not properly allocable to a trade or business, and is not business interest expense that is subject to the interest limitation.

For more information, see Safe harbor treats certain infrastructure trades or businesses as real property trades or businesses.

Need more assistance, email taxmeless@gmail.com or visit our website at www.taxmeless.com

US Expatriate and Nonresident Estate Planning

If you are a expatriate and have assets in the USA or are a US nonresident with assets in the USA it can save you substantial legal expenses, time and taxes to do the proper estate planning.  If you have assets abroad outside of the USA it also is wise to plan for the disposition of those assets under the laws of the country where they are located.  Though some countries may recognize the US estate planning documents and techniques, many do not and best to plan for your foreign assets disposition upon your demise under the local law and using documents recognized under that foreign law,

What are the steps Involved in US estate planning?Identify your goals for creating an estate plan: Do you want to provide for your family, protect assets, prepare for incapacity, take control of your legacy, or do all of the above?

1. List the asset you want to include in your plan: When making a plan, you need to consider all of the money and property you own either independently or jointly.
2. Identify the risks to your assets and make plans to protect them: If you lose your wealth because of high nursing-home costs, because of creditor claims, or because you don't make a business succession plan, then you'll undermine your efforts to leave a legacy. You need to know what risks you face and mitigate them.
3. Identify the loved ones you want to provide for and protect: There may be many people in your life whom you need to consider in your plan, including not a spouse, children, friends, and even pets. And your loved ones may all have different needs. For example, your minor children will need a guardian if you can't raise them to adulthood.
4. Decide whether you want to make charitable contributions: You may want to make bequests in your will to a charity, or take other steps to give such as creating a foundation or a charitable remainder trust.
5. Determine whether your potential heirs or beneficiaries have any special needs: In some cases, you'll need to take extra steps to ensure that an inheritance is transferred appropriately and used wisely.
6. Determine whether you'll owe estate tax: The federal government and some states charge taxes on larger estates.
7. Decide whether avoiding probate is one of your goals: In most cases, assets transfer through the probate process, which can be complicated and expensive. You may want to avoid this, and that will require different estate planning techniques.
8. Think about what will happen if you become incapacitated: If an illness or injury leaves you temporarily or permanently incapacitated, you'll need to consider questions such as who will make decisions for you and what kinds of care you'll receive or reject. You'll also need to think about who will provide you with care and how you'll pay for it.
9. Make sure you have the right insurance policies: If you don't have enough money to provide for dependent loved ones, you may need to obtain additional coverage, such as life insurance. 
10. Determine what legal tools you'll need to use: You may need to use tools such as trusts, a power of attorney, advance directives, and a last will and testament to accomplish your goals, provide for loved ones, and prepare for incapacity. 
11. Implement your plan: This could involve taking steps such as changing how property is owned, creating legal documents, or transferring assets into a trust. You should likely have a lawyer help with this step.

We can help. US estate taxes hit nonresidents  when their US assets exceed $60,000 whereas US estate taxes do not apply to US residents until their worldwide assets exceed $11,400,000 US.  Expensive and time consuming probate for assets located in most US states can happen when the assets are only worth approx $10,000 or more (this figure varies depending on the state where the asset is located). Contact us on skype at dondnelson or by email at ddnelson@gmail.com, As attorneys and CPAs we are uniquely qualified to cover all bases.

ARE YOU A WINNER OR LOSER UNDER THE NEW TAX LAW EFFECTIVE FOR 2018?

The winners under the new tax law are large corporations, the wealthy and in many situations small business owners.    As an expatriate there is now a new GILTI tax on your share of controlled foreign corporations, whether large or small.

The losers are those in high tax states (NY, California, Etc) and all taxpayers due to the skyrocketing deficit which increases by the minute due to high federal spending and not enough tax revenues to pay for it all.  READ MORE HERE FROM CBS NEWS

Need help?  email us at taxmeless@gmail.com. We know the tax law and how to help you.

Foreign Property Taxes and Interest on Foreign Real Estate ...Some Bad News

Foreign property (real estate) taxes aren't deductible on tax year 2018 through 2025 returns due to the Tax Cuts and Jobs Act. This rule applies to a personal residence or second property. In 2017 and prior years, foreign property taxes could be deducted.  Property tax deduction on foreign rental properties are subject to the same rules as your US rental property.

You can still deduct the mortgage interest on schedule A on foreign real  property that is your personal first or second home, assuming you meet the  limitations on interest deductions for personal residences and second homes

The maximum amount of taxes that can be deducted on Schedule A (for personal residences) plus state income taxes, vehicle license plates, sales tax, etc is limited to $10,000 per year for 2018 and beyond.

Keep in mind that to get any benefit from the deduction of medical expenses, state taxes, residence interest, and charitable deductions the total of all of those items must exceed the $24,000 standard deduction married couples get or $12,000 for those who file as single.  And remember you no longer get a personal exemption deduction for yourself, your spouse or your children.  That deduction is gone.

Need help with your tax return or planning for the future?  Email us at ddnelson@gmail.com. 

INDIVIDUAL AND CORPORATE TAXES IN COUNTRIES AROUND THE WORLD - FOR EXPATS

Need to know the income taxes, corporate taxes in the country you are living in or the country you plan to move to after you leave the USA to retire or work?   The links below will provide you with almost all the information you might need.

CORPORATE TAXES IN FOREIGN COUNTRIES

INDIVIDUAL TAXES IN FOREIGN COUNTRIES 

If you need assistance with planning your US tax when abroad, preparing the necessary returns, and other IRS or state tax matters contact us at ddnelson@gmail.com.  we specialize in US expatriate, nonresident and international taxes.

2018 YEAR END TAX PLANNING LETTER AND NEW EXPAT TAX LAWS

There is still time left before the end of 2018 to take steps to save taxes under the new tax laws enacted last year. READ AND DOWNLOAD OUT 2018 TAX PLANNING LETTER HERE.

Kauffman Nelson LLP, CPAs is a firm of CPAs and Attorneys with 30 years experience in US expatriate, international and US nonresident taxation.  We prepare your 2018 tax  return and assist you with planning, problems, audits, and all other US tax matters. Email us at taxmeless@gmail.com 

DOWNLOAD OUR 2018 EXPAT TAX RETURN QUESTIONNAIRE AND SEND IT IN FOR A FEE QUOTE HERE. GET STARTED EARLY AND SAVE TIME AND MONEY.  It is in MS Word Format to make it easy to complete on your computer or tablet.

2018 RATES, Standard Deductions and More - See What will Happen to You

 IRS Announces 2019 Tax Rates, Standard Deduction Amounts And More. READ MORE

HERE FROM FORBES MAGAZINE.  Need year end planning, email us at taxmeless@gmail.com. Attorney and CPAs will be there to help you find the best strategy.

2018 Expat Foreign Earned Income Exclusion and Housing Exclusion

 For 2018 the foreign earned income exclusion is $104,100. This applies to earned income from your work abroad and increases each year. Many IT, Tech, and Coding employees and self employed indivduals chose to live and work abroad to take advantage of his amazing tax break.

  If you live in a no tax or low tax country, you may not have to pay any tax on this much of your earned income if you are a bonafide resident of your home country or meet the physical presence test of  not going back to the US more than 35 days during any 12 month calendar or fiscal year period.  Read more about this exclusion and how to qualify and the additional deduction you can receive for your rental expenses and living expenses abroad (housing exclusion) in publication 54 READ IT HERE

Kauffman Nelson LLP CPAs have done tax return exclusively for US Expatriates and US Nonresidents for over 20 years.  We know the laws, and the recent changes implemented by the new tax laws enacted at the end of 2017.  Email us at taxmeless@gmail.com and visit our website at www.taxmeless.com for lots of useful tax information and tax savings.

New Tax Law - Get Your Divorce Now (before end of 2018) or later

If you finalize your divorce prior to the end of 2018, if you are the payer you can continue to deduction your alimony payment and your spouse must include those payments in is or her income for tax purposes.

HOWEVER, beginning in 2019 Alimony is no longer deductible to paying spouse and no longer taxable to receiving spouse. THEREFORE, depending on which side of the divorce you are on, you may want to hurry up and get it done now, or may want to delay until 2019.

BIG tax consequences.... see your divorce lawyer now!

Need help with your tax planning or returns?  Attorney and CPAs specializing in Expatriate, US International and US Nonresident taxation for 30 plus years.  Email us at ddnelson@gmail.com

New IRS Disclosure Procedures for Those With Undisclosed Foreign Assets and Unreported Foreign Income

The IRS ended the Voluntary Offshore Disclosure Program in September of 2018. This program was designed to allow those who  had  past unreported foreign income and unreported foreign assets to catch up with the IRS and reduce some penalties, and avoid the risk of criminal prosecution.

On November 20, 2018, the IRS announced new procedures which replaces the OSVDI and if chosen, could reduce many penalties and in many instances avoid criminal prosecution.  The link to the memo addressing this new procedure is below.

This program can be used by those who have much bigger hidden income and disclosure problems than could be address through the IRS streamlined program. If you decide to surface with the IRS using these new procedures best you use a tax attorney so your situation is kept confidential

READ THE NEW IRS RULES AND PROCEDURES HERE (download  IRS memo)

Contact Don Nelson, US International Tax Attorney with over 30 years experience at ddnelson@gmail.com if you wish to discuss your situation or learn more.  We have helped over a hundred clients with past unreported foreign assets and income catch up and resolve matters with the IRS.

DETERMINE IF YOU CONTRIBUTION WILL BE TO A RECOGNIZED CHARITY. BEFORE MAKING THE CONTRIBUTION

We all get asked to make contributions to recognized charities.  Often we have never heard of the

charity and sometimes if may not be one recognized by the IRS. Only charities which are recognized by the IRS will give you a charitable deduction on your tax return.  The IRS has a on line database which allows you to check out the name of all registered charities.   The link below will allow you to make certain your contribution is tax deductible and going for a good cause.

IRS DATABASE LISTING ALL RECOGNIZED NON PROFIT CHARITIES

Remember contributions to political parties, political organization and PACS are not deductible. Also with respect to foreign tax exempt charities the rules on whether or not the contribution can be deducted are complex and must be followed if you wish to get a deduction.  Those rules must be reviewed carefully to assure you contribution will produce a tax benefit.  See IRS publication 526

For 2018 and beyond you get a standard deduction on Schedule A of $24,000 if you file jointly or $12,000 if you file single. Therefore your taxes, medical expenses, charitable contributions, etc must exceed those amounts to give you any tax benefit.

Our firm offers mini consultations to help you resolve your tax problems, for planning and answer your tax questions. We are all US attorneys and CPAs. If you wish to have such a consultation email us at taxmeless@gmail.com.  Visit our website at www.taxmeless.com

NEW GILTI TAX ON CONTROLLED FOREIGN CORPORATIONS FOR 2018

If you own more than fifty percent of a foreign corporation holding real estate or operating a business

abroad, you now have to plan for the new GILTI tax (acronym)  IRC Section 951A resulting from the Tax Bill enacted in late 2017.   This tax applies to both large and small foreign corporations. In the past unless you had certain types of income, any net profits left in the corporation were not taxed on your personal return (or US corporate return if the foreign corporation is owned by your foreign corporation).  Now it is probable if there is a profit you will have to pay tax on the profits remaining at year end in your foreign corporation.

READ MORE ABOUT THE GILTI TAX  HERE IN AN EXCELLENT ARTICLE BY AN EXPERT - CPA  KYLE LODDER

Contact us at ddnelson@gmail.com if you want to plan for the tax, the impact of the tax, or avoiding it before the end of 2018.  Time is limited and after year end there is nothing you can do.

TAX LAW CHANGES FOR 2018 THAT MAY HELP OR HURT YOU AS AN EXPAT

What follow are a few of the obscure changes in the 2018 tax laws that may help or hurt you.

• The standard itemized  deduction (Schedule A) for 2018 is $24,000 if you file married filing jointly and $12,000 if single. That means your medical expenses, taxes ( within the new lower allowable limit) interest, charitable contributions and misc deductions (many of these have been eliminated) must exceed that amount in order to give you any tax benefit.
• The personal exemptions for you, your spouse, and your children have been eliminated.
• You can no longer deduct the property taxes paid on foreign real estate used by you personally such as a second home or your primary residence located in a foreign country.
• If you have a foreign residential rental, you can now depreciate it over 30 years rather than the previous 40 years.  Foreign commercial rentals are still depreciated over 40 years.
• If you retirement age and required  to take withdrawals from your IRA, you can designated part or all of the mandatory withdrawal to a registered charity and that part of your withdrawal will not be taxed to you.  This may be of benefit since the new standard deduction at $24,000 may make it impossible to get any tax benefit from charitable contributions except for very large amounts.

Need help planning for 2018 taxes before year end or with other international, expatriate or nonresident tax matters (including catching up) email us at ddnelson@gmail.com or visit our website at www.taxmeless.com 

SMART TAX MOVES TO MAKE NOW -NEW TAX LAWS CHANGES RULES FOR 2018

The new 2018 tax rules have changed some of the rules for year end tax planning. 

Some of these rules might apply to expatriates and nonresidents.  The foreign earned income exclusion and foreign tax credit rules do remain the same as the past.  However if you own a foreign corporation the new GILTI tax may apply and force you to pay tax on undistributed income from your foreign corporation. 

Read more about some year end tax planning  suggestions from AARP HERE

If you need help or have questions and you are a US expatriate, nonresident  or owner of foreign assets we can help. Email us at ddnelson@gmail.com or visit our website at www.taxmeless.com   We have been assisting expatriates and nonresidents with their taxes for over 25 years.

NEW 2018 GILTI Tax On US Owners of Controlled Foreign Corporations

For 2018 and beyond if you own 10% or more of a Controlled Foreign Corporaton (More than 50%

owned by US taxpayers) you must pay a GILTI tax (that is the real nickname of this tax) on part of the corporations net income even though it is not distributed to you.  This is a modification of the Subpart F rules which causes owners (US corporations, individuals, partnerships, etc) to pay tax on earnings of controlled foreign corporations. The rules are complex and may catch many expatriate small business owners by surprise  This tax is different than the Section 965 tax you paid one time for 2017.

If you want to know more the IRS draft form and initial draft instructions are below which can be downloaded in pdf format:

INSTRUCTIONS FOR FORM 8992 -draft

FORM 8992 - draft

If you want to take steps to deal with this tax before year end or need other assistance email us at ddnelson@gmail.com

The tax rules have changed significantly for 2018.  You no longer get a dependents deduction for yourself, your spouse or your children or other dependents. You do get a larger standard deduction though which may offset the loss of the dependents deduction.  The new standard deductions (which is in addition to any foreign earned income exclusion you claim on form 2555) is below. Due to these higher amounts the advantages of owning a home and the deduction of mortgage interest and state property taxes may be lost and well as loss of ability to deduct medical expenses and charitable expenses.  All of these deductions must exceed the standard deduction to achieve any benefit from these deductions.

2018 Standard Deduction Amount

Filing Status:	Deduction Amount:
Single	$12,000
Married Filing Separately	$12,000
Married Filing Jointly	$24,000
Head of Household	$18,000
Personal Exemption	$0

Guilty Plea of Taxpayer Who Failed to Report Million Dollars deposit in Israeli Bank.

DOJ Tax announced here that Ben Zion Birman of Los Angeles pled guilty to willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR).  Here are the relevant excerpts:

According to court documents, Ben Zion Birman, of Los Angeles, California held offshore accounts in Israel at Bank Leumi Le-Israel B.M. from 2006 to 2011. Birman willfully failed to file with the Department of Treasury an FBAR for calendar year 2010, despite having over $1 million in Bank Leumi accounts.  In an effort to further hide his money, Birman instructed Bank Leumi to hold bank mail from delivery to the United States, and obtained access to his offshore funds through the use of “back-to-back” loans, which were designed to enable borrowers to tap their concealed accounts.  These lending arrangements permitted Birman to have funds issued by Leumi’s U.S. branch that were secretly secured by funds in his undeclared accounts in Israel. 

In December 2014, Bank Leumi entered into a deferred prosecution agreementafter the bank admitted to conspiring from at least 2000 until early 2011 to aid and assist U.S. taxpayers to prepare and present false tax returns by hiding income and assets in offshore bank accounts in Israel and other locations around the world.  Under the terms of the deferred prosecution agreement, Bank Leumi paid the United States a total of $270 million and continues to cooperate with respect to civil and criminal tax investigations.

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Birman faces a maximum sentence of five years in prison, as well as a period of supervised release, restitution and monetary penalties. Birman's sentencing is scheduled for December 10, 2018.  

Time is running out to catch up on FBAR filings before the IRS catches you.  If you come forward first you can save yourself substantial penalties and criminal prosecution. Email us at ddnelson@gmail.com if you wish help 

AIRBNB TAXES IS NOW WITHHOLDING LODGING TAX FROM BAJA RENTALS - The Hacienda will collect income taxes and IVA next.

Thursday, August 16, 2018

AIRBNB TAXES IS NOW WITHHOLDING LODGING TAX FROM BAJA RENTALS - The Hacienda will collect income taxes and IVA next.

On August 6th the Gringo Gazette published an article by Doris Open regarding the impact of the Airbnb rentals in Mexico.    In Baja California Sur alone there are 2,400 owners registered with Airbnb!

    Now………all these owners renting through Airbnb will be paying the 3% lodging tax to the municipal authorities.  This will be taken out of rental income BEFORE it goes to the owner!!

   Rental owners of property in Mexico also owe Federal Income Tax Mexico and IVA Tax. Failure to pay these taxes on rental income can result in severe penalties.

    One to these two taxes is the Impuesto Sobre la Renta (ISR) is the owner’s tax on income.    The other, the Impuesto al Valor Agregado (IVA) tax is a sales tax which must be paid by the tenant but collected by the owner and delivered to the Mexican authorities.

    These taxes must be declared MONTHLY and paid each month to SAT, the federal tax authority.

    

Many tax authorities and accountants do not believe the 3% hospitality tax is an obligation of the owner of one or two units who rents only occasionally.  This issue has yet to be determined with any certainty.

    No tax expert disputes the legitimacy of the two federal Federal taxes.    With all this publicity however, federal tax authorities will be looking more closely at the Airbnb websites and will be visiting those owners to check their compliance with federal tax laws.  They have already done so in some towns located on the Mexican mainland.

    It is strongly suggested you get legal  with the Mexican tax authorities BEFORE they knock on your door!

If you have questions on IVA and Income Tax owed on your Mexican rental property either in Mexico or in the USA (if you are a US taxpayer), contact us at ddnelson@gmail.com.

To learn more about the details of these Mexican rental taxes visit www.rentaltaxmexico.com 

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The Settlement Company® has developed three options for meeting your obligations on income from rental properties located in Mexico.   For additional information; info@settlement-co.com