The following information is updated occasionally as our clients require the information reference. All U. S. Citizens are required to report their total world wide income from all sources, and then the determination is made as to taxability.
For details on the following tax issues and the many variations that might be applicable to anyone’s unique situation, contact your tax accountant for a consultation by phone or in person with follow up printouts or email reiterations of data or tax law sources situs from IRS Tax Code, IRS Rules and Regulations or the IRM from a secure source.
Bear in mind, every time a tax audit, a tax submission is appealed or a decision is handed down from U. S. Tax Court, the tax law or the application of the law is changed. This is an election year whereby there may be fundamental changes at any time made by congress. Never rely on the public media for your tax information. Monitor the C-Span channel when congress is convened or best yet, stay in close contact with your tax accountant for briefings regarding your specific issues of your tax and financial situation. Be sure your tax accountant participates in tax law updates on a regular basis ranging from daily to weekly from CCH or other expert specialist following the law changes.
ALIENS FILING REQUIREMENTS – RESIDENT
Resident Aliens who reside in the U. S. for the entire year, must file their tax returns using the same rules that apply to U. S. Citizens. A resident alien’s income is subject to the same manner as a U. S. Citizen and must report all income whether from sources within or outside the United States.
RESIDENT ALIEN. A Resident Alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year.
1. GREEN CARD TEST – You are a U. S. resident if you were a lawful permanent resident of the United States at any time during the calendar year. This is known as the Green Card Test because resident aliens hold immigrant visas, also known as green cards.
2. SUBSTANTIAL PRESENCE TEST – You are considered a U. S. resident if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:
a. 31 days during the current calendar year, and
b. a total of 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the
number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year.
DUAL STATUS ALIENS. If you are a U. S. resident for the calendar year, but are not a U. S. resident at any time during the preceding calendar year, then you are a U. S. resident only for the part of the calendar year that begins on the residency starting date. You are a nonresident alien for the part of the year before that date. Reg.1.871-13.
FILING REQUIREMENTS – nonresident alien
Nonresident aliens are required to file an income tax return (Form 1040-NR) if they are any of the following:
1. A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. A nonresident alien individual must file even if:
a. the nonresident alien had no income from a trade or business conducted int eh U. S. ;
b. the nonresident alien had no income from U. S. sources, or
c. the nonresident alien’s income is exempt from income tax.
2. A nonresident alien individual not engaged in a trade or business in the United States with U S. income on which the tax liability was not satisfied by the
withholding of tax at the source.
3. A representative of a deceased person who would have had to file Form 1040-NR;
4. A fiduciary for a nonresident alien estate or trust.
EXEMPTIONS – Resident aliens can claim personal exemptions and exemptions for dependents in the same way as U. S. Citizens. However, nonresident aliens generally can claim only a personal exemption.
DEDUCTIONS – Nonresident aliens can claim similar deductions that resident aliens can claim. However, nonresident aliens can claim only deductions related to income that is effectively connected with their U. S. trade or business.
FOREIGN EARNED INCOME EXCLUSION – For U.S. Citizens and Residents Living Abroad –
To exclude up to $101,300 of foreign earned income in 2016, foreign housing exclusion, or the foreign housing deduction, you must satisfy all three of the following requirements: (This exclusion increases to $102,100 in year 2017.) The exclusion is computed on a daily basis. Therefore, the maximum limit must be reduced ratably for each day during the calendar year that the taxpayer does not qualify for the exclusion. The exclusion is also limited to the excess of the individual’s foreign earned income for the year over his or her foreign housing exclusion. In the case of married taxpayers, each spouse may compute the limitation separately and without regard to community property laws, if otherwise applicable. It is possible for a married couple to exclude up to $202,600 for 2016 ($204,200 for 2017) if each spouse is qualified to claim the exclusion. (Reg. 1.911-5)
1. Tax home must be in a foreign country;
2. Must have foreign earned income;
3. Must be one of the following:
a. A U. S. citizen who is a bonafide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
b. A U. S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bonafide
resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
c. A U. S. citizen or a U. S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
For 2016, a maximum amount of foreign housing expenses that generally may be excluded is $14,182 or $38.75 per day. This is 14% of the maximum foreign exclusion amount for 2016 ($101,300) and is the difference between 30 percent of the exclusion amount ( $30,390 or $83.03 per day), and 16 percent of the exclusion amount ($16,208 or $44.28 per day) Rev. Proc. 2015-53. For 2017, the maximum amount of foreign housing expenses that generally may be excluded is $14,294 or $39.16 per day.
FOREIGN EARNED INCOME is pay for personal services performed, such as wages, salaries or professional fees received for services performed.
WITHHOLDING TAX OF 30%. U. S. payers of income other than wages, such as dividends and royalties are required to withhold tax at a flat 30% on non-wage income paid to nonresident aliens.
U. S. INCOME TAX FOR EXPATRIATES AND INTERNATIONAL TAX MATTERS – U. S. INDIVIDUALS
Every United States citizen, whether living in the U. S. A. or abroad in ANY other country, MUST file an income tax return and report ALL THEIR WORLDWIDE INCOME.
IF YOU OWE THE IRS back taxes, you may be detained at the Border when Entering the USA. The Internal Revenue Service is one of the most if not THE MOST POWERFUL AGENCIES IN THE COUNTRY. We have reason to believe that the IRS has established procedures to facilitate tax collection from its taxpayers who live outside the United States. If such a taxpayer has an unpaid tax liability and is subject to a resulting Notice of Federal Lien, the IRS is most likely submitting identifying taxpayer information to the Treasury Enforcement Communications System (TECS), a database maintaining by the Dept of Homeland Security (DHS). The database allows the DHS to identify taxpayers with unpaid tax assessments who are traveling to the United Stats for any reason, personal, employment or business. Therefore, taxpayers traveling to the U. S. with unpaid tax assessments are increasingly being detained at the border by the DHS.
IMPORTANT DUE DATES FOR FILING US INTERNATIONAL TAX FORMS
* FORM 114 (FBAR Form) WHERE YOU REPORT details of your foreign financial accounts including bank accounts, stock brokerage accounts, pension plans, etc., must be received by the IRS by 6/30 for recent years thru 2015 and beginning in 2016, moves to April 15th. This is the FBAR Form 114. .
*Expat tax returns, if you lived abroad on 4/17/2013, are due on 6/15/14 for 2013, and so forth. You can obtain a further extension by filing form 4868 prior to that date. This does not extend the due date of any taxes you owe, which must have been paid by 4/17/13 to avoid late payment penalties and interest.
*Form 5471, Foreign Corporations, 8865, Foreign Partnerships, 8858, Disregarded Entity, and 621 Passive Foreign Investment Company, usually foreign mutual funds, are all due on the due date including extensions thereof of your personal tax return. Most of these forms provide for a possible $10,000 penalty for filing late.
ARE YOU GUILTY OF WILLFULLY FAILING TO FILE THE FBAR (TDF 90-22.10 Form)? Contact an IRS approved tax accountant for current deadlines and penalties and further details regarding your situation.
If you sign your return and check “NO” on schedule B indicating you have no foreign bank accounts that need to be reported, when you actually do have accounts, the Court has held that that act alone shows willful failure to file the FBAR form. In that case, the taxpayer was fined $200,000 for failing to file the FBAR for year 2000.
How far back will a year be opened up and reviewed and/or a search conducted to find out whether or not a return has been filed? The Statute of Limitations is six years on FBAR forms and the IRS will impose both Civil and Criminal penalties. Anyone who has not filed is subject to criminal penalties and monetary penalties up to 1/2 the highest balance in each account for each year that the FBAR is not filed.
If you are delinquent in filing your tax returns due to mistakenly believing that your foreign residency precludes your obligation to file tax returns with the IRS, then you need to hire a tax accountant and get those past returns filed IMMEDIATELY before the IRS receives lists from the foreign banks.
Expats can extend the tax return due date up until December 15th, if a previous extension has been filed on Form 4868 requesting the automatic 6 months extension from April 17 to October 15th. (However, this privilege is not available to taxpayers who have an approved extension of time to file on Form 2350 who expect to qualify for special tax treatment.)In order to gain this additional 2 month extension, you must send a signed letter to the IRS explaining why you need the additional time to finish your tax return and you must send this letter before the October 15th deadline. Send the letter to the IRS Center, Austin, Tx. 73301-0215 USA.
YEAR 2016 AND 2017 IRS CHANGES OF INTEREST TO ALL NONRESIDENTS AND EXPATRIATE TAXPAYERS
* Foreign earned income exclusion = $101,300 for 2016; $102,100 for year 2017.
* Unified Estate and Gift Tax Exclusion – Under the sunset provisions of EGTRRA for gifts made and estates of decedents dying in 2016 exclusion amount will be
$5,450,000, up from $5,490,000 for gifts made and estates of decedents dying in 2017.
* Gift Tax annual exclusion for Gifts made in 2016 will be $14,000 and also $14,000 for 2017.
* Gift Tax annual exclusion for Gifts made to non-citizen spouses in 2016 and 2017: Contact your tax accountant for detailed information.
* For Gifts from a non-resident alien individual or foreign estate, reporting is required only if the aggregate amount of gifts from that person exceeds
$148,000 during the tax year 2016; $149,000 in 2017..
*For gifts from foreign corporations and foreign partnerships, the reporting threshold amount will be $15,102 in 2013, up from $14,723 for 2012.
For further information and details regarding your unique situation, contact a qualified, IRS approved, tax accountant for a personal consultation.