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Relief Procedures for Certain Former Citizens
The IRS updated their procedures for certain former citizens who have renounced, or intend to relinquish, their U.S. citizenship. These are persons who wish to become compliant with their U.S. income tax and reporting obligations. By being compliant, they can avoid taxation as a “covered expatriate”, under section 877A of the U.S. Internal Revenue Code (IRC). The IRS website includes information on this announcement as well as Frequently Asked Questions (FAQ) that can assist those persons who are in question.
All U.S. Persons must remain compliant on their tax reporting requirements even while residing outside of the United States. U.S. citizens must report their worldwide income and financial assets high balances (if threshold met) each year to the U.S. government agencies. Persons born in the U.S. to foreign parents are considered U.S. citizens, or possibly “accidental Americans”. By relinquishing the U.S. citizenship and not being compliant could subject the person to taxes imposed by the IRS.
With the passage of the Foreign Account Tax Compliance Act (FATCA)..... click here to read further.
Small Business Week in the U.S. was May 5-11. The Internal Revenue Service issued news releases as guidance for small business owners and self-employed individuals as a reminder to take deductions and credits that will give them a more attractive bottom line and lower tax liability.
Business owners can estimate their tax situation to allow for planning ahead. A few significant deductions and credits that can be useful for small business taxpayers are presented here.
Internal Revenue Service Updates Offshore Voluntary Disclosure Procedures
The Internal Revenue Service updated their voluntary disclosure procedures which expired on September 28, 2018. The updated Offshore Voluntary Disclosure Program (OVDP) will apply to all disclosures filing made after September 28, 2018.
Previously, the OVDP instituted a fixed civil penalty framework and protection from criminal prosecution for failing to file correct and complete U.S. Federal tax returns and Foreign Bank Account Reports (FBAR) for non-compliant taxpayers. The updated procedures will continue to provide non-compliant taxpayers with protection from criminal prosecution, however, the civil penalty structure will not be fixed and the cost of filing under OVDP will likely be considerably higher.
The updated procedures have not been finalized yet, but a number of significant changes have been initiated. These changes include: 1) the taxpayer must submit a descriptive narrative stipulating the facts and circumstances correlated to the taxpayer's noncompliance; 2) the disclosure period is now generally six years, instead of the previous eight years rule; and 3) the civil penalty basis is now based on the Internal Revenue Code's existing fraud penalties and willful FBAR penalties These penalties can reach as high as 75% of the tax underpayment. As far as the FBAR, it can be 50% of the highest balance of undisclosed non-U.S. financial accounts.
Taxpayers who have any concerns about their U.S. Federal tax payment or reporting obligations should contact a U.S. international tax professional to discuss potential disclosure options.
Reporting Your Foreign Company to the IRS or Face Penalties
U.S. expats living abroad can have the choice of being self-employed and establishing their own company in their adopted country. However, the company is now a “foreign corporation” or a “Controlled Foreign Corporation”. Let’s discuss the requirements of what is required for U.S. expats with a CFC as far as U.S. tax reporting obligations.
But what are the filing requirements to the U.S. IRS? Read this interesting article here and be informed.
Child Tax Credit Changes for 2018
The Tax Cuts and Jobs Act (TCJA) of 2017 brought upon U.S. taxpayers the most drastic changes in the tax code in several years. Although politicians called for making the tax return process simpler, they, as usual, are far off the mark. While the discussions to simply the Form 1040 are still in discussion, American families can hope for better news at tax filing time. The U.S. Tax Code is complex and the TCJA did not simplify matters. However, there were changes enacted to help the average family taxpayers.
What is the FBAR?
What is the FBAR? It refers to the FinCen Form 114, Report of Foreign Bank and Financial Accounts. It is a reporting form only without any tax implications. The Bank Secrecy Act of 1970 (BSA) established this report.
The FBAR could affect most expats however it can also affect Americans residing in the United States. Read more about this report of what it entails, requirements, etc. Click here for all of the information.
Expats Convert Traditional IRA to a Roth Tax-Free Using FEIE
Since the passage of FATCA in 2010, Americans have run into roadblocks against foreign banks in establishing retirement accounts. Americans living abroad can continue to contribute to their
retirement in U.S. based accounts into IRA accounts. Brian Dunhill, an American financial advisor based in Europe, explains how U.S. expats can continue to contribute to an IRA account without
facing the obstacles Americans are facing outside the U.S. in his article titled, "Can Expats Make
IRA Contributions?" .... that can be read here.
However, Americans currently holding traditional IRA or 401k accounts in the U.S. can begin to move these accounts into a Roth IRA tax-free if they are eligible for the Foreign Earned Income Exclusion (FEIE). It is very simple! If the expat is utilizing the FEIE annually, the standard deduction amount
(per the filing status) can be the total amount to be converted into the Roth IRA.
How does this work? (Read further....)
Tax planning for 2018
Are your May flowers blooming? Especially since Tax Day has passed by? Now that Tax Day has passed for American residents, it is time to plan your strategy for 2018. Your tax situation will appear
a lot different in 2018 compared with 2017 due to the tax reform. The increase in the standard deduction could lead to fewer people itemizing.
Here’s a few ideas to consider while the year is still “young”:
Tax Reform of 2017
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