Choosing among alternate realities (the consultant edition)

This week’s Edition is triggered by an email I received from a reader. This is a nonresident and noncitizen of the United States who works in the United States from time to time – a consultant.

I have a US company – an LLC. I am considering a “check the box” election to convert the LLC to an S corporation, owned by a non-US company that I control. What are the pros and cons of this corporate status?

N.B. I am calling him a consultant because, well, we are hiding his identity. You can find him on the internets quite easily. But, boiling away the specifics, the reality is that he is performing a service, doing so in the USA, and getting paid. Exactly what is done is irrelevant.

Hi, it’s Friday (and aren’t PFICs a PITA?)

Let’s take a common situation: you are a U.S. citizen living abroad, married to a non-U.S. citizen. You buy mutual funds for investment, because that’s what sane people do when they invest their money. These are foreign mutual funds because, after all, you live abroad.

What happens if you give those foreign mutual fund shares to your non-U.S. citizen spouse?

The only non-cash basis step up rule (other than death)

This week’s question came from a CPA friend, asking about a client of hers. It is a disguised expatriation question. See if you can guess the expatriation question before I answer it:

A client [now a U.S. resident] sold his house in China. Since the capital gain is calculated based on the original purchase price, why do some articles say that properties should be appraised before landing to this country? I have been confronted with this question a couple of times. Do you know why?

Form W-8BENs for expatriates

This Week’s Question

This week’s episode is a mashup of several question that have come up.

Once I have successfully expatriated, I want to keep my bank account, IRA, 401(k), brokerage account, etc. open in the United States. What paperwork is required and how will I be taxed?

Short Answer

Form W-8BEN. That is what you give the financial institution. It is pretty easy unless you want to reduce your U.S. income tax from the default 30% to a lower number (like zero).

Why you can’t take a tax deduction for that (FIRPTA edition)

We (the team here at HodgenLaw PC) will be presenting a series of four webcasts for the California Society of Certified Public Accountants. I am preparing the first set of webcasts on a topic I really like – U.S. real estate investments by nonresidents. Shameless sales promotion: you should sign up for the CalCPA webcast.

This week’s Friday Edition is spawned by me being hip-deep in that topic.

TL;DR

Nonresidents who own vacation homes in the United States cannot take tax deductions for any of the costs of ownership.

Non-U.S. Software Company, U.S. Customer, and Withholding Tax

I received an email via Hackernews and figured I would answer it here, because this is a common question. This is likely to be the first of many discussions of this topic. For what it is worth, my username on HN is philiphodgen.

Question

Lightly edited (and ignoring the “how much would it cost to hire you?” question), here is what X.Y. (not his real initials, of course) on HN asked:

I am a $COUNTRY resident running a Hong Kong based software business, and a US based client tells me he needs to withhold 30% foreign taxes on the payments made to my company. I am sure this is not the first time you have seen this, and I wonder what’s the typical procedure in this case. (There are no mentions of taxes in our contract, it is first time both parties have engaged in this type of transaction.)

Gifts, bequests, inheritances and expatriation

This Week’s Question

This week’s question came from reader N., who answered the question in the “Welcome to the Expatriation Only Newsletter” email I sent him with this:

My biggest question regarding expatriation is regarding inheritance. How does taxation change upon renunciation?

Webinar for Noncovered Expatriates

Course Overview:

Part 1. Introduction/Overview

Introduction

Part 2. The Certification Test

A. Overview – Certification Test

The only test that matters to you (net worth and net tax liability are not a problem by definition)

B. How you become a covered expatriate

The law, Form 8854 – what is required?

The Code and the question on Form 8854.

The hard questions – small errors, big errors, etc. – what are the risks?

C. How to prevent covered expatriate status

Which years matter?

What to look for in those years?

What to leave alone

What to fix

How to fix it

When to fix it

No Social Security Number?

Part 4. Dual Status Tax Returns

A. Basic requirement to file

Filing requirement for year of termination of resident/citizen status.

What about low income people otherwise exempt from filing?

Should you file a dual status tax return or a full-year resident status return?

B. What happens if you don’t file, or you’re late

C. Technical details

How to allocate income to before/after expatriation date

Paperwork for the citizen/resident portion of the year (Form 1040 as a statement)

How to flow numbers from your Form 1040 Statement to the Form 1040NR

Paperwork for the portion of the year after expatriation

Tax computation for the noncitizen/nonresident portion of the year

Treaties for the nonresident/noncitizen portion of the year

Other stuff – personal exemptions, standard deductions, dependents, etc.

Part 5. Retirement Plans After Expatriation

A. How are the distributions taxed

Default rules

Treaty rules

B. Using treaties to reduce U.S. tax

How it works

The paperwork

C. Withholding at source

How it works

Form W-8BEN

Form 1040NR

Part 6. Life After Expatriation

A. Social Security, Medicare

How it is taxed

Paperwork

Treaties

Medical treatment paid for by Uncle Sam

B. U.S. real estate

Income taxation of rent

Estate taxation

Capital gains tax on sale

C. Estate planning for U.S. assets

Real estate

Stock market investments

D. Travel to the U.S.

Time:

Friday April 24, 2015

8:00AM to 10:00AM Pacific Time

Will your future self hate you?

This week’s question comes up fairly frequently, particularly from “accidental” American citizens. The typical example is a person who was born in the United States while his parents were attending school, but who left and returned to his home country at a very early age–never to return to the United States.

I have no Social Security Number and I have never filed a tax return. I want to renounce my citizenship. Should I get a Social Security Number and file five years of tax returns before I do that?

And when I say “fairly frequently” I mean twice today. :-)