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What Your Really Need to Know about How Trump’s New Tax Law Affects Expats

You are an expat and have read often vague reports about the effects the new tax code President Trump signed into law in December.

What do you really need to know?

The short answer is, the tax law changes largely go into effect this year, meaning that they’ll affect your income and expenses used to file your 2018 tax return (due in 2019). However, U.S. citizens and Green Card holders living abroad may be on the hook for taxes on profits on businesses they own overseas. While provisions in the law were ostensibly created to repatriate tax money from overseas operations of tech giants, such as Google and Apple, Americans and Green Card holders abroad may be caught in the net as well.

“Expats holding a controlling share of non-U.S. corporate entities are understandably concerned, as they may face unexpected tax liabilities on their long-term retained earnings held through offshore companies,” says Eric la Cara, Managing Partner at Capital Tax Ltd. (HK).

Under the Tax Cuts and Jobs Act of 2017, a 15.5 percent repatriation tax, or “Transition Tax” is due on profits of certain overseas companies owned by U.S. persons. This tax provision applies to any U.S citizen or Green Card holder who holds an interest in a controlled foreign corporation (CFC). The tax payments can be paid over a period of eight years through instalments.

So if you don’t hold a stake in a CFC, you have nothing to worry about. If you do, then you have a few years to pay what you owe, beginning, of course, with the 2018 tax year.

For more information, contact our team of U.S. expat tax experts to arrange a free initial consultation.

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Looking for U.S. tax filing while living abroad? Not to Worry, We’ve Got You Covered.

ExpatTax offers fast, affordable, and professional U.S. tax preparation for American Expats in mainland China, Hong Kong, Japan, APAC, and worldwide.

The IRS began processing returns beginning January 29. The IRS offers an automatic two-month filing extension for most U.S. expats — but what you may not know is interest begins accruing on any tax due after the April 17 deadline (instead of April 15, due to holiday scheduling). But it is always best to get started as early in the season as possible in case there are any unanticipated complexities in your tax situation, especially given all of the changes happening with the new tax laws. But not to worry — find out how we can help free of charge for an initial consultation.

Early tax filing for cost savings
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Are You Really Ready to File Your 2017 Return?

We’ve seen a lot of interest by expat taxpayers hoping to file their taxes as early as they can.

Some hope to take advantage of deductions and taxes they were forced to pay ahead of time over the year and look forward to getting their refund soon after the IRS begins processing returns for 2017 on Jan. 29. Others seek clarity about what they might or might not owe in the wake of the new tax law. There are other reasons why you might want to file your taxes as soon as you can — as we recently showed, it can even make you richer.

However, regardless of why you might want to get an early bird jump on filing your taxes,  you will need a few things to get started:

-Your most recently filed tax return (both Federal and State) (if not prepared by us)
-Form W-2(s) or foreign equivalent of salary statements (if available), showing all taxable wages and foreign income taxes paid, preferably government or company issued documents;
-Form 1099(s) or foreign equivalent showing other income from non-salary sources, e.g. dividends, interest etc., preferably government, or company issued documents;
-Form 1098-E, from student loans if any;
-Information on transactions that may have incurred capital gains/losses e.g. sale of real estate or securities;
-Any other tax documents that may be applicable.

Since collecting these forms and information may obviously take some time, we suggest starting now or as soon as you can. Trust us when we say you will be glad you did.

Have any questions? A friendly, informative, and efficient tax preparer is just a click away.

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Expat Relief Absent in New Tax Law, ACA Presses for Congressional Hearing

Relief for U.S. citizen or Green Card holders living abroad was conspicuously absent in the new U.S. tax law — but American Citizens Abroad (ACA) is calling upon Congress to hold hearings in 2018 to address what many see as unfair tax burdens for U.S. expats.

After the new Republican Party-backed tax law offered no measures of much-hoped-for tax relief for overseas residents, ACA and other business groups representing expat taxpayers will continue to press for changes before a congressional committee, ACA said. These groups include Republicans Overseas, Democrats Abroad, Americans for Tax Reform, the Heritage Foundation, and different American Chambers of Commerce overseas.

“Now is the time to lay on the table every aspect of this subject,” said Marylouise Serrato, ACA’s executive director. “The background, the workings of existing law, the numbers, the real-life stories, all need to be aired, and now’s the time to do it. Then, based on all the information, everyone can come forward with their detailed proposals.”

The new law’s lack of provisions for overseas taxpayers followed statements by elected officials indicating they sought to address what observers say are unfair tax burdens on U.S. citizens and Green Card holders living abroad.

Before the bill was signed into law, Ways and Means Committee Republicans said they were discussing measures to end taxes on foreign earned income. Representative George Holding (R., N.C.) previously publicly advocated ending taxes on foreign-earned income and reportedly said he was optimistic the proposal would be part of the bill before it was signed into law. Holding noted how multinational companies are often reluctant to hire U.S. citizens because of the extra costs to do so. Republicans also discussed repealing the Foreign Account Tax Compliance Act (FACTA) last year as part of their part platform. However, both of these provisions were missing from the recently passed tax law.

ACA last year began to publicly advocate replacing citizenship-based taxation with residency-based taxation it described as a “middle-of-the-road or “vanilla” approach.

“The details of this approach are intended as a starting point for everyone’s thinking,” said Charles Bruce, ACA’s Legal Counsel. “It’s not a legislative proposal, as such, but it will help people who want
to dive into the subject.”

The move to a residency-based taxation system for expats would reflect tax codes in other countries in the “industrialized world,” Serrato said. “Individuals should not be left tied to an arcane
and burdensome tax system based on 19th century Civil War era tax policy,” Serrato said.

Early tax filing for cost savings
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3 Ways Filing Your Taxes Early Will Make You a Richer Expat

We guarantee 2018 is rife with opportunities if you know how and where to find them. And one such opportunity you have, as an expat U.S. citizen or Green Card holder, is filing your taxes well ahead of the 2018 deadline.
Why?
Here are three reasons how preparing your taxes early will make you richer.

1. Get Those Deductions

Beginning the tax-preparation process early means you will have the forms you need well before the deadline. Among other things, you have more time to find receipts and other missing information your expat tax accountant asks for that the IRS requires. Many people begin the tax-filing process in earnest just before the deadline, but then realize they do not have everything they need.

As an overseas taxpayer, your situation is often more complicated when you have to locate the U.S. equivalents of forms in far-flung overseas locations. This might include misplaced hotel receipts, itemized medical bills, or other paper trail proof for deductions that lower your tax bill. This vicious cycle translates into money you lose when you can’t deduct certain expenses just because you don’t have time to chase down what the accountant, or rather, the IRS requires.

2. Avoid the Deadline Crunch

A looming tax filing deadline can create logjams for accounting firms, just as the holiday season rush causes delays at the post office or express mail services. Joe the accountant, whether he works for a big-six firm or for a small shop, can only prepare so many taxes during a 24-hour period. Beginning the process early means you will have much more freedom to get the slot you want with the accounting firm that best fits your needs. This is one way to maximize the amount of your deductions and tax breaks you are legally entitled to. In this way, tax preparers also have more leeway to devote the time they need for your return.

3. Beat that Procrastination Bug

You know you have to eventually prepare your taxes one day. But you put it off because the deadline is weeks or even months away. Why begin getting your tax forms ready this weekend, instead of heading out to the golf course or taking your kids to the park on a Sunday afternoon? But when you make the most gratifying choice in the immediate, there is extra mental baggage that comes with it. As you do the things you love, in the back of your mind, you know sooner than later you will eventually have to spend a few hours getting your taxes ready.

As Susan Krauss Whitbourne (Ph.D.) writes for “Psychology Today”: “Procrastination can lead to stress, misunderstandings, and missed opportunities. Wouldn’t it be nice to have a quick and easy way to beat it?” Whitbourne says. In her article, Whitbourne gives a very helpful list of ways to beat procrastination to help yourself to become happier, less stressed, and ultimately more financially security in “12 Ways to Beat Procrastination.”

Way ahead of tax season, you thus have the freedom to remove the worry and fret of knowing you will have to spend those precious off-time hours working with your accountant in the future, and now, before the rush begins, have the expat tax preparation service of your choice promptly and efficiently prepare your taxes for you before the tax season crunch begins. You can then breathe a sigh of relief as you enjoy doing what you love to do on your off time. It all adds to your happiness quotient, making you richer emotionally.

Just Pick Up that Phone

Getting the ball rolling for your taxes is just a matter of picking up the phone or sending an email to the expat tax preparer of your choice now. A qualified tax accountant will immediately instruct you about what you need to do to get your taxes prepared ahead of time and how you are going to save money on your 2018 returns sooner than later.

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Americans Renouncing Citizenship Set to Break Record Again, Trump, GOP Tax Reform Bill Offers Little Hope for Relief

The number of U.S. citizens applying to renounce their citizenship surged in the third quarter, as 2017 is expected to be yet another record year for the number of Americans opting to surrender their U.S. passports.

The legions of those giving up their citizenship were already expected to continue growing exponentially, before the Republican Party-backed tax bill revealed last week did not offer any measures of much-hoped-for tax relief for overseas residents.

Ways and Means Committee Republicans have said they were discussing measures to end taxes on foreign earned income. Representative George Holding (R., N.C.) previously publicly advocated ending taxes on foreign-earned income and reportedly said he was optimistic that the proposal would be part of the bill submitted Thursday. Mr. Holding noted how multinational companies are often reluctant to hire U.S. citizens because of the extra costs to do so. Republicans also discussed repealing the Foreign Account Tax Compliance Act (FACTA) last year as part of their part platform. However, both of these provisions are missing from the new tax bill submitted late last week.

After the Foreign Account Tax Compliance Act (FACTA) was enacted in 2010, U.S. citizens began to abandon their citizenship in record numbers. Under FATCA, expat tax filers whose assets reach a certain threshold are now required to file Form 8938 in their annual tax filings in addition to the Report of Foreign Bank and Financial Accounts (FinCEN Report 114 or “FBAR”). Foreign banks also face penalties by not disclosing details of accounts belonging to U.S. citizens to the Internal Revenue Service (IRS). Prior to FACTA’s enactment, it was previously more difficult for U.S. tax authorities to access foreign bank account records in the event of an audit.

According to a report published in the Federal Register last week by the IRS, 4,400 U.S. citizens filed to cancel their citizenship during the first three quarters of 2017. The IRS said the number totaled 1,370 in the third quarter ending Sept. 30. The total annual number is expected to surpass last year’s record total of 5,411 at the current pace.

Curiously, the IRS also opted to publish the full names of those who opted to renounce their U.S. citizenship in the third quarter in the Federal Register.

Those who renounce their citizenship must pay a $2,350 fee. They also must declare that they were compliant with U.S. tax code for the past five years. Those whose net worth totals more than $2 million or have paid an average of $162,000 net income tax during the past five years will be subject to the expatriation tax rules in order to give up their citizenship.

Renouncing your U.S. citizenship thus does come at a price, but a rapidly growing number of Americans apparently think it is well worth the cost.

FBAR FILING DEADLINE
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FBAR extended deadline just days away

The IRS Has Extended Your Filing Deadline for Overseas Accounts — But You Must Act Now

The good news is that the IRS has granted U.S. citizens and residents an automatic extension to file Reports of Foreign Bank and Financial Accounts (FBARs).

But just because the IRS has already granted you an FBAR extension if you haven’t already filed one, you are still on the hook. You now only have a few days to meet the deadline, and by not complying, the IRS has become less tolerant for late filers (more on that below).

The IRS instituted the automatic extension after moving the original filing deadline ahead this year by three months to April 15. It did this largely to bring the filing deadline in sync with that of the annual tax filings season for U.S. federal income taxes.

Specific to an extension for FBARs, the IRS says it has sought to implement the filing statute with a “minimal burden to the public” and has granted “filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year.  Accordingly, specific requests for this extension are not required.”

Why Me?

The IRS says all “U.S. persons” with individual or combined financial holdings outside of the U.S. and its territories totalling $10,000 or more at any time during the year must file an FBAR.

A “U.S. person” includes:

-U.S. citizens and residents.

-corporations, partnerships, or limited liability companies, founded or operated in the U.S.;

-trusts or estates formed under the laws of the United States.

Key Takeaway

In other words, the October 15 filing day for FBARs has become the real deadline. But what also matters is the IRS has signaled it will be less lenient for late filers than it was in the past. Before, you could file an FBAR late after the original June 15 deadline with little to no risk of penalties if you could come up with a reasonable explanation for filing late. A “reasonable” excuse, according to the IRS, was that “information from foreign financial institution was not available by the due date.”

But the IRS’ previously leniency for filing FBARs has been replaced with a new due date with stricter implications. The October 15 deadline is indeed an extension of the official April 15 due date, but the IRS will likely be unforgiving if you file after October 15. A mere “non-willful” late filing could trigger a penalty of $10,000, for example.

The time to file is thus now if you haven’t done so already.

Questions? Contact our team of tax professionals for a Free Consultation.

Early tax filing for cost savings
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Expat tax filing deadline less than 2 weeks away!

If you are an expat tax filer and not already working with one of our CPA’s and/or need more time to complete your 2016 return, we can assist to file an extension until October 16th – but the request must be submitted to the IRS by June 15th!

If you do owe taxes for the 2016 tax year, it’s important to note that the extension does not apply to tax obligations – interest started accruing on any tax due after the regular April deadline.

To get started on filing an extension, simply send us a note and someone from our team will be in touch ASAP to advise regarding next steps.

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IRS to Expats: Pay Now or Risk Losing Your Passport

The IRS set to begin revoking passports for unpaid tax bills.

The IRS had indicated it is ready to make good on its threat last year to begin revoking or refusing to renew U.S. passports as a means to collect unpaid taxes.

While the IRS has not started referring unpaid tax debt totaling $50,000 or more to the U.S. State Department for collection, it is scheduled to begin doing so in the coming weeks. Under USC-7345 (“Revocation or denial of passport in case of certain tax delinquencies”), the IRS may notify the U.S. State Department of “individuals with seriously delinquent tax debt.” It defines “seriously delinquent” as “an individual’s unpaid, legally enforceable federal tax debt totaling more than $50,000.” The State Department can then refuse to renew or revoke your passport except for return travel to the U.S.

According to the IRS’s website, the $50,000 threshold mentioned above includes interest and penalties. However, it specifically excludes non-delinquent debt, such as tax payments paid on time under an installment agreement or as part of an offer the IRS has made.

Having your passport revoked is obviously something you don’t want as an expat American. These inconveniences include being unable to open a bank account, check into a hotel, sign a rental agreement, or do something as simple as signing up for a mobile phone plan.

And, as we mentioned in our previous article, you could be on the hook for a delinquent tax bill and not even know it. This is because not having received a letter from the IRS does not mean you don’t owe the tax. For example, it is not uncommon for an expat returning home or filing a return to find out they had been already been “notified” of an audit by a letter they never received or that mysteriously got lost in the mail.

Bottom line: you should file your taxes now if you haven’t already before it’s too late. The writing is on the wall with the recently introduced FATCA, tax treaties (often including tax information exchange agreements (TIEAs)), and implementation of the OECD’s The Automatic Exchange of Information (AEOI).

But the good news is that the IRS’s Streamlined Foreign Offshore Procedure is a great way to start. Your tax advisor can let you know if you qualify or not for the program with just a simple assessment of your case.

One thing to keep in mind is that you cannot currently be under an audit to become eligible for the Streamlined Foreign Offshore Procedure. This means you need to file before you get that dreaded letter in the mail from you friends at the IRS.

IRS’ more aggressive initiatives to collect unpaid tax bills should have many law-abiding U.S. taxpayers concerned. But contacting your tax advisor today can go a long way in helping you to sleep better tonight.

-Eric la Cara

Tax changes for expats
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Taxes for US expats – President Trump’s Tax Proposals

American expat tax filers are understandably concerned about their annual U.S. tax filing obligations. But now, they have something else to think about: what changes may lie ahead with President Trump’s clear plans to implement across-the-board tax cuts for both individuals and corporations? And how, if at all, might expats benefit? While many of the changes are still in the planning phase, here are a few possibilities, based on recent statements by President Trump and his team:

1. Simplification. By “simplify” does President Trump mean to really “reduce” taxes? One important potential change is President Trump’s plan to reduce the total number of tax brackets for individuals from seven to three. The new brackets would then be 12, 25, and 33 percent. Also, the net investment income tax (NIIT), which was included as part of the Patient and Affordable Care Act, will likely be eliminated. This would thus allow these new tax brackets – along with the relatively lower tax rates for dividends and capital gains – to represent actual tax rates and not ones with tack-ones such as NIIT.

2. Elimination of Estate or “Inheritance” Tax. Currently, estate tax is imposed on estates with total value exceeding $5.45 million (or $10.9 for married couples), and there are no separate taxes owed for unrealized capital gains within the portfolio at the time of death. President Trump’s proposal would effectively eliminate estate taxes, but with one key twist: tax could be imposed on unrealized gains for those estates exceeding a $10 million threshold.

3. What this means for expats. Generally speaking, the tax changes under President Trump’s proposal could decrease taxes for those in higher tax brackets but potentially increase taxes for those in lower-income ranges. As most expats qualify for the Foreign Income Exclusion (FIE) in the amount of $101,300 for the 2016 tax year filed in 2017, the ultimate effect could mean a lower tax bill for those with income levels exceeding the FIE for 2017 and beyond. This would especially be the case for those with tax obligations on unearned, or passive income, such as interest, dividends, and capital gains.

-by Eric la Cara