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December 13, 2014

Nonresident Aliens May Be Subject to US Estate Tax (and Must file an Estate Tax Return) on their Assets in the US

Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets. 

U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.
Exceptions: Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.
Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to nonresidents by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation. Executors for nonresident estates should consult such treaties where applicable.
Executors for nonresidents must file an estate tax return, Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States, if the fair market value at death of the decedent's U.S.-situated assets exceeds $60,000. However, if the decedent made substantial lifetime gifts of U.S. property, and used the applicable $13,000 “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s U.S. situated assets is less than $60,000 at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). See Unified Credit (Applicable Credit Amount) Section in Publication 559, Survivors, Executors, and Administrators, and the Form 706NA Instructions for more information.
American citizens are subject to U.S. estate taxation with respect to their worldwide assets. An estate tax return, Form 706, United States Estate (and Generation-Skipping) Tax Return, Estate of a citizen or resident of the United States, is required for a deceased American citizen, if the fair market value at death of the decedent's worldwide assets exceeds the "unified credit exemption" amount in effect on the date of death. However, if the U.S. citizen made substantial lifetime gifts, and used the applicable “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s worldwide assets is less than the “unified credit exemption” amount at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). To determine the “unified credit exemption” amount for American citizens for any particular year, refer to the Instructions to Form 706 or to Publication 559, Survivors, Executors, and Administrators.
The Internal Revenue Service may collect any unpaid estate tax from any person receiving a distribution of the decedent’s property under transferee liability provisions of the tax code.

December 3, 2014

Wall Street Journal's Mini Guide to US Expat and Financial Issues

Read Mini Guide for Expats Here                           

We have over 20 years experience practicing  US Expat and International Taxes. If after reading this guide you need assistance with any of the items covered, email us at ddnelson@gmail.com. Visit our websites at www.TaxMeLess.com and www,ExpatAttorneyCPA.com for more useful information.

December 2, 2014

Self Employment Taxes (social security and medicare) for US expatriates working abroad.


The US has social security agreements with the countries listed below. These agreements provide that if a US Expatriate in working in a treaty country, in many instances (it can vary by the country) they may elect coverage under US social security or the social security program of the country in which they live and work. This only applies if the expatriate is self employed.  If the US expat is an "bonafide employee" of a foreign corporation subject to all the normal tax withholding and employment laws of that country they do not need to pay US social security.

If the country you work in DOES NOT have a social security agreement with the US, you must pay US self employment tax (social security plus medicare tax) on your net self employment income (after deducting expenses) whether or not you are paying social security or its equivalent in your country of employment.

The foreign earned income exclusion does not apply to US self employment taxes and does not reduce the self employment tax you owe even though it does reduce you income subject to US income taxes.

Social Security Handout on International  Social Security Agreements Benefits

Countries with Social Security Agreements
CountryEntry into Force
ItalyNovember 1, 1978
GermanyDecember 1, 1979
SwitzerlandNovember 1, 1980
BelgiumJuly 1, 1984
NorwayJuly 1, 1984
CanadaAugust 1, 1984
United KingdomJanuary 1, 1985
SwedenJanuary 1, 1987
SpainApril 1, 1988
FranceJuly 1, 1988
PortugalAugust 1, 1989
NetherlandsNovember 1, 1990
AustriaNovember 1, 1991
FinlandNovember 1, 1992
IrelandSeptember 1, 1993
LuxembourgNovember 1, 1993
GreeceSeptember 1, 1994
South KoreaApril 1, 2001
ChileDecember 1, 2001
AustraliaOctober 1, 2002
JapanOctober 1, 2005
DenmarkOctober 1, 2008
Czech RepublicJanuary 1, 2009
PolandMarch 1, 2009
Slovak RepublicMay 1, 2014

December 1, 2014

10 Most Tax Friendly States for Business in the US - For expat business owners and nonresidents

When you operate your business from abroad as an expat or as a nonresident, and need a US location for a US corporation or LLC, it is best to set it up in a state with no or low taxes to keep your costs tax expenses at a minimum.  Read the following article to find out the best states in which to locate.

http://www.marketwatch.com/story/10-most-tax-friendly-states-for-business-2014-11-19

2014 Fast Tax Facts for US Expatriates and Green Card Holders Living and Working Abroad


If you are a US Citizen you must file a US tax return every year unless your taxable income is less than
$20,300 - for a joint return or $ 10,150 - for a single return or married filing separately (these amounts are for 2014 and are lower for earlier tax years) or have self employment-independent contractor net self employment income of more than $ 400 US per year. You are taxable on your worldwide income regardless of whether you filed a tax return in your country of residence. You must file a tax return each year if you income exceeds the amounts stated above even if you owe no tax.

As a US expatriate living and working abroad 4/15, your 2014 tax return is automatically extended until 6/15/15 but any taxes due must be paid by 4/15/15 to avoid penalties and interest. The return can be further extended until 10/15/15 if the proper extension form is filed. An even further extension may be available.

For 2014 if you are a qualified expatriate you get a foreign earned income exclusion (earnings from wages or self employment) of $99,200, 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.

For 2014 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).

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 amount of $15,872 (for an entire year) up to a maximum amount which varies by your foreign country of residence.

You get credits against your US income tax obligation for income taxes paid to a foreign country but you must file a US tax return to claim these credits.

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 that countries equivalent of social security. Your investment income (passive income) may also be subject to a 3.8% additional medicare tax if you income as a married filing jointly exceeds $250,000 or $200,000 if filing as single.

Forming the correct type of foreign corporation and making the proper US tax election 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.

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 June 30th for the prior calendar year or incur a penalty of $10,000 or more including criminal prosecution. This form does not go in with your personal income tax return and can only be filed separately on the web at:
In the past several years the IRS has hired thousands of new employees to audit, investigate and discover Americans living abroad who have failed to file all necessary tax forms. These audits have begun and will increase significantly in the future. 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 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 world wide 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.

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

Download your 2014 US tax return questionnaire prepared expressly for Expatriates at www.TaxMeLess.com or www.expatattorneycpa.com Send us your completed questionnaire and we will immediately provide you with a flat fee quote for preparing your return.

Don D. Nelson, US Attorney, CPA, Kauffman Nelson, LLP
Dana Point, California 92629 USA
US Phone: (949) 481-4094, US Fax: (949) 606-9627Email:ddnelson@gmail.com or ustax@hotmail.com Skype: dondnelson
Visit our International Tax Blog for the Latest Expat and International Tax Developments at www.usexpatriate.blogspot.com.

We have been preparing tax returns and assisting US clients located in over 60 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. We offer mini consultations (with attorney client privilege) to answer your tax questions and resolve your tax issues.

For additional useful informaton and tax assistance go to www.TaxMeLess.com and www.usexpatattorneycpa.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