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February 17, 2017 - Phil Hodgen

Children, Investment accounts, and PFICs. It’s a Mess.

Americans living abroad will frequently do a sensible thing, and invest in foreign mutual funds. That’s a good investment strategy.

But when that American is a kid? Foreign mutual funds make trouble. They may require the child to file a U.S. tax return, even if the child has trivial amounts of income:

  • Usually, a minor (who can be claimed as a dependent on someone’s tax return) doesn’t file a U.S. tax return until his or her investment income exceeds $1,050.
  • But if that minor owns foreign mutual funds, the requirement to file Form 8621 will likely kick in and force the filing of a tax return, if there is as little as a dollar of dividends from the mutual funds.
... continue reading
Friday Edition
February 14, 2017 - Phil Hodgen

Does Filing a Late Form 8854 Make You a Covered Expatriate?

Does filing a late Form 8854 make you a covered expatriate?1

No.

If you are late filing your Form 8854, the worst that can happen is that you will be fined $10,000. You will not be a covered expatriate.

Form 8854 and Its Filing Deadline

Congress sets the rules for what is taxed, and what the tax will be. Then it granted the IRS power to design tax forms2 and set filing deadlines.3

Expatriates – citizens who give up their U.S. citizenship, green card holders of long-standing – are required to provide information.4 Form 8854 is how the IRS exercised its power to design a tax return (and set the filing deadline) for the information required from expatriates.... continue reading

Expatriation
February 9, 2017 - Haoshen Zhong

Deferring tax on PFIC income using your foreign operating company

Today’s post is a war story about a pair of US citizen former clients whose PFIC issues we helped clean up. The question, paraphrased, is more or less like this:

We are equal shareholders of a successful Portuguese company (LDA). Our company accrued a lot of profits. We really do not want to let the profits sit idle. Can we safely invest them in exchange traded funds?

This post will discuss how to use a mix of the mark-to-market regime for foreign investment companies (PFICs) and the de minimis exception to foreign base company income for controlled foreign corporation (CFCs) to defer US tax on the profits from the exchange traded funds.... continue reading

PFIC and CFCs
February 6, 2017 - Phil Hodgen

Filing Deadlines for FBARs and Income Tax Returns

We finally have sane filing deadlines for income tax returns and FBARs (FinCen Form 114). But there is still a trap for the unwary.

Income Tax Return Deadline for Tax Returns: April 15

Humans file income tax returns by April 15 .1

Income Tax Return Extended Filing Deadlines

Humans can get extensions of time to file their income tax returns:

  • June 15. This is an automatic extension, no paperwork required. It is available for American citizens or green card holders whose tax homes are outside the United States.2
  • October 15. This deadline is yours if you ask for it.
... continue reading
Americans Living Abroad Random
February 3, 2017 - Phil Hodgen

The Foreign Earned Income Exclusion and Self-Employed Americans Abroad

This is for the self-employed Americans living abroad who want to enjoy some of that tax-free goodness that comes from the foreign earned income exclusion.

Perhaps you are a digital nomad — an American abroad earning a living online by building websites. You have not organized your business as a corporation. You are a sole proprietor.

You live at the intersection of Schedule C (PDF) and Form 2555 (PDF).

The Answer

Watch out for “gross” and “net” income. It is easy to assume (because it is logical) that the foreign earned income exclusion applies to net income. Not so.

As soon as a self-employed person grosses more than the exclusion amount for the year, there is an assurance of income tax and self-employment tax no matter what the net profit really is — unless you are in rounding error territory.... continue reading

Friday Edition