Important Aspects of Expat Taxes and Cross Border Taxation

Jul 27, 18 Important Aspects of Expat Taxes and Cross Border Taxation

When it comes to tax for expats, things can get quite complicated quite quickly. That is why so many people get help from the experts. But if you are living, working, or if you have significant business outside of the United States, there are some things you need to understand about expat and cross-border taxation. Here are a few things to keep in mind.

1. File on Time

Just like all other kinds of taxes, there are due dates for getting your taxes in to the Internal Revenue Service. Tax for expats is due on a different date, however: June 15 instead of April 15. Failure to submit your taxes on time often comes with fees and interest, and there can be other issues that arise as well. Always plan to have your taxes in on time or slightly early, not just for peace of mind but also to ensure that you don’t incur any unwanted fines or attention.

Be aware, however, that while your taxes may be due on June 15 instead of April 15, you may be required to submit forms before then, including your FBAR. You can apply for extensions so that you can file everything at once, but it is important that, when you file tax for expats, you strictly follow the deadlines.

2. Use the Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion is a program that lets you deduct a certain amount of your income from consideration for American taxes. For 2017, the amount was quite significant at $102,100. By using this program, you may end up not paying any tax at all, depending on your income, making it a key program when it comes to tax for expats.

You will need to pass one of two residency tests to use the Foreign Earned Income Exclusion program: either a Bona Fide Residency Test or a Physical Residency Test. The bona fide test means that you lived in a foreign nation uninterrupted for the entirety of the tax year, vacations excepted. The physical test lets you be in any number of foreign countries for a 330-day period, but they have to be full, 24-hour days. The benefit of the physical test is that you can choose the 12-month period rather than strictly sticking to the tax year. Many people who work abroad and have to file tax for expats choose the latter because of its convenience and lesser restrictions.

3. File Your FBARs

The Report of Foreign Bank and Financial Accounts, or FBAR, is a required form that must be filled out when you file your tax for expats if you had any financial accounts with a total balance of over $10,000 at any point during the year. The accounts must be outside of the United States, and failure to comply can result in serious fines or legal action. FBARs are for every American citizen, regardless of their age or circumstances.

4. Cross Border Taxation Involves More than Canada and the US

While many people enjoy the benefits of the relationship between Canada and the United States, some who work in both countries forget that all of their foreign income needs to be reported. It may sound strange, but Canada still counts as a foreign country, and as such, they still need to report that income and any related taxes via tax for expats.

5. Pay Attention to Your Residency

Most people who file tax for expats understand the right paperwork to use, but there are small differences in certain forms that can result in mistakes. Even tax professionals with little experience in dealing with foreign incomes and tax can make these mistakes, which sometimes leads to unintentional tax evasion. The most common mistake boils down to residency, especially when discussing cross border taxation. Always ensure that your forms match your living and working situation to ensure you are compliant and, in some cases, not paying more than you owe.

When you live, work, or earn income outside of the United States, your taxes can become quite complicated and are subject to completely different rules. This is why so many people who must file tax for expats choose to work with an experienced accounting firm that can help them file properly and on time. If you work abroad or have significant business outside of the United States, then be sure to contact a professional accounting firm to help with your taxes. They can help you stay compliant, take advantage of all the programs available, and help you avoid any unwanted fees, fines, or interest.

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Offshore Asset Protection is a Lifetime Process

Dec 21, 17 Offshore Asset Protection is a Lifetime Process

Offshore asset protection has been thought of as something that only the very wealthy could make use of for themselves. Those who could afford offshore bank accounts have been seen as selfish individuals who don’t care about the needs of their country, and due to this assumption, the term ‘hiding money from the government’ is thrown their way as an insult. This is not true. The assets are being protected, but not for selfish reasons. Being a responsible and loyal American citizen doesn’t mean that you can’t take care of yourself, your family, or your business, and offshore asset protection means that the needs of all can be met.

It’s not just for the wealthy

Those who have financial responsibilities are required to take care of those responsibilities, and only one of their dependents is the government. Paying taxes requires funds, and protecting funds offshore means that they will be available when they are needed in times of emergency. The average person is encouraged to develop and save assets, but anyone can lose those assets, or can have them seized in bankruptcy or under a frivolous lawsuit, and if that happens, the money is not there to pay employees or take care of other dependents.

The money that is to be protected offshore is not just being stored out of the way for emergencies, however, or to be hidden if someone tries to seize it. It is there precisely because of those things. It is never a good idea to keep everything that you rely on in the same place.

In this day and age, the financial powers have shifted. We still hear of the very wealthy, but the moderates also can make a dent in economies and in the fortunes of others. Lawyers and accountants are available for protection for all who need to hold on to their assets and who are responsible for others. How does it work, though? In light of the way it appears, how can you hold on to what is as essential to protect as your own family? Discuss your situation with an accountant who specializes in offshore asset protection and can help you understand how protecting your assets is a lifetime process.

Know what you have

One of the main reasons to protect some of your assets offshore is so that they will always be available for the purposes for which they were intended. One of the basics of financial planning that is taught to everyone is to keep money separate from other money – that is, to have separate compartments for transportation, groceries, rent, and bills, and to avoid spending the money that is needed to earn money on entertainment or other frivolities. The same simple premise can be applied to offshore asset protection. Keeping these funds separate ensures that needed assets are not spent on something unintended. However, the greater the assets, the more it becomes necessary to have the help of an accountant.

Protect your privacy

Keeping the assets protected means protecting privacy, and when it comes to a large amount of assets and different governments and offshore banking regulations, then protecting the privacy of those assets becomes a difficult challenge, and therefore requires an expert who knows the ropes. It is a full-time job when the ethics of keeping funds private may be different at home than it is in the offshore base where the bank is. Of course, those assets must be protected legally.

Protect your life

An accountant specializing in offshore asset protection will be there to navigate those waters of privacy for you. They can walk the balance between making sure you are in compliance of all regulations and that the retirement funds of your employees can’t be lost to an error in reporting or to a lawsuit that they were not responsible for.

Protect your assets

The important thing to take away is that it is not only the top 5% of the population who need to protect their assets. All people who have something to protect, whether it is their homes, their families, their employees, or their businesses, must protect these things for their lifetimes, so if accounting is not your thing, then talk to a professional who can help to make sure that there will always be something to protect for life.

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Top Things to Know About US Expat Tax

Sep 18, 17 Top Things to Know About US Expat Tax

The word expat is a shortened version of expatriate. An ex-pat typically refers to a person who lives in a different country than the one they were born and raised in. In general, expats are considered to be people who are only temporarily residing in their host country and have the intention to return home at a later date. However, some expats never leave their host countries for one reason or another. They may experience a higher quality of life in their host country, or they may fall in love with its culture and customs. They may even fall in love with a person from that country, get married, and never return to their country of origin.

There are many US expats worldwide. But all US expats are responsible for paying US Expat Tax, something many people don’t think about while they’re thinking of living somewhere other than the United States.

What is Ex-Pat Tax?

The United States is one of only two countries (the other is Eritrea) that taxes its citizens no matter where they live; if you’re a US citizen living in another country, you are obliged to file US taxes and pay US Ex-Pat Tax. If you haven’t been paying US taxes but are an ex-pat, you may actually owe the government money; unpaid taxes can lead to hefty fines and even jail time, so don’t delay in contacting an international tax lawyer as soon as possible. Make sure you know how to file and pay your Ex-pat tax!

The good news is that, in order to prevent the double taxation of income that is earned by US citizens living in another country, the US tax code has provisions that can reduce or even eliminate an ex-pat’s duty to pay US taxes. For example, there is a provision called the Foreign Earned Income Exclusion (FEIE), which allows expats to exclude a certain amount of income that they earned abroad. In 2015, this number was just over $100 000. Ex-pats also have the opportunity to apply paid foreign taxes as a credit against their US taxes.

However, even if you don’t owe any taxes, you must file a US income tax return every year. However, filing ex-pat tax can be a complicated process; if you want to claim the FIEE or any foreign tax credits, you’ll need to file specific forms along with your tax return. In certain cases, if you’re late filing these forms you may be barred from making the claims. You may also be charged late penalties.

What if I don’t make a lot of money? Do I still have to pay ex-pat tax?

It doesn’t matter how much income you make; you are still obligated to file an annual US tax return. You may not have to pay any ex-pat taxes, but it’s critical that you file your tax returns every year, even if you have no plans to return to US soil.

What if I’ve never filed a tax return before? Will I face severe penalties?

Don’t despair. What many US expats don’t realize is that the US government has introduced certain programs, known as the Streamlined procedures, which allow non-willfully or delinquent taxpayers to file their taxes without incurring any penalties. If you’re deemed someone who hasn’t paid taxes for unintentional reasons, you may only be required to file the last three years’ worth of tax returns. The IRS introduced the Streamlined procedures to make it more attractive for non-willful delinquent taxpayers to file their taxes without fear of penalty.

If you’re a US ex-pat, you will need to comply with US ex-pat tax laws. It’s as simple as that. However, filing US taxes can be a complicated and frustrating procedure, so it’s best to work with professionals who can help you save money and time. Professional tax consultants pride themselves in knowing international tax law in-and-out, and they can help you protect your assets and income from over-taxation and undue penalties. If you haven’t filed your US tax returns yet, it’s time to do so. Contact an experienced US expat tax consultant right away to set up a consultation; they’ll sit down with you to go over all your options and the best solutions for you.

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The Purpose of the Offshore Voluntary Disclosure Program

Mar 16, 17 The Purpose of the Offshore Voluntary Disclosure Program

Justice and fairness are values that are important to most people. No one wants to see someone suffering unnecessarily; that’s a strong conviction for most people. But just as strong is the conviction that no one should get away with doing wrong or harmful things. Most people are passionate about others reaping what they sow, and that can sometimes cause us to jump to conclusions about very complicated situations.

The Offshore Voluntary Disclosure Program is a program that many people don’t fully understand, and therefore don’t fully support. Many see it as a way out for those who have chosen to engage in unlawful behavior when, really, the goals of the program are much more complex. Before you decide you are not in favor of the Offshore Voluntary Disclosure Program, here are a few things you might want to consider. They may change your mind, or they may not. Either way, having the complete information will provide you with the opportunity to make a more informed decision about how you feel regarding the program.

What is the Offshore Voluntary Disclosure Program?

The Offshore Voluntary Disclosure Program provides an outlet for people who have previously failed to report their foreign income or assets to do so now, retroactively. Participants in the program are people who have knowingly failed to disclose rather than people who mistakenly failed to disclose, so someone whose accountant falsely told them that everything was filed appropriately would not be eligible; they have other avenues to rectify their situation.

Participants in the program may file or amend up to eight years’ worth of tax returns, and they must pay all taxes, interest, and penalties on the amounts claimed. There may be additional penalties imposed, and participants will be required to answer some questions.

Does it Protect Criminals?

The issue many people have with the Offshore Voluntary Disclosure Program is that they feel it protects people who have violated the law by deliberately choosing to ignore their obligation to report their foreign income and assets. However, this may be an unfair assessment of the matter; the program actually operates in a way that the justice system tends to.

When a trial of any kind is brought before the courts, it is never cut and dry. There is always negotiating that takes place. This can include a plea bargain, where the charge—and therefore the sentence—is lowered in exchange for an admission of guilt. And when sentencing takes place, the judge always looks at mitigating factors and may reduce the sentence based on things like a guilty plea or remorse. Even something as simple as a traffic ticket fine is often reduced if the defendant agrees not to fight the charge.

So yes, the Offshore Voluntary Disclosure Program does provide some relief to those who have violated certain tax laws, but not without anything in return. Participants have to admit guilt and make the situation right. The program is the same sort of negotiating tool often employed by the justice system to get results.

What are the Benefits?

One of the reasons many people initially disagree with the Offshore Voluntary Disclosure Program is that they only see one side of it. They see people who have violated the law getting their consequences reduced, and that’s it.

But that’s only one side of the picture. The other side is that it ultimately brings more people in line. Without the risk of jail or other legal ramifications, more people are likely to step forward and admit guilt, and—more importantly—pay back what they owe. Being given the opportunity to come clean also means that participants won’t have to keep committing fraud to cover their tracks. It might not feel like a moral victory for some people, but it truly does rectify the problem. Having tax money paid back is more important than having someone thrown in jail; it keeps the tax system fair, and it prevents honest people from having to carry the system on their own.

Committing international tax fraud is wrong, but being given a second chance to make things right isn’t such a bad thing. The Offshore Voluntary Tax Disclosure Program does not exist to give a break to wealthy tax evaders, but rather as a means of collecting what is owed and seeking justice.

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Getting the Most Out of the Research and Development Tax Credit

Feb 20, 17 Getting the Most Out of the Research and Development Tax Credit

The Research and Development tax credits are now permanent. The US government has introduced some new changes that extend the purview of the tax credits offered to business for innovation activities.

What’s New?

Earlier only companies involved in revolutionary developments in their industry were considered worthy of tax credits. This has changed and as per the new laws even the evolutionary activities such as investing time and efforts in the development of new ideas that are valuable though not groundbreaking are considered as Qualifying Research Activities.

The R&D tax credits cover a wide range of activities and the best part is you don’t need to be successful in qualifying. The activities just need to meet the following four criteria mentioned below.

Passing the Four-Part Test

  • Permitted Purpose – The research should be intended to develop or improve a product or processes. It is necessary the research activity is focused on improving functionality, quality, reliability or performance of the product. If your research is directed for cost reduction, it is considered as qualifying research. However, activities that are performed for aesthetic purposes do not qualify for credits.
  • Process of Experimentation – You need to demonstrate through modeling, simulation, or any other method that you have evaluated alternatives to get the desired results.
  • Technical Uncertainty – It is necessary that your company has taken necessary steps on eliminating any uncertainty regarding the product development or process improvement. Also, you need to show you are aware of the procedure and methodologies to reach the goal.
  • Technological in Nature – The research activities should be based on any science such as engineering, biology, physics, chemistry or computer sciences. Activities based on social, economic or psychological sciences are not eligible for tax credits.

According to Alliantgroup estimates, the US Federal government offers more than $7.5 billion in R&D tax credits. There is plenty of pie available and almost any company performing qualifying research activities can grab their piece by learning about the tips that can help reap maximum rewards of R&D credits.

How to Reap Your R&D Tax Credits?

Maintain Records

You need to keep all records updated to verify the company’s research costs and the work it does. Track everything right from the beginning to avoid any issues later on. Your R&D credit is more likely to get audited by the IRS (Internal Revenue Service) and only proper documentation of the records can help you successfully claim the Research and Development tax credit. The best way to maintain records is to print everything or the IRS might think no research happened.

Keep the Research Activities Local

The Federal R&D tax credits are only available for domestic research. If your company has spent on R&D in a foreign country, the research activities are not eligible for tax credits. Employing overseas contractors for research is not considered creditworthy. If you have employed contractors for research, they must be working in any state of the US.

How Much R&D Tax Credit You Can Claim?

According to the new regulations, startups that are less than five years old and have annual gross receipts less than $5 million can claim up to $250,000 in credits against payroll taxes. Companies with less than $50 million in annual gross receipts and having three taxable years can now claim R&D credit against the Alternative Minimum Tax. If you calculate it as dollar for dollar credit, you can claim up to 6.5% of employee wages. You can also claim up to 65% of the amount paid to contractors under the R&D tax credit scheme.

Applying for R&D Tax Credits

Claiming R&D tax credits is simple. You just need to show the qualifying research work and the related expenditure. Given your organization is a typical firm that follows proper project documentation practices and time tracking, it would be easy to backup your tax credits ( claims.

The Research and Development Credit is a great way to bring back the money that you have spent on research and improving existing products. There is a misconception that R&D tax credits benefit big firms only which is not true. Small and medium-sized businesses are less informed that prevents them from getting most out of the R&D tax credits.

So, have you applied for R&D tax credits this year?

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R&D Tax Credits Can be Big Boon for Startups

Dec 22, 16 R&D Tax Credits Can be Big Boon for Startups

The Texas R&D tax credits are in line with Federal R&D credits introduced by the US Government. In fact, the Texas State government has made the deal sweeter by increasing the purview of the research and development credit.

We need not tell you that how important the additional cash is for a startup to keep the business running when profits is a distant dream that will take some time to realize. Until December 2015, the R&D tax credits were temporary but in December 2015, the R&D tax credits were made permanent under the PATH Act (The Protecting Americans from Tax Hikes Act of 2015). This means organizations can plan their long-term R&D projects with greater certainty.

R&D Tax Credit for Startups

• 1-5 years – 3% for first five taxable years after December 31, 1993, in which the company has QRE’s

• 6th Year – 1/6th of aggregate of qualified research expenses of 4th and 5th year divided by Years 4 and 5 aggregate gross receipts

• 7th year- 1/3 of aggregate of qualified research expenses of 5th and 6th year divided by Years 5 and 6 aggregate gross receipts

• 8th year – 1/2 of aggregate of qualified research expenses of 5th, 6th, 7th year divided by Years 5, 6 and 7th aggregate gross receipts

• 9th year – 2/3 of aggregate of qualified research expenses of 5th, 6th, 7th, and 8th year divided by Years 5, 6, 7, and 8 aggregate gross receipts

• 10th year – 5/6 of aggregate of qualified research expenses of 5th, 6th, 7th, 8th, and 9th year divided by Years 5, 6,7, 8, and 9 aggregate gross receipts

Texas Provides Credits and Exemptions That Create a Thriving Startup-Ecosystem

Texas R&D Credit extends the purview of R&D tax excemption proposed by the Federal government. According to new guidelines, the Texas government provides sales/use tax exemption to companies that applies to use, storage and sale of depreciable tangible property directly that was used in qualified research. If the property is rented, sold, leased, or used by a person who is involved in “qualified research” then he can claim sales/use tax exemption

To get the exemption the taxpayer is required to register with Comptroller’s office prior claiming the exemption on qualifying purchases.

Texas R&D Tax Credits Can Be Used Against Franchise Tax

The amount of credit given against the Franchise Tax is 5% of the difference between QRE’s(Qualified Research Expense) incurred in Texas during that period and 50% of the average amount of QRE’s incurred in Texas during three tax periods immediately preceding the period on which the report is based. The good thing is R&D tax credit can be carried forward for 20 consecutive reports.

R&D Tax Credits Are Applicable to AMT (Alternative Minimum Tax)

The revamping of R&D tax excemption rules has benefitted the startups immensely. Earlier startups generating less revenue were required to AMT and the R&D credits were not applicable to AMT. With modifications to the R&D tax credit laws, eligible businesses including startups with $50 million and less in gross receipts can apply for R&D tax credit against the AMT liability.

According to new regulations, startups having gross receipts less than $5 million can apply for R&D incentives up to $25,000 against their payroll taxes.

How Can Startups Get the Payroll Tax Benefit?

Consider Company A, a startup employing 25 people with an annual average salary of $80,000

· Total Payroll costs for a year – $2,000,000

· the OASDI(Official Name for Social Security) Employer Tax Liability (full year) for 25 employees will be – $2,000,000 X 6.2% = $124,000

· 2016 Research Credit = $25,000

· Estimated OASDI employer tax–2017 Q2 is $31,000

· Credit applied is $31,000

· OASDI employer tax amount due- Q2 is $0

· Carry forward to 2017 Q3 is ($250,000 – $31,000) = $219,000

According to the Small Business Trend ranking, Austin is the best city in Texas to launch a startup. There is no denying that startups in Texas have low tax burdens and a great startup- network. All this creates a business atmosphere that is encouraging and stimulating for startups. Texas has its own version of R&D tax credits that puts more money back in startups that help startups in their initial struggling years.

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