Frequently Asked Questions

Penalties -Failure to File

Failure to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation


Taxpayers are required to report transfers of property to foreign corporations and other
information under IRC 6038B. The failure to file penalty for this information return is 10% of the value of the property transferred up to a maximum of $100,000.00 per return with no limit if the failure to report the transfer was intentional.




Failure to file Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships


This form is used to report interests in and transactions of the foreign partnership, transfers of property to the foreign partnerships and various acquisitions and dispositions as well as changes in foreign ownership. The penalties for failing to file under the applicable IRC sections is $10,000.00 for each failure to file with an additional $10,000.00 added for each month the failure continues to a maximum of $50,000.00 per return or 10% of the value of any transferred property that is not reported, subject to a $100,000.00 limit, depending on the type of transaction that was not reported.




Failure to file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.


Taxpayers must report various transactions involving foreign trusts, including creation of foreign trust by a U.S. person, transfers of property from a U.S. person to a foreign trust and receipt of distributions from foreign trusts under IRC 6048 and receipt of foreign gifts under IRC 6039(F). Filing an incomplete return or failing to file results in a penalty of the greater of $10,000.00 or 35% of the gross reportable amount. For returns relating to gifts, the penalty is 5% of the gift per month to a maximum penalty of 25% of the gift.




Failure to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations:


Certain U.S. persons who are officers, directors or shareholders in certain foreign corporations are required to report information under IRC sections 6035, 6038 and 6046. The penalty for failing to file each one of these information returns is $10,000.00 with an additional $10,000.00 added each month the failure continues, beginning 90 days after the taxpayer is notified of the failure, to a maximum of $50,000.00.




Failure to file Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner:


Ownership interests and powers over these foreign trusts by U.S. persons is reported under this form which carries a penalty for failing to file of 5% of the gross reportable amount of trust assets




Failure to file Form Fincen114, Report of Foreign Bank and Financial Accounts


A person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. See 31 U.S.C. section 5321(a)(5). Willful violations may also be subject to criminal penalties under 31 U.S.C. section 5322(a), 31 U.S.C. section 5322(b), or 18 U.S.C. section 1001.




Failure to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business


The penalty for failing to file under IRC 6038(A) and 6038(C) or for failing to keep certain
records regarding reportable transactions is $10,000.00 with an additional $10,000.00 added each month the failure continues beginning 90 days after the taxpayer is notified of the failure to file.




Failure to file Form 8938, Statement of Specified foreign Financial Assets


Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent




Failure to file Form 1040, U.S. Individual Income Tax Return


A failure-to-file penalty may apply if you did not file by the tax filing deadline (including extended due date). The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $210 (for returns due between 01/01/2018 and 12/31/2019) or 100 percent of the unpaid tax.





Military on Active Duty

Are Active Duty in the Army subject to Ohio individual income tax and school district income tax? Would the answer be any different if I were serving in the National Guard or the Reserves?


Yes: Ohio individual income tax applies to all military servicemembers of the active and National Guard or reserve components who are residents of Ohio and are stationed inside the state. School district income tax also applies if the service member’s domicile is within a school district that imposes the tax, even if the service member did not reside in the school district at any time during the taxable year.

Law Change for Taxable Years 2007 and Forward: You and all other service members, however, are affected by a change in law for taxable years beginning on and after Jan. 1, 2007. This law allows for the deduction of your military pay you receive for active duty service while you are stationed outside the state (see Resident Service Members Stationed Outside the State, below) if the military pay is included in your federal adjusted gross income. See division (A)(24) of Ohio Revised Code 5747.01. You must still file an Ohio individual income tax return in order to qualify for the deduction.

You are an Ohio resident if Ohio is indicated as your state of legal residence (e.g., home of record from where you entered the military) in your military personnel record, whether or not you spent any time in Ohio during the taxable year. For purposes of Ohio income taxes, if you are a member of the military and if Ohio is indicated in your military personnel record as your state of legal residence, then you are domiciled in Ohio. This status does not change unless a service member takes action to change it by submitting Department of Defense form DD-2058, and this change is approved by the military. The approved DD-2058 is then placed in the service member's military personnel record.

Filing information is available in the Ohio income tax publication which contains the Ohio School District income tax instructions and is available on the Tax Forms page.

Visit The Finder to locate a school district number by address.

You can calculate a resident tax credit if any of your income was taxed by another state. For information about the resident tax credit, see the instructions for the Ohio Schedule of Credits in the current Ohio income tax publication.

Resident Service Members Stationed Outside the State: The term “ stationed” refers to an Ohio resident servicemember’s permanent duty station. For purposes of this exemption, "permanent duty station" has the same meaning as specified in Ohio Revised Code 5103.20, Article II, Subparagraph (U), that is, it means the military installation where an active duty servicemember – or, concerning this exemption, an Ohio resident servicemember in the Ohio National Guard or military reserve forces – is currently assigned and is physically located under competent orders that do not specify the duty as temporary. Periods of training in which a servicemember, either individually or as part of a unit, departs from his/her permanent place of duty and then returns following the completion of the training, is not included in the definition of “stationed.” However, periods of active duty outside Ohio for purposes other than training, or periods of training greater than 30 days outside Ohio, as described below, qualify a servicemember for this exemption. Please note that under the November 2009 amendment to the Servicemembers Civil Relief Act, an Ohio resident who accompanies his/her military servicemember spouse to a duty station in another state remains subject to Ohio income tax and school district income tax. Examples of military pay and allowances that do qualify for the Ohio resident service member deduction include the following amounts, but only if the taxpayer receives the amounts while he/she is stationed outside Ohio:
  • Military pay and allowances received while a member of the active component of the U.S. Armed Forces and assigned to a permanent duty station outside Ohio.
  • Military pay and allowances received while a member of the active component of the U.S. Armed Forces, who is assigned to a permanent duty station inside Ohio, only for periods of duty outside Ohio for purposes other than training, or periods of training greater than 30 days outside Ohio.
  • Military pay and allowances received while a member of the National Guard or the reserve components of the U.S. Armed Forces in an active duty status outside Ohio, or for periods of training greater than 30 days, outside Ohio.
  • Military pay and allowances received while a member of a unit of the National Guard or the reserve components of the U.S. Armed Forces under federal mobilization orders under which the unit mobilizes for training at a non-Ohio location followed by an operational deployment to any non-Ohio location.
  • Military pay and allowances received by cadets at the U.S. service academies, specifically, the Military Academy, the Air Force Academy, the Coast Guard Academy, and by midshipmen at the Naval Academy. Cadets and midshipmen are serving on active duty under the provisions of 38 United States Code section 101 (21) and are eligible for this deduction for the pay they receive while stationed at these facilities to the extent that this pay is included in federal adjusted gross income (line 1 on the Ohio income tax return, IT 1040). However, this deduction is not available for pay received for service in the Reserve Officer Training Corps.
Examples of military pay and allowances that do not qualify for this deduction include the following:
  • Military pay and allowances received while a member of the active component of the U.S. Armed Forces who is assigned to a permanent duty station inside Ohio and who departs Ohio for a period of temporary duty for unit or individual training of 30 days or less (e.g., training exercises, basic and advanced training courses, and additional skill training courses).
  • Military pay and allowances received while a member of the National Guard or the reserve components of the U.S. Armed Forces in an active duty for training status who departs Ohio for a period of temporary duty for unit or individual training of 30 days or less (e.g., unit annual training, training exercises, basic and advanced training courses, and additional skill training courses).
  • Military pay and allowances received for service in a combat zone because that pay is not included in federal adjusted gross income (line 1 on Ohio form IT 1040)
Service members eligible for this deduction may request that the military exempt them from Ohio withholding only during the period of their service outside the state by submitting Ohio form IT 4 MIL to their military finance office. Contact info@whinglobal.com for more info.





FBAR

Am I required to file Form Fincen114, Report of Foreign Bank Accounts?


Yes, if both 1 and 2 below apply:

  1. You are a united states person that had a financial interest in or signature authority over at least one financial account located outside of the United States; and
  2. the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

United States person includes U.S. citizens; part or full year U.S. residents for tax purpose; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

To learn more, email or call your CPA at Whin Global. You can also fill out this contact form.

Whin Global is a tax and accounting firm based in Columbus, Ohio. We serve both U.S based clients and non-U.S. based international clients.




As a U.S. citizen or greencard holder, do I have to report all my foreign financial accounts to the Department of Treasury?


No. You are only required to report those foreign accounts where you have a financial interest in or signature authority over if the aggregate maximum values of the accounts exceeds $10,000 at any time during the calendar year.




Do I have to report my life insurance or annuity policy with cash value on my FBAR?


Yes. Foreign financial accounts include insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash surrender value.




I am a US citizen and I own 51% of US Co. stocks. US Co. owns 100% of Foreign Co. US Co. filed an FBAR. Do I have to file an FBAR as well, even if I do not have personal foreign accounts?


Yes. Any US person that directly or indirectly owns more than 50 percent of the total value of the shares of stock must file an FBAR and report the foreign accounts as well. Sounds like a double reporting? Yes, it is. There are both an entity and individual (for majority owners) levels reporting requirements. Get in touch for more info.





Form 8938

Am I required to File Form 8938, Statement of Specified Foreign Financial Assets?


Yes, You must file Form 8938 if all three conditions below apply to you:

  1. You are a U.S. citizen, tax resident of the United state by Green card or presence,

  2. You have an interest in specified financial assets required to be reported, and

  3. The aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you per this chart:

Form 8938 is filed per year per tax return and not per spouse, if filing joint.

What is a specified foreign financial asset? A specified foreign financial asset is:

  • Any financial account maintained by a foreign financial institution, except as indicated above
  • Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, namely:
    • Stock or securities issued by someone other than a U.S. person
    • Any interest in a foreign entity, and
    • Any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person.
Refer to the Form 8938 instructions for information on how to determine the total value of your specified foreign financial assets. Reporting specified foreign financial assets on other forms filed with the IRS. If you are required to file a Form 8938 and you have a specified foreign financial asset reported on Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891, you do not need to report the asset on Form 8938. However, you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets. Even if a specified foreign financial asset is reported on a form listed above, you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is more than the reporting threshold that applies to you. Get in touch with us at info@whinglobal.com for more information or if you want asistance determining if you have filing requirements and what specific accounts are included.





Misc. FAQs

Am I taxable to the Alimony I received from my Ex-spouse in 2019?


No. The tax reform has eliminated the recognition of income for alimony received effective for divorce decrees executed after Dec. 31, 2018. Alimony received is no longer taxable. No change in tax treatment for alimony payments required by pre-2019 divorce agreements (business as usual). Thos are still reportable and taxable.




Can I deduct the Alimony money I provided to my ex-spouse in 2019?


No – For divorce decrees executed after Dec. 31, 2018, the tax reform has eliminated the deduction for alimony paid. No change in tax treatment for alimony payments required by pre-2019 divorce agreements (business as usual). Thos are still reportable and deductible.




What is Qualifed business Unit (QBU)?


A QBU is any separate and clearly identified unit of a trade or business of a taxpayer provided that separate books and records are maintained. An individual is a not a QBU, but activities of an individual taxpayer may qualify as a QBU. For example a foreign rental property may be a QBU. A wholly owned foreign corporation by a US ctizen living abroad may qualify as a QBU as well.





IRA

Can I recharacterize a rollover or conversion to a Roth IRA back to Traditional IRA?


No Effective January 1, 2018, pursuant to the Tax Cuts and Jobs Act (Pub. L. No. 115-97), a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA cannot be recharacterized. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans.




Can I contribute to Roth IRA if I exclude all my earned income under the FEIE?


Generally, you must have a taxable earned income not excluded under the foreign earned income exclusion, in order to contribute to an IRA.





Streamlined Procedures

As a U.S. citizen or green card holder living abroad, is there a penalty for not filing taxes?


Yes. If you are required to file and you fail to file a U.S. or state income tax return, you may be subject to a penalty for not filing taxes. This failure to file penalty could be hefty. You may not be able to take part in advantages, special reductions, or benefits offered to U.S. taxpayers to help reduce your U.S. tax obligations.

Fortunately, If you did not realize you were still required to file as an expat, we can help you file back taxes and avoid penalties for not paying taxes. A streamlined procedure is generally used by US expat to catch up on back taxes filing and foreign bank accounts reports.

Contact Whin Global today to learn more. Have a question? Get in touch and we will be glad to answer your tax questions.




What if I've never filed taxes as an expat before or stopped filing my taxes?


Many U.S. citizens and green card holders as well as foreign nationals living abroad with U.S. tax filing requirements assume that they only have tax obligations to their current country of residence and overlook their U.S. tax filing requirements. Even if taxes are not owed to the IRS or a state government, due to anticipated foreign tax credits or foreign earned income exclusions, expats are still required to file a U.S. tax return if their gross income exceeds the filing threshold amount for their filing status.

If you were unaware of your filing requirement, there is time to act. Our CPAs at Whin Global can help you decide on the best course of action for your unique situation. The IRS has a non-penalty disclosure program, IRS Streamlined Filing Compliance Procedures, currently available to Americans abroad or living in the US who have overlooked their filing obligations and never filed taxes or stopped filing their taxes. Get in touch with a CPA at Whin Global if you have any questions.





Are American Expats Required To File US Taxes?

Are American expats required to file US and State Tax Returns?


In short Yes and If. Even if you are a permanent resident or citizen of a foreign country, if you remain a U.S. citizen or greencard holder who works/lives abroad, you are still required to file U.S. taxes and report your worldwide income, if you meet the filing threshold (see the FAQs on the US tax filing requirements).

However, certain rules and benefits are available to expats, like the foreign earned income exclusion, foreign tax credit.

As an American expat, you may also still owe state taxes. This depends on the state you lived in prior to moving abroad as the tax residency rules vary by each state. Many states will also allow the foreign earned income exclusion, which can affect your taxable income. But some states do not allow the FEIE or FTC or both.

Consulting with an expat tax expert can help you determine if you are still required to file a state income tax return or not.

If you’ve been living abroad for a while and you were unwilfully unaware of your U.S. and state tax obligations, stop and don’t panic. Take a deep breath. Whin Global has assisted U.S. taxpayers by filing many tax returns worldwide, including taxpayers residing in multiples countries.

File You Expat Tax Returns with Whin Global

Have more questions? Ready to file? No matter how complicated your U.S. tax return is, there's an Expat Tax Expert ready to help. Get started with your Certified Public Accountant from Whin Global, Expat Tax and Accounting Services.





US Tax Filing Requirements

What are the 2019 minimum income requirements to file a 2019 tax return for non dependent individuals?


If you are under 65 years old at the end of 2019, you must file a return if your gross income was at least: $12,200 for Single $18,350for Head of Household $24,400 for Married Filing Joint $24,400 for Qualifying Widow(er) With Dependent Child $5 for Married Filing Separately Regardless of your age: If your net earnings from self-employment was at least $400 If your wages were $108.28 or more from a church or qualified church-controlled organization that's exempt from employer Social Security and Medicare taxes There are many other situations where you must or should file based on your individual situation. For example, if you are subject to penalty for early retirement income withholding, you must disclose it on form 5329 with your 1040 or not (if no 1040 or 1040NR is required). To learn more, please email or call your CPA at Whin Global. You can also fill out this contact form. Whin Global is an Expat Tax and Acocunting Services Firm based in Columbus, Ohio. We serve both U.S. domestic and international tax clients.




Should I file a tax return even if I do not have a filing requirement?


It depends. Child tax credit, earned income tax credit, or excess income tax withheld are few examples of credit you can get back from the IRS. However, you must file a tax return, calculate these tax credits, and claim a refund from the IRS before the statute of limitation runs out. Generally, you have three years to request a refund from the IRS from the tax return due date. From the date a tax return is filed, the IRS has generally three years to begin an audit and 10 years to collect the taxes. Therefore, it is important to file a precautionary return to start the clock even if it is a zero return. Our Position: We encourage anyone with net income to file a tax return to start the clock. the burden and cost of filing a current tax return are less than responding to the IRS tax notice and proving that you didn't have to file. To learn more, please email or call your CPA at Whin Global. You can also fill out this contact form. Whin Global is an expat tax services firm based in Columbus, Ohio, US. We serve both U.S. domestic and international tax clients.




What forms American expats must file with their 1040 to avoid double taxation?


American expats that have a US tax filing requirement may need to include form 2555 and/or form 1116 to their 1040. Form 2555 is filed to claim the foreign earned income exclusion and housing deduction under IRC section 911. The annual maximum exclusion amount is indexed to inflation. Form 1116 is filed to claim foreign tax credit (FTC) against U.S. taxes on non-excluded income under the IRC section 901. Unused foreign tax credit can be carried forward for 10 years. You must meet the requirements for each form in order to benefit from the foreign earned income exclusion and/or the foreign tax credit. Instead of tax credit, you may want to deduct foreign taxes on your schedule A, if more beneficial (rare but possible). To learn more or have any questions, please email or call your CPA at Whin Global. You can also fill out this contact form. Whin Global is an expat tax services firm based in Columbus, Ohio. We serve both U.S. domestic and international tax clients.




When do nonresident aliens have to file a U.S. tax return?


Nonresident indivdual and business entity alien are generally subject to U.S. income tax only on their U.S. source income. They are subject to two different tax rates, one for effectively connected income, and one for fixed or determinable, annual, or periodic (FDAP) income. 1- Effectively connected income (ECI) is earned in the U.S. from the operation of a business in the U.S. or is personal service income earned in the U.S. (such as wages or self-employment income). It is taxed for a nonresident at the same graduated rates as for a U.S. person. 2- FDAP income is passive income such as interest, dividends, rents or royalties. This type of income is taxed at a flat 30% rate, unless a tax treaty specifies a lower rate. For rental income, unless an election is made, the 30% rate applies to gross rent without allowable deductions. Generally, a foreign corporation must file a U.S. tax return if it is engaged in a trade or business in the United States, whether or not it had income from that trade or business. It must also file if it had income, gains, or losses treated as if they were effectively connected with a U.S. trade or business, and if it had income from any U.S. source (even if its income is tax exempt under an income tax treaty or an internal revenue code section). This is a complex area specially for US citizens or nonresident aliens owning interests in foreign corporations or partnerships with U.S. source income. To learn more, please email or call your CPA at Whin Global today. You can also fill out this contact form. Whin Global is an expat tax services firm based in Columbus, Ohio. We serve both U.S. domestic and international tax clients.




Can a US Expat use the First Time Abatement Waiver Procedure?


Yes, you can. You may request an abatement based on the IRS's First Time Abatement administrative waiver procedures. Most failure to pay penalties, failure to file penalties, and certain accuracy-related penalties on underpayments of tax may be waived if a taxpayer has a reasonable cause. The IRS may issue an accuracy-related penalty if there is a substantial understatement of tax. For individuals, a substantial understatement exists if the actual tax liability is underestimated by more than the lesser of 10% of the actual liability or $5,000. What to do if I may be subject to this penalty? Generally, most taxpayers file their return as if no penalty is applicable. Request a FTA Waiver if, and when, the IRS assesses the penalties. However, interest is generally calculated and added to the tax balance due when filing an original 1040 tax return.
Whin Global has assisted many taxpayers file this first time abatement waiver and we have a 100% success rate. The IRS has approved 100% of all of our FTA waiver requests. Get in touch if you need assistance with any IRS, state, or local tax notices. Yes local notices! Ohio has 100's of local tax juridictions that levy income taxes.





Foreign Tax Credit

What is Foreign Tax Credit?


The foreign tax credit intends to mitigate some or all of the double tax burden that would otherwise arise when foreign source income is taxed by both the United States and the foreign country from which the income is derived.




How do I qualify to take the foreign tax credit?


The foreign tax must meet four tests to qualify for the credit:

  1. The tax must be a legal and actual foreign tax liability
  2. The tax must be imposed on you
  3. You must have paid or accrued the tax, and
  4. The tax must be an income tax (or a tax in lieu of an income tax)




How do I claim a foreign tax credit?


If you paid or accrued foreign taxes to a foreign country or U.S. possession and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.

File Form 1116, Foreign Tax Credit, to claim the foreign tax credit if you are an individual, estate or trust, and you paid or accrued certain foreign taxes to a foreign country or U.S. possession.

Corporations file Form 1118, Foreign Tax Credit—Corporations, to claim a foreign tax credit.




Is there a reduction in Total Foreign Taxes Available for Credit?


Yes - You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U.S. income under the foreign earned income exclusion or the foreign housing exclusion. This is to avoid a double dip.




Is there a limit on foreign tax credit?


Yes - Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by your taxable income from sources outside the United States over your total taxable income from U.S. and foreign sources. The allowable credit amount can't be more than your actual foreign tax liability. If you have foreign taxes available for credit but you cannot use them because of the foreign tax credit limit, you may be able to carry them back to the previous tax year and forward to the next 10 tax years. Refer to Carryback and Carryover in Publication 514, Foreign Tax Credit for Individuals.





Foreign Earned Income Exclusion

What are the requirements to claim the foreign earned income exlcusion, the foreign housing exclusion, or the foreign housing deduction?


To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must: 1- have foreign earned income, 2- your tax home must be in a foreign country, and 3- you must be one of the following: a- A U.S. citizen who is a bona fide 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 a country with which the U. S. has an income tax treaty in effect with anti-discrimination clause and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or 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. Contact your CPA at info@whinglobal.com for more information.




What is earned income for Foreign Earned Income Exclusion purpose?


Foreign earned income generally includes pay, such as wages, salaries, bonuses, commissions, tips, net ordinary business income (example: freelance/independent contractor), or professional fees for personal services performed in a foreign country. Earned income also includes amounts paid to you as allowances or reimbursements for the following items: Cost of living, Overseas differential, Family Education, Home leave, Quarters, & Moving. Foreign earned income does not generally include:

  1. pensions,
  2. annuities,
  3. social security benefits,
  4. dividends,
  5. interest,
  6. capital gains,
  7. alimony,
  8. child support,
  9. gambling winnings,
  10. welfare benefits,
  11. unemployment compensation,
  12. worker's compensation benefits,
  13. wages paid by the U.S. government to its employees: Individuals paid by the U.S. government under a Personal Services Contract (PSC) are considered employees of the U.S. government,
  14. Payments received after the end of the tax year following the tax year in which you performed the services that earned the income,
  15. Pay received for work while an inmate in a penal institution.
There are many more income items that are not listed here. For more information, please contact your CPA at info@whinglobal.com




I am a contractor working in designated combat zone, can i claim the FEIE?


Contract services in a combat zone. Yes - Contractors working in a designated combat can now use the FEIE if they meet the Physical Presence or BFR test. For their foreign tax home requirement, see below Beginning in 2018, citizens or residents of the United States serving in an area designated by the President of the United States by Executive Order as a combat zone for purposes of section 112 in support of the U.S. Armed Forces can qualify as having a tax home in a foreign country, even if they have an abode within the United States. For a list of IRS recognized combat zones, go to IRS.gov/newsroom/combat-zones. Active duty military member cannot take the FEIE. However, their combat pay is generally tax-exempt pay. Have you considered the state taxation as well? Certain states allow the foreign earned income exclusion for their residents such as Ohio while other don't allow the exclusion, such as Pennsylvania or California Get in touch with your CPA at info@whinglobal.com or fill out this contact form for more information.





Taxation of Nonresident Aliens

I am not a US Citizen, what income is subject to US Tax? Case Study


If you are a green card holder or meet the substantial presence test, you have US tax obligations similar to any US citizen, regardless of where you work or live. Nonresident aliens are generally taxed based on their US source income, unless exempted. For the period of non-residence, US nonresident aliens may be subject to tax based on the following three cases:

  1. US-sourced income effectively connected with a trade or business in the US is taxed at the normal rates.
  2. US-sourced income NOT effectively connected with a trade or business in the US is taxed at 30% or treaty rates.
  3. Non-US-sourced income NOT effectively connected with a trade or business in the US is not taxed.
Case study: Assuming Jane Doe, a Canadian citizen, lived in the US from 2009 to 2014 on a work visa. She left US on December 31, 2014. Before she left, Jane owned a condo (no mortgage) that she now rents. She also had a brokerage account to supplement her Canadian employment income, 2019 income from the US: 1099-B generates LTCG of $20,000 1099-Div generates Qualified Dividend of $2000 - 50% of the dividend is paid by US corporations. the rest from foreign corporations 1099-INT generates interest income $450 Rental income - rents collected and expenses paid by a rental agency (property manager who receives commissions): Rents: $30,000, Expenses: $18,000. How is Jane taxed for US tax purposes? is she required to file a 2019 US tax return as a nonresident? Yes - She is required to file a US tax return. How Is Jane is taxed depends on the income received Interest income is foreign sourced. $450 is not taxable. Dividend income:
  1. $1000 is US source and taxable at 15% tax treaty rate, if applicable.
  2. The $1,000 foreign source income is not taxable.
Capital gain from stocks: the $20,000 is not taxable Rental income: All US sourced and taxable.
  1. General Rule: her gross rental income is taxed at a 15% (treaty rate)
  2. If she chooses under Internal Revenue Code section 871(d) to treat the income as effectively connected with a U.S. trade or business, then she can claim deductions attributable to the real property income and $12,000 of net income from the real property is taxed at the US graduated
In Summary: Income from sources outside the United States that is not effectively connected with a trade or business in the United States is not taxable if you receive it while you are a nonresident alien. The income is not taxable even if you earned it while you were a resident alien or if you became a resident alien or a U.S. citizen after receiving it and before the end of the year. All income for your period of residence and all income that is effectively connected with a trade or business in the United States for your period of non-residence, after allowable deductions, is added and taxed at the rates that apply to U.S. citizens and residents. Income that is not connected with a trade or business in the United States for your period of non-residence is subject to a flat 30% rate or lower treaty rate. You cannot take any deductions against this income. Have a unique tax case you want to discuss or have a question? Contact us if you have any tax questions related to U.S. tax guide for aliens.





Expatriation Tax

Am I subject to expatriation tax after I renounce my US citizenship or give up my greencard?


Generally, the expatriation tax provisions apply to U.S. citizens who have renounced their citizenship and long-term residents (LTR) who have ended their residency (relinquished their greencards). You must understand what LTR means and the expat tax provisions under section 877A for those who expatriated on or after June 17, 2008.




Who is considered a long-term resident (LTR)?


You are an long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. Lawful permanent residents are those who hold a greencard.




Who must file form 8854?


You must file an initial statement form 8854 in the the year you relinquish your US citizenship or terminate your long-term residency, even if you are not a covered expat. If you are covered expatriate, you may need to file an annual expatriation statement form 8854 if you: 1. Deferred the payment of mark-to-market tax, 2. Have an item of eligible deferred compensation, or 3. Have an interest in a nongrantor trust. Refer to this IRS link for more details related to expatriation tax




I renounced my U.S. citizenship or terminate my LTR, but what are the US tax forms do I need to file?


After you relinquish your U.S. citizenship or terminate your long-term residency, you become a nonresident alien. Therefore, you are a dual status taxpayer on that date. 1- You must file Form 1040-NR because you are not a U.S. resident on the last day of the tax year. Write “ Dual-Status Return” across the top of the for m1040NR return. 2- Attach a statement to your return to show the income for the part of the year you are a resident. You can use Form 1040 or 1040-SR as the statement, but be sure to mark “ Dual-Status Statement” across the top. Take advantage of your allowable credits during the residency period: FTC, child tax credits, additional child tax credits, etc. 3- Additionally, you are required to file an expatriation statement (Form 8854) with your tax return the year you expatriated. 4- FBAR - form fincen114 5- and any other forms/schedules applicable to you..





Controlled Foreign Corporation

What is a Controlled Foreign Corporation (CFC)?


According to the Internal revenue service, a controlled foreign corporation is any foreign corporation in which:

  • more than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned directly, indirectly, or constructively by U.S. shareholders on any day during the taxable year of such foreign corporation
or
  • more than 50% of the total value of the stock is owned directly, indirectly or constructively by U.S. shareholders on any day during the taxable year of the corporation.




Who is a shareholder under the CFC rules


A U.S. shareholder of a CFC is a U.S. person who owns directly, indirectly, or constructively:

  • 10 percent or more of the total combined voting power of stock entitled to vote
or
  • 10 percent or more of the total value of all classes of stock entitled to vote in a foreign corporation




What is Subpart F income and GILTI inclusion?


The changes to subpart F rules and the new GILTI are put in place in December 2017 to prevent U.S. companies to defer taxes from their controlled foreign corporations. This antideferral rules allow the IRS to collect taxes on current earned income and not when the profits are repatriated. The reporting of income under the Subpart F and GILTI rules depends whether or not the foreign corporation is controlled and the US person is a U.S. shareholder of the foreign corporation. In a simplified way of definition, Subpart F income is generally income earned outside of the CFC country of incorporation. GILTI is Global Intangible Low-Taxed Income. 10% US shareholders of a CFC must calculate and report their GILTI inclusion on their US tax return. The inclusion amount is the net CFC tested income after exclusion of 10% of the qualified business asset investment, or QBAI. Individuals may make a 962 election to be taxed as a corporation to deduct 50% of GILTI income under section 250. Due to the complexity of the reporting of your share of CFC income, we highly recommend US taxpayers to seek advice from qualified international tax advisers.




What forms are required if I have a CFC income?


if you are a US shareholder of a CFC, you must file Form 5471, Information Return of US Persons with Respect to Certain Foreign Corporations providing information about the entity and its subsidiaries. You must include Subpart F and GILTI income on your US tax return along with other disclosure forms, if applicable.





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