taxes

4. Rabbit Season! Duck Season! Actually it’s Tax Season for Expats

While there is no panic, no need for a mad rush, it is never too early to think about your US expat tax returns.

With that in mind I’ll run a series of articles about taxes and expats written by the experts at Taxes for Expats (*disclosure: I’ll earn a modest commission should you use their services through my link, tack!). Here’s the link to the first, second articles, and third.

Other Impacts of Tax Reform

by Ines Zemelman, EA

taxes

Alternative Minimum Tax (AMT)

The alternative minimum tax has caught more and more taxpayers who were never meant to be the ones penalized by it. The tax reform law has made changes to remedy that situation, and has increased the income level for the AMT exemption so far fewer middle class taxpayers will owe it. The exemption amount has been increased to $109,400 for married couples and widow(er)s and $70,300 for singles or those filing separately. The exemption phaseout does not occur until $1,000,000 for married couples and $500,000 for singles and those filing separately.

Retirement plans

Retirement contributions is an area of tax law that have historically provided many benefits. The changes here are relatively minor. The ability to recharacterize Roth IRA conversions from traditional IRAs, SIMPLE plans, SEP plans, 401(k), and 403(b) plans was repealed. There is still the ability to treat regular contributions to traditional or Roth IRAs as being made to one another.

Previously, retirement account loan balances became immediately due upon termination of employment. Now, if a taxpayer’s employment is terminated while they have an outstanding retirement plan loan, the plan sponsor can offset the account balance with the loan balance. If the plan sponsor does this, the employee can now roll over the balance to another eligible plan any time until the loan due date.

Other laws that were passed in 2017 & 2018 give retirement plan owners access to their funds to help with disaster losses. These losses need to have occurred due to federally declared disasters in 2016 through 2018. The benefits include waiver of the 10% penalty, the ability to include certain distributions due to hurricanes in income across 3 years, the ability to repay distributions back into the plan, more options for loans, and extended terms for loans.

Alimony and maintenance payments

For divorce and separation agreements made or modified after December 31st, 2018, alimony and maintenance payments are no longer deductible. Offsetting this change, these payments are no longer included as income on the receiver’s tax return.

Student loans

The Tax Cuts and Jobs Act allows discharges of student loan debt to be excluded from income on account of death or disability. The discharge had to have happened between December 31st of 2017 and January 1st of 2026.

Health insurance

There has not been a change to the requirement to report health insurance coverage, an exemption qualification, or the payment of the “shared responsibility payment” penalty under the Affordable Care Act, or Obamacare. The IRS continues to consider returns without this information to be incomplete. However, starting with the 2019 tax year (not the 2018 tax year) the “shared responsibility payment” penalty amount will be zero.

College athletic contributions

It is common for colleges to require a “contribution” to secure the ability to purchase seats to college sporting events. This payment can no longer be deducted as a charitable contribution.

Combat zone benefits

Members of the Armed Forces and Civilian Contractors working in support of US Armed Forces serving in the Sinai Peninsula are eligible to claim tax benefits for service in a combat zone retroactive to June of 2015.

Service members and civilian contractors are encouraged to read Combat Zone News Page for more details on available tax benefits.

expats

Go to Taxes For Expats * today, a woman owned business, for help with your tax return for a flat fee.

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How to watch the Super Bowl if you do not pay for TV

Watch like a Pro.

 

If you are like me and do not want to go out on a cold February 3 night to watch the Super Bowl you can try to stay up all night and watch it at home. But if you are also like me and do not pay for TV subscriptions you are still in luck.

 

VPN hub

 

Step 1.

Get a free VPN. This will hid the fact that you are using your Internet in Sweden.  Click on the logo above or on this link to get one

 

Step 2.

Once you are signed up choose the UK as the place you want for your connection.

 

VPN

 

Step 3.

Go to TVPlayer and sign up for a free account. Watch the Super Bowl on BBC1, sans commercials unfortunately, and get your game on.

 

You. Are. Welcome.

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taxes

3. Rabbit Season! Duck Season! Actually it’s Tax Season for Expats

While there is no panic, no need for a mad rush, it is never too early to think about your US expat tax returns.

With that in mind I’ll run a series of articles about taxes and expats written by the experts at Taxes for Expats (*disclosure: I’ll earn a modest commission should you use their services through my link, tack!). Here’s the link to the first, and second articles.

Tax Reform and Reporting of Children and Other Dependents

by Ines Zemelman, EA

taxes

As the saying goes, children are our future. Uncle Sam knows this, and he also knows how expensive it is to raise children. Taxpayers with children and other dependents have always received rather significant tax benefits to aid with the expenses associated with those dependents. The tax reform bill makes several changes that, depending on the specific situation, may either increase or decrease a person’s tax bill.

Personal exemption suspension

One of the few changes that will negatively impact taxpayers (although for many people, it will be more than offset by other changes) is the elimination of the personal exemption. This means that starting in the 2018 tax year, taxpayers can no longer claim the personal exemption deduction for themselves, their spouse, or their dependents.

Child tax credit increase

For parents, there is some very good news in the Tax Cuts and Jobs Act. The child tax credit has been increased up to $2,000 for each qualifying child under the age of 17. For lower income taxpayers, as much as $1,400 of that amount is refundable.

Many middle class taxpayers found that this substantial tax benefit was phased out for them. To remedy this, the tax reform bill increased the income level where the tax credit starts to be phased out to $400,000 (married filing joint) or $200,000 (single filers). This means more taxpayers who have dependent children can claim this tax credit, and those who do claim it can claim more.

Special Rule for a Child Born on January 1

The new rule for children whose birthday falls on Jan. 1. They are treated as if their birthday was on Dec. 31 of the prior year. Thus, a child born on Jan. 1, 2000 turns age 18 on Jan. 1, 2018 but is treated under this tax provision as if they are 18 on Dec. 31, 2017 (no longer eligible for child tax credit).

Social Security Numbers

Another change for 2018 and beyond is the requirement for children to have a Social Security Number if the child tax credit is claimed. The Social Security Number must have been issued prior to the tax return due date (including any extensions). Even if the child has an ITIN (Individual Taxpayer Identification Number), but not a Social Security Number, they cannot be claimed on the tax return.

For children who have become permanent residents or US citizens, but “Not valid for employment” is still printed on their Social Security card, their parents should contact the Social Security Administration to get a new card that does not have those words printed on it.

Although children without Social Security Numbers cannot qualify for the Child Tax Credit, they could still qualify for the new Credit for Other Dependents. They must have an ITIN that was issued prior to the tax return due date (including any extensions).

Taxpayer dependents and spouses living outside the US, and who use ITINs, are encouraged to visit irs.gov/ITIN to review requirements for renewing their ITIN prior to filing their taxes. This is not required in every case.

Addition of a credit for dependents

Another positive is the addition of a Credit for Other Dependents. This credit is as much as $500 for qualifying dependents, including older relatives, not claimed under the regular child tax credit. As with the child tax credit, this phases out at $200,000 ($400,000 if filing jointly). The addition of this credit provides some tax relief that was previously unavailable for children age 17 and older, college students, children who do not have ITINs, or other older relatives living in the household.

More favorable treatment of a child’s unearned income (interest, dividends and capital gains)

Beginning with the 2018 tax year, the child’s unearned income is no longer added to the parent’s taxable income for the incremental tax liability, which was then taxed at the parents’ marginal rate. This may be favorable for the parents who have separate investments for more than one child yet not as good when all investments are in one child name.

The “kiddie tax” tax on each child’s net unearned income will be calculated from now on using tax brackets applicable to trusts and estates. The tax bracket can easily exceed the parents’ tax rate (i.e. 37% on interest income over $12,500 or 20% for long-term capital gains and qualified dividends over $12,700).

ABLE account and 529 plan changes

Beginning with the 2018 tax year, limits on ABLE account (Achieving a Better Life Experience) contributions have been increased, and some funds may be transferred from 529 tuition plans to ABLE accounts. More information on 529 plans and rollovers can be found in Internal Revenue Service guidance.

Also starting in 2018, a Saver’s Credit may be claimed for ABLE contributions if the taxpayer is the beneficiary of the ABLE account. More information on the Saver’s Credit can be found on the IRS website.

For people with disabilities, the Tax Cuts and Jobs Act allows those who are eligible to contribute more to their Achieving a Better Life Experience account, and for many people, to claim the Saver’s Credit as well. Those with disabilities can also make rollovers from 529 plans to their ABLE accounts.

529 plan distributions are no longer limited to higher education. Up to $10,000 in distributions from 529 plans can be used annually for each beneficiary’s tuition at a private or religious K-12 school.

taxes

Go to Taxes For Expats * today, a woman owned business, for help with your tax return for a flat fee.

 

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Sweden

The Good, The Bad & The Ugly From Sweden this week

The Good

Swedish Prime Minister Stefan Lofven reelected for second term.

 

The Bad

Sweden

Prince Khalid: Stockholm Agreement between Yemeni parties being violated.

The Ugly

Sweden

Man dead after train collides with car in southern Sweden.

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taxes

2. Rabbit Season! Duck Season! Actually it’s Tax Season for Expats

While there is no panic, no need for a mad rush, it is never too early to think about your US expat tax returns.

With that in mind I’ll run a series of articles about taxes and expats written by the experts at Taxes for Expats (*disclosure: I’ll earn a modest commission should you use their services through my link, tack!). Here’s the link to the first article.

Revised Form 5471; 2017 Tax Reform Impact on Tax Compliance Continues

by Ines Zemelman, EA

taxes

5471 Makeover

Each year, the IRS shuts down e-filing in mid-November to update their systems, and in the ‘offseason’ between Thanksgiving and the New Year updates tax forms. Generally, these changes are cosmetic. With the passing of the recent tax reform, that is no longer the case. The ‘what’s new’ section of the Form 5471 instructions are almost as long as the actual form (1548 words versus 2226 words) and, even to the stodgiest of accountants, not exactly a ‘page turner’.

Certainly, changes were anticipated, but in many ways, Form 5471 is simply a brand new form, and the end result is increased compliance costs for owners of foreign corporations, and especially CFCs (controlled foreign corporations).

Nitty Gritty – What’s new?

If you’ve ever seen the movie ‘Just Friends’, the new 5471 is Ryan Reynolds after moving to Los Angeles; completely made over and hardly recognizable. New schedules were added, old schedules expanded, and schedules previously included in form 5471 are now separated.

  1. New Schedule B
  2. Schedule G expanded
  3. Separate Schedule E
  4. New Schedule E-1
  5. Separate Schedule H
  6. Modified Schedule I
  7. New Separate Schedule I-1
  8. Separate Schedule J
  9. Separate Schedule M
  10. New Separate Schedule P
  11. Schedules E, H, I-1, J, and P must be completed separately for each applicable category of income (i.e., section 965(a) inclusions and GILTI inclusions )
  12. Modified attribution rules for determining whether a U.S. person is a U.S. shareholder and whether a foreign corporation is a CFC

Not GILTI

Don’t forget the new GILTI Tax – an annual tax levied on owners of Controlled Foreign Corporations (CFC) that must be paid to the IRS every year, regardless of whether he has other taxable income or not.

With the new form 5471, the scope of entities subject to GILTI and the mandatory Transition Tax has been expanded. Under prior law, a US shareholder would be required to pay Transition Tax only if that foreign corporation was a CFC for at least 30 consecutive days during its tax year. Under the new rules, the foreign company may be subject to Transition Tax and GILTI inclusion if it was a CFC for at least one day during the tax year.

Transition Tax still due for CFC owners who did not pay in 2018

Section 965 Transition Tax, the Tax Reform addition to the IRS Code, was due in 2018 year for the owners of a CFC with a foreign accounting period ending after November 2, 2017.

A CFC with a corporate tax year ending earlier than Nov 2, 2017 will pay transition tax in 2019 with their 2018 tax return. Thus, an owner of UK CFC with an accounting period ending on March 31, 2017, will pay transition tax based on the corporate accounting period ending on March 31, 2018, with their 2018 U.S. tax return.

taxes

Go to Taxes For Expats * today, a woman owned business, for help with your tax return for a flat fee.

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