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All Blog Posts for income tax


  • US or Foreign Income? The Ultimate D-I-Y Guide.

    US or Foreign Income? The Ultimate D-I-Y Guide.

    Is it important to know whether your income is attributable to the USA or another country? In fact, the determination of the source of an item of income is a number one priority when it comes to taxation rights, allocation of deductions, and foreign tax credit provisions. As an ease to taxpayers, we have developed this do-it-yourself guide to explain some of the most relevant source of income rules. For simplicity and transparency, we have also presented 14 real-life examples!

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  • The 12 Bona Fide Residence Test Factors

    The 12 Bona Fide Residence Test Factors

    US citizens and residents are subject to tax on worldwide income regardless of the location of their permanent home. Expatriates and Americans who are continuously living overseas are still required to file US income tax return and pay any taxes due. Because of the immense burden on taxpayers, Section 911 of the Tax Code was enacted to heave a sigh of relief. The current language of the statute has its roots back to 1942 when Congress considered it necessary to encourage, promote and stimulate international trade, by providing foreign earned income exclusion. The exclusion is capped at $100,800 for 2015 and $101,300 for 2016 tax year. Foreign earned income is defined as income derived from or attributable to services performed in a foreign country. But what is the definition of a foreign country?

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  • Foreign Bank Account Reports. Doing them right!

    Foreign Bank Account Reports. Doing them right!

    The last several years marked a tremendous increase in the number of Foreign Bank Account Reports filed with the Treasury Department's Financial Crimes Enforcement Network. In fact, the IRS has announced that the number of Forms 114 (Former TD.F. 90.22-1 or FBAR) filed in 2015 topped at over 1.1 million! This record number shows an upsurge in awareness of the foreign financial account reporting requirements and a trend towards voluntary compliance. Still, many taxpayers experience practical difficulties in complying with the FBAR regulations. So, what it takes to do it right?

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  • Tax Guide for Americans & Expats Living in the United Kingdom

    Tax Guide for Americans & Expats Living in the United Kingdom

    This tax guide aims to supplement and enhance your understanding of the UK income tax laws by providing current insights and practical information. In addition, we have also stressed on valuable tax planning opportunities and tax treaty provisions available to United States citizens, permanent residents, and expatriates residing in the UK.

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  • Fraud & Tax Numbers. The IRS revokes ITINs not used on a return.

    Fraud & Tax Numbers. The IRS revokes ITINs not used on a return.

    The Individual Taxpayer Identification Number (ITIN) is a nine-digit number that is used to identify certain individual taxpayers within the tax system. The ITIN is assigned directly by the IRS to eligible nonresident and resident taxpayers who do not have and do not qualify for a Social Security Number. The first ITIN was issued back in 1996 when the IRS replaced the temporary Internal Revenue Service Number (IRSN) with the ITIN as a mean to address accurate identification of international taxpayers with tax return filing or reporting requirements. Until recently, the number was personal and valid for life. Well, not anymore!

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  • Tax Guide for Americans & Expats in the Netherlands

    Tax Guide for Americans & Expats in the Netherlands

    This brief tax guide aims to supplement and enhance your understanding of the Dutch tax system by providing current insights and practical information. We have also stressed the importance of on-time tax planning and treaty provisions available solely to Americans expatriates residing in the Netherlands.

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  • Trump on Taxes! The Outcome of the Elections.

    Trump on Taxes! The Outcome of the Elections.

    The President promised a massive “across-the-board reduction of taxes for working and middle-income Americans.” The Trump Plan proposes to revamp and simplify the tax code with the expectation to boost the economy, create jobs and reduce the tax burden on taxpayers. We have highlighted some of the most relevant changes that affect the average American family.

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  • 2017 Federal Tax Update. Part 1 – Individuals

    2017 Federal Tax Update. Part 1 – Individuals

    The Internal Revenue Service has recently released Rev. Proc. 2016-55 which is setting forth the cost-of-living adjustments in effect for 2017 tax year. We have compiled the most common individual income tax provisions and contrasted them to the 2016 limits enumerated in Rev. Proc. 2015-53.

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  • Tax Guide for American Expats in Germany

    Tax Guide for American Expats in Germany

    This brief tax guide aims to supplement and enhance your understanding of the German income tax system by providing current insights and practical information. We covered the most important rules that expats should consider when it comes to residency, income and tax withholding. In addition, we have also stressed the importance of tax planning and treaty provisions available solely to American citizens and residents living in Germany.

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  • Tax Guide for American Expats in Ireland

    Tax Guide for American Expats in Ireland

    This tax guide aims to enhance your understanding of the Irish income tax system by providing current insights and practical information. We covered the most important rules that expats should consider when it comes to residency, income, taxes, and withholding. We have also highlighted some tax planning and treaty provisions available solely to American citizens and residents living in Ireland.

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  • Tax Guide for American Expats in the Philippines

    Tax Guide for American Expats in the Philippines

    This tax guide aims to supplement and enhance your understanding of the Philippine income tax system by providing current insights and practical information. We covered the core rules expats should consider when it comes to residency, income and tax withholding. We have also stressed the importance of on-time tax planning for American expats in the Philippines.

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  • Form 5472 Now Required for a Foreign-Owned U.S. LLC

    Form 5472 Now Required for a Foreign-Owned U.S. LLC

    On December 13, 2016, final regulations were issued under Sections 6038A and 7701. The new rules treat a U.S. disregarded entity, wholly owned by a foreign person, as a “U.S. corporation” solely for the report on Form 5472 “Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.”

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  • Navigating Form 5471 Filing Requirements: A Comprehensive Guide.

    Navigating Form 5471 Filing Requirements: A Comprehensive Guide.

    Form 5471 "Information Return of U.S. Persons With Respect to Certain Foreign Corporations," is a crucial document that the Internal Revenue Service (IRS) uses to gather information about U.S. persons' interests in foreign corporations. The filing of Form 5471 is part of the United States government's efforts to monitor and regulate international financial activities and ensure compliance with tax laws. In this article, we will explore the key aspects of Form 5471 filing requirements, its significance, and implications for U.S. taxpayers.

    What is a Controlled Foreign Corporation?

    A Controlled Foreign Corporation (CFC) is an entity organized outside the United States classified as a corporation for U.S. tax purposes. The concept of a CFC is designed to prevent U.S. taxpayers from deferring U.S. taxation by moving income to foreign entities that they control.

    Here are the key characteristics of a Controlled Foreign Corporation:

    1. Ownership by U.S. Shareholders: A CFC is defined by the ownership of U.S. shareholders. A U.S. shareholder is any U.S. person (individuals, corporations, partnerships, etc.) that owns 10% or more of the total combined voting power or value of shares of all classes of stock of a foreign corporation.
    2. Controlled by U.S. Shareholders: The term "controlled" means that more than 50% of the total combined voting power of all classes of stock or more than 50% of the total value of the shares of the foreign corporation is owned (directly, indirectly, or constructively) by U.S. shareholders.
    3. Subpart F Income: The tax implications of a foreign corporation being classified as a CFC primarily revolve around the inclusion of Subpart F and GILTI income. Subpart F income includes certain types of passive income, such as dividends, interest, royalties, and certain types of gains, earned by the CFC. This income is subject to immediate U.S. taxation, regardless of whether it is distributed to U.S. shareholders.
    4. Global Intangible Low-Tax Income (GILTI): Section 951A of the Tax Code introduced GILTI as an anti-deferral mechanism separate from the Subpart F income. The GILTI inclusion applies to the net income of CFCs organized in countries with an effective corporate tax rate of less than 90% of the U.S. corporate tax rate. Similar to Subpart F income, the GILTI is subject to taxation in the hands of the US shareholders whether or not an actual distribution has been made.

    Understanding Form 5471

    U.S. shareholders, officers, and directors of a CFC are required to disclose comprehensive organizational and financial information by filing Form 5471. Form 5471 is not a standalone tax return but an information return that must be attached to the taxpayer's individual or corporate tax return. U.S. persons who meet specific criteria and have interests in specified foreign corporations are required to file this form annually. Certain acquisitions or dispositions of CFC stock and various intra-group transactions are also reported on Form 5471.

    Who Must File Form 5471? Annual vs. Transactional Reporting

    The filing requirements for Form 5471 are complex and depend on the individual's or entity's relationship with the foreign corporation. The following five categories of U.S. persons are obligated to file Form 5471:

    • Category 1: U.S. Shareholders of a Specified Foreign Corporation (SFCs): Specified Foreign Corporation (SFC) stands for any CFC or a foreign corporation with at least 10% U.S. corporate shareholder. Category 1 filers must submit Form 5471 annually.
    • Category 2: Officers and Directors of Foreign Corporations: U.S. persons who are officers or directors of a foreign corporation in which a U.S. shareholder acquired in one or more transactions at least 10% ownership of a foreign corporation. The submission under category 2 is triggered by the change in ownership transactions.
    • Category 3: U.S. Shareholders of Controlled Foreign Corporations (CFCs): U.S. persons who increased or decreased ownership in a foreign corporation by a threshold of 10% or more during the year. Category 3 filers have transaction/event-based reporting.
    • Category 4: A U.S. Shareholder in control of the Controlled Foreign Corporation (CFC): Any U.S. person who owns either directly, indirectly, or by attribution (constructively) more than 50% of all classes of stock or more than 50% of the total value of the shares of the foreign corporation at any time during the CFC’s annual accounting period.
    • Category 5: U.S. Shareholders of a Controlled Foreign Corporation (CFC): Any U.S. person who owned either directly, indirectly, or constructively more than 10% of all classes of stock or voting power of the CFC and owned that stock on the last day in that year in which the foreign corporation was a CFC.

    Significance of Form 5471

    The primary purpose of Form 5471 is to provide the IRS with a comprehensive view of the U.S. taxpayer's interests and transactions involving foreign corporations. This information is essential for the IRS to monitor potential tax evasion, ensure accurate reporting of income, and enforce compliance with international tax laws.

    Form 5471 Filing Deadlines

    Form 5471 follows the standard tax filing calendar. It is generally due on the same date as the income tax return of the U.S. person (individual, partnership, or corporate) that is required to include the form. Extensions may be available, but it's crucial to adhere to the deadlines to avoid penalties and interest.

    Penalties for Non-Compliance

    Failure to comply with Form 5471 filing requirements can result in severe penalties. The IRS imposes monetary penalties for late or incomplete filings, starting at $10,000 and increasing depending on the degree of non-compliance. Additionally, the IRS has amplified its focus on offshore tax evasion, and non-compliance may lead to reduced foreign tax credits, audits, investigations, and even criminal charges in extreme cases.

    Navigating Form 5471

    Given the complexity of Form 5471 filing requirements, U.S. taxpayers with interests in foreign corporations often seek the assistance of tax professionals or international tax experts. Properly completing the form requires a thorough understanding of U.S. tax laws, international tax treaties, and the specific reporting requirements for each category of filer. Submit a quote for more information and file Form 5471 now!

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