US IRS rules, regulations and laws, for US Citizens, Americans, green card holders, and nonresidents living abroad or moving to the US or out of the US.... valuable information on IRS rules concerning U.S. expatriates and their tax returns, and tax planning.... by an experienced International Tax Attorney
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December 2, 2020
Six tax planning strategies for low-cost-basis cryptocurrency
hard on getting on top of all crypto transactions which are required to be reported on your US tax return. For 2020 they will have a yes or no question asking if you own crypto currency. They can later your answer against you for civil and criminal penalties if they discover you did not answer truthfully.
November 13, 2020
Mexico Taxes on Rentals - What You Must Do If You Own and Rent Proprerty in Mexico
by Linda Jones Neil, Director, the settlement company®
Internet, blog sites, expat groups and Mexican newspapers are full of information and misinformation about foreigners who are renting their homes or condominiums and failing to pay Mexican taxes. Not only is this a violation of Mexican tax law with severe penalties if discovered, but also it violates the terms of most bank trusts (fideicomisos) and could result in cancellation of the trusts.
FOREIGNERS ARE OBLIGATED TO PAY TAXES ON INCOME GENERATED IN MEXICO no matter where the income is received..
And, many foreigners have found that the best and most direct form to obtain renters for their vacation properties is through the internet…….. think VRBO, Air BnB, HomeAway and many others! These are the tech platforms.
On June 1 of this year new procedures and regulations came into effect for these tech platforms which aids the Mexican tax authorities in the collection of taxes. Now all tech platforms must collect, and pay to the authorities, the 16% IVA tax. This is collected from the renters on the amount charged for the rental. For the non-residents who cannot provide a tax id number, the tech platform must retain and pay 20% of the gross rental amount to the tax collector.
The Mexican government plans to oversee and catch up with all the tax income that slipped through the holes for so many years!
Because of the pandemic and reduced travel a whole lot of these procedural issues were set aside and not resolved.
Now with property owners looking to rent again, many questions are arising as to how to legally minimize the taxable amount on this income.
It all comes down to the owner’s immigration status. In a nutshell:
IF YOU ARE A RESIDENT OF MEXICO: There are two options:
I. RESIDENTS in MEXICO can obtain their taxpayer identification number, electronic signatures and file taxes monthly using a blind deduction of 35% of income and paying tax on the remainder. No official receipts (facturas) are required for this tax payer status. An annual declaration must be filed in addition to monthly declarations.
II. . RESIDENTS in MEXICO can obtain their taxpayer identification number, electronic signatures and file taxes monthly declaring all income and providing official receipts (facturas) for certain allowable deductions. Tax on a sliding scale is assessed on the profit. . An annual declaration must be filed in addition to monthly declarations.
Unless you are bi-lingual and familiar with tax terms it will probably be worthwhile to contract with a Mexican company to assist you in these calculations and payments, even though you are a resident.
FOR THE NON-RESIDENT. Many owners, however, are NOT residents and, for many reasons, are not able or do not wish to become residents. Obtaining either temporary or permanent residency is a lengthy process which involves requirements including proving sufficient MINIMUM INCOME to be self-sustaining in Mexico. Additionally the party considering residency must commit to a MINIMUM STAY in Mexico of 180 days per annum.
As a non-resident who rents exclusively through the tech platform a flat 20% of all income will be deducted and sent to the authorities, in addition to 16% IVA deducted from his renters as Added Value Tax. The tech platforms must report and pay this income to the tax authorities. NO RFC or taxpayer identification number is required. No annual declaration need be filed.
NO DOUBLE TAXATION: Mexico has tax treaties with 32 nations. Taxes paid in Mexico can be taken as credits in taxpayer’s native country.
Since each party’s situation may differ, an analysis of individual income and outgo makes sense. A no cost and no obligation confidential consultation regarding individual circumstances, can be obtained by requesting same from the email addresses listed below.
November 4, 2020
25 Facts You Need to Know about IRS Form 114 - FBAR - And Why You Need to File It!
Read the 25 facts from LEX here Need help filing your FBAR form to report foreign bank and financial accounts or need to catch up and avoid the $10,000 per year for not filing, then contact us. We are
attorneys and CPAs with over 20 years practice in International and Expatriate Taxes. Email us at: ddnelson@gmail.com or go to www.taxmeless.com
August 31, 2020
IF YOU CREATE OR ARE A BENEFICIARY OF A FOREIGN TRUST (AND MANY FOREIGN PENSION PLANS) YOU MUST REPORT TO THE IRS OR PAY PENALTIES
General Rules
A U.S. person includes a citizen of the United States, a domestic partnership, a domestic corporation, any estate other than a foreign estate, any trust if a U.S. person exercises primary supervision over the administration of the trust or if one or more U.S. persons have the authority to control all substantial decisions of the trust, and any person that is not a foreign person.
Tax consequences can apply to U.S. persons who are treated as owners of a foreign trust and U.S. persons treated as beneficiaries of a foreign trust, and to the foreign trust itself. There can be income tax as well as transfer tax consequences that should be considered.
In addition to tax consequences, there a number of information reporting rules that can apply to a U.S. person who enters into transactions with a foreign trust or is treated as an owner of a foreign trust under the grantor trust rules of Internal Revenue Code (IRC) sections 671-679, including information reporting on Forms 3520 and 3520-A; on Form 8938, Statement of Specified Foreign Financial Assets; and on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
This page focuses on information reporting requirements on Forms 3520 and 3520-A (under IRC section 6048), as well basic income tax considerations.
Income Tax Consequences
- U.S. owner of a foreign trust - In general, a U.S. person who is treated as the owner of a foreign trust under the grantor trust rules (IRC sections 671-679) is taxed on the income of that trust. IRC section 679 applies specifically in the context of foreign trusts and will treat as an owner of a foreign trust a U.S. person who transfers assets to a foreign trust which has or is presumed to have a U.S. beneficiary. Each U.S. owner of a foreign trust should receive a Foreign Grantor Trust Owner Statement (Form 3520-A, page 3) from the foreign trust, which includes information about the foreign trust income they must report.
- U.S. beneficiary of a foreign trust – In general, a U.S. beneficiary of a foreign non grantor trust will report its share of foreign trust income. Depending on whether the U.S. beneficiary is a beneficiary of a grantor or non grantor trust, the beneficiary should receive a Foreign Grantor Trust Beneficiary Statement or a Foreign Non Grantor Trust Beneficiary Statement, which includes information about the taxability of distributions the beneficiary has received.
- U.S. transferor of assets to a foreign non grantor trust - IRC section 684 requires the recognition of gain on certain transfers of appreciated assets to a foreign trust by a U.S. person.
Information Reporting
Form 3520
In general, a Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts is required to be filed when a U.S. person:
- creates or transfers money or property to a foreign trust or makes a loan to a foreign trust;
- receives distributions from a foreign trust, receives the uncompensated use of property of a foreign trust, or receives a loan from a foreign trust;
- is treated as the U.S. owner of a foreign trust under the grantor trust rules; and
- receives certain large gifts or bequests from foreign persons.
The instructions for Form 3520 include more information about:
- who must file a Form 3520;
- when and where the Form 3520 must be filed; and
- possible penalties for filing the Form 3520 late or filing incomplete or inaccurate information.
See Form 3520 filing tips below. See also Gifts from Foreign Persons for information about reporting receipts of certain large gifts or bequests from certain foreign persons.
Form 3520-A
In addition to Form 3520, U.S. persons who are treated as owners of a foreign trust under the grantor trust rules must ensure that the foreign trust timely files a complete and accurate Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner , and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries. If a foreign trust fails to file Form 3520-A, the U.S. owner must:
- complete and attach a substitute Form 3520-A to a timely filed Form 3520, and
- furnish the required annual statements in order for the U.S. owner to avoid penalties for the foreign trust’s failure to file a Form 3520-A.
The instructions for Form 3520-A include more information about:
- who must file a Form 3520-A or ensure that a Form 3520-A is filed;
- when and where the Form 3520-A must be filed; and
- possible penalties for filing Form 3520-A late or filing incomplete or inaccurate information. The instructions for Form 3520-A and Form 3520 also provide information about filing a substitute Form 3520-A.
Exceptions to filing Forms 3520 and 3520-A
Forms 3520 and 3520-A are not required to be filed for Canadian registered retirement savings plans (RRSPs) and Canadian registered retirement income funds (RRIFs). See Rev. Proc. 2014-55 (PDF). In addition, Forms 3520 and 3520-A are not required to be filed for certain tax-favored foreign retirement trusts or tax-favored foreign non-retirement savings trusts, provided that the U.S. owner is an “eligible individual” and the tax-favored foreign trust meets certain requirements. See Rev. Proc. 2020-17 (PDF). Caution: These exceptions do not affect any reporting obligations that a U.S. person may have to report specified foreign financial assets on Form 8938 or any other reporting requirement, including the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
Form 3520 and Form 3520-A filing tips to avoid penalties
- Form 3520
- File Form 3520 by the 15th day of the fourth month following the end of the U.S. person’s tax year, or April 15th for calendar year taxpayers, subject to any extension of time to file that may apply. If you are a U.S. citizen or resident who lives outside the Unites States and Puerto Rico or if you are in the military or naval service on duty outside the United States and Puerto Rico, then the due date to file a Form 3520 is the 15th day of the 6th month following the end of the U.S. person’s tax year.
- If an extension was filed with respect to your income tax return, be sure to check Form 3520, Box 1k, and enter the form number of the income tax return to avoid your Form 3520 being treated as filed late.
- Form 3520-A
- File Form 3520-A using an Employer Identification Number (EIN) for the foreign trust on Line 1b of the form rather than the U.S. owner’s SSN or ITIN. If the foreign trust does not have an EIN, refer to How to Apply for an EIN.
- File Form 3520-A by the 15th day of the 3rd month after the end of the trust’s tax year. An automatic 6-month extension may be granted by filing Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns. Form 7004 must be filed under the foreign trust’s EIN.
- If the foreign trust will not file a Form 3520-A, the U.S. owner of the foreign trust must file a substitute Form 3520-A by completing a Form 3520-A to the best of their ability and attaching it to a timely filed Form 3520, including extensions (see Form 3520 and Form 3520-A instructions for more information on filing a substitute Form 3520-A). Do not separately file a duplicate Form 3520-A if you are filing a substitute 3520-A.
Other Possible Filing Requirements
Form 1040, Schedule B, Part III, Foreign Accounts and Trusts, must be completed if you receive a distribution from, or were grantor of, or a transferor to a foreign trust.
If you transfer money or property to a foreign trust, you may be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
A foreign trust, which is not taxed as a grantor trust, may be required to file a Form 1040-NR, U.S. Nonresident Alien Income Tax Return to pay U.S. tax on certain U.S. sourced income. See Publication 519, U.S. Tax Guide for Aliens and the instructions for Form 1040-NR for additional information.
You may be required to file Form 8938, Statement of Specified Foreign Financial Assets, to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than certain reporting thresholds.
If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account each year to the Internal Revenue Service by filing FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR).
If you need tax assistance with respect to foreign trust and pension plans from US Attorney and CPAs with the knowledge and expertise on these matters email us HERE
August 9, 2020
DRAMATIC INCREASE IN US EXPATRIATES SURRENDERING THEIR CITIZENSHIP (AND TAX FILING REQUIREMENT WITH THE IRS) -HERE ARE LEGAL RULES - THERE ARE ALSO SEPARATE AND COMPLEX IRS TAX RULES
August 6, 2020
Here’s what expat taxpayers need to know about the home office deduction
The home office deduction allows qualifying taxpayers to deduct certain home expenses on their tax return. With more people working from home than ever before, some taxpayers may be wondering if they can claim a home office deduction when they file their 2020 tax return next year.
Here are some things to help taxpayers understand the home office deduction and whether they can claim it:
- Employees are not eligible to claim the home office deduction.
- The home office deduction Form 8829 is available to both homeowners and renters.
- There are certain expenses taxpayers can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
- Taxpayers must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.
- The term "home" for purposes of this deduction:
- Includes a house, apartment, condominium, mobile home, boat or similar property.
- Also includes structures on the property. These are places like an unattached garage, studio, barn or greenhouse.
- Doesn’t include any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business.
- There are two basic requirements for the taxpayer’s home to qualify as a deduction:
- There must be exclusive use of a portion of the home for conducting business on a regular basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
- The home must be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.
- Expenses that relate to a separate structure not attached to the home will qualify for a home office deduction. It will qualify only if the structure is used exclusively and regularly for business.
- Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:
- The simplified option has a rate of $5 a square foot for business use of the home. The maximum size for this option is 300 square feet. The maximum deduction under this method is $1,500.
- When using the regular method, deductions for a home office are based on the percentage of the home devoted to business use. Taxpayers who use a whole room or part of a room for conducting their business need to figure out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.
- Contact us at ddnelson@gmail.com if you need assistance or further information. We are one of the most experienced international and expatriate CPA firms and Attorneys on the Web. Visit our website at www.taxmeless.com
July 14, 2020
IRS gives tips on filing, paying electronically and checking refunds online; 2019 tax returns and payments due July 15
Filing electronically and choosing direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund. Filing electronically reduces tax return errors as the tax software does the calculations, flags common errors and prompts taxpayers for missing information.
- Missing or inaccurate Social Security numbers. Enter each name and SSN exactly as printed on the Social Security card.
- Incorrect filing status. The Interactive Tax Assistant on IRS.gov can help taxpayers choose the correct status. Tax software also helps prevent these mistakes.
- Math errors. Tax preparation software does all the math automatically. Math errors are common on paper returns.
- Figuring credits or deductions incorrectly. Taxpayers should follow the instructions carefully, and double check the information they enter when filing electronically. The IRS Interactive Tax Assistant can help determine if a taxpayer is eligible for certain tax credits.
- Unsigned returns. Both spouses must sign if filing jointly. Taxpayers can avoid this error by filing their return electronically and digitally signing it. Exceptions may apply for military families if a spouse is serving overseas.
- Filing with an expired individual taxpayer identification number.
The IRS is processing electronic and paper tax returns and issuing refunds. The IRS normally issues most refunds in less than 21 days. Taxpayers who mailed a tax return will experience a longer wait time. There is no need to mail a second tax return or call the IRS. “Where’s My Refund?” on IRS.gov is the most convenient way to check the status of a refund. It has a tracker that displays progress through three phases: (1) Return Received; (2) Refund Approved; and (3) Refund Sent.
Taxpayers can pay online, by phone or with their mobile device and the IRS2Go app. When paying federal taxes electronically taxpayers should remember:
- Electronic payment options are the optimal way to make a tax payment.
- They can pay when they file electronically using tax software online. If using a tax preparer, taxpayers should ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account.
- IRS Direct Pay allows taxpayers to pay online directly from a checking or savings account for free.
- Taxpayers can choose to pay with a credit card, debit card or digital wallet option through a payment processor. The processor may charge a fee. No fees go to the IRS.
- The IRS2Go app provides the mobile-friendly payment options, including Direct Pay and payment processor payments on mobile devices.
- Taxpayers may also enroll in the Electronic Federal Tax Payment System and have a choice of paying online or by phone by using the EFTPS Voice Response System.
Everyone should file their 2019 tax return by the July 15 tax filing deadline regardless of whether or not they can pay in full. Taxpayers who owe and can’t pay all taxes due have options including:
- Online Payment Agreement — Most individual taxpayers and many business taxpayers may qualify to use Online Payment Agreement to set up a payment plan. Taxpayers can setup a plan on IRS.gov/paymentplan in a matter of minutes. Setup fees may apply for some types of plans.
- Delaying Collection — If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer's financial condition improves. In light of COVID-19, IRS postponed many compliance efforts until July 15 or later under the People First Initiative.
- Offer in Compromise (OIC) — Taxpayers who qualify enter into an agreement with the IRS that settles their tax liability for less than the full amount owed.
Those who need more time to prepare their 2019 federal tax return can apply for an extension of time to file. An extension of time to file does not grant an extension of time to pay taxes owed. File an extension request, estimate and pay any owed taxes by the July 15 deadline to avoid possible penalties.
The IRS encourages taxpayers to do a Paycheck Checkup as soon as possible to avoid having too much or too little tax withheld this year. Too much normally results in a refund while too little lends itself to taxes owed next year. Taxpayers should check their withholding each year and when life changes occur, such as marriage, childbirth, adoption or buying a home.
April 28, 2020
Current Status of Delivery of Stimulous Payments to US Expatriates and Others
Yes as an expat living abroad you can get this stimulous payment if you qualify. Good luck. It may take many months to resolve all problems and for your payments to arrive. Most who have filed their 2019 return and included their US bank account number have already received their stimulous payment. And yes, if you get the check it will included Donald Trumps name in the memo line.
April 15, 2020
Status on Covid Stimulous Payments As of Today
April 6, 2020
GREAT SUMMARY OF THREE TYPES OF COVID DISASTER RELIEF LOANS FROM GOVERNMENT FOR YOUR BUSINESS
relief loans available for small businesses during these hard times. Email us HERE
March 31, 2020
COVID VIRUS BENEFIT PAYMENTS ARE COMING TO MOST TAXPAYERS ASSUMING THEY DO NOT MAKE TOO MUCH- HOW TO GET THAT PAYMENT AND ELIGIBILITY
too high or if you want IRS to direct deposit in your US bank account (and that information was no on your 2018 form 1040).
Determine your benefit payments and the rules, cut off for high income, etc. in the FORBES MAGAZINE ARTICLE HERE
If you did not file a tax return you need to file it very soon. If your income was low and you were not required to file a tax return you can file a simple one now (to speed up process) or wait for the IRS to put up a website where you can register to receive it by direct deposit.
So far there is no limitation on making payments to those expats living and working abroad, though at some time in the future further rules or limitations may be anounced. Want to file a tax reutrn now. CONTACT US TO GET YOUR TAX QUESTIONNAIRE A FEE QUOTE.
March 27, 2020
Covid Tax Return Deadlines and Other IRS and State Covid Tax Changes
Current government and IRS pronouncements are not clear whether the automatic extension of time to file your tax returns and pay taxes without penalties apply to US expatriates living and working abroad (normal tax return due date for expatriates is 6/15/20). This may be clarified in the future, but in the interim if you are an expatriate you may want to pay all taxes by 4/15/20 to avoid interest.
The automatic extension until July 15,2020 under the COVID tax bill does not currently appear to include an automatic extension of time to file certain special reporting forms such as 5471, 3520, etc. Therefore, it is best until this is clarified that you file an IRS extension request for any returns that include these forms or the forms by the previous regular due date.
1040-NR returns which were previously due on April 15 (i.e. if there were wages paid) those returns have been extended to July 15, 2020.
The recent COVID tax bill includes outright payments of amounts to each taxpayer if their 2019 earnings (or 2018 if 2019 has not yet been filed) do not exceed certain amounts. SEE THE EXACT RULES FOR THE PAYMENT
If you have not filed your US return for 2018 and 2019 yet, you may want to file them immediately so the stimulus payment referred to in the previous paragraph will be made to you. If you have not filed for 2018, no payment will be made. If you wait too long, the stimulus might not be available. Note that if your 2019 income is lower than 2018 you may want to file in order to show eligibility.
Whether tax income limits for these cash payments apply to your expatriate income after deducting the foreign earned income exclusion or before is not certain at this time
For those who file state returns, many states including California have extended the due date your 2019 state tax return to match the July 15, 2020 federal deadline. Many also do not require payment of the taxes due until that date.