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August 18, 2017 - Phil Hodgen

Yes, A Married Person Can Claim Head of Household Filing Status

Summary

“Head of Household” filing status is desirable–it can save you some tax.

Proving you qualify for head of household status is not easy.

Among other things, head of household filing status is for unmarried taxpayers only.

But it is possible for U.S. citizens (or resident aliens) who are married to nonresident aliens to qualify for head of household filing status. All you need is to maintain a household, and a dependent who is not the nonresident alien spouse.

The Requirements

The requirements for claiming head of household status are:

  1. Be unmarried at the close of the tax year.2
  2. Not be a surviving spouse.
... continue reading
Friday Edition
August 15, 2017 - Phil Hodgen

Net Worth Test: Use Gift Tax Resident or Income Tax Resident Rules?

The tax rules for expatriation are still (almost a decade after being enacted) approximately as precise as fog. An accountant friend, Ed R. (he does not have a website, otherwise I would link to it), sent me an email after my webcast about expatriation, with an example of this.

Are You a “Gift Tax Resident” or an “Income Tax” Resident?2

Here’s the problem. The exit tax is an income tax rule, but the IRS tells us to use the gift tax rules for defining net worth so you can figure out if an individual is a covered expatriate or not.... continue reading

Expatriation
August 10, 2017 - Haoshen Zhong

Gain from a PFIC Bought and Sold in the Same Year

This is a question we received through an email:

I bought shares in a foreign mutual fund and sold it in the same year. I made a gain on the sale. I am sure the mutual fund is a PFIC. Do I have any excess distributions to report?

In this post, I will discuss why the gain probably is an excess distribution.

What are PFICs?

Passive foreign investment company (PFIC) is a specific classification under US tax law. When a US person owns shares in a PFIC, the US person is subject to extremely punitive tax and reporting rules. They are designed to discourage US persons from investing through foreign investment vehicles.... continue reading

PFIC and CFCs
August 4, 2017 - Phil Hodgen

Nonresident Real Estate Investors, Zero Income, Mandatory Tax Return Filing

This discussion is inspired by an email I received from A.A., a CPA living and working outside the United States.1

Nonresident Real Estate Investors, Zero Income, and U.S. Tax Return Filing Requirements

When are nonresidents required to file U.S. income tax returns? Let’s ignore the obvious situation–when they earn income in the United States.

Let’s look instead at a vastly more interesting question. When must a nonresident individual file a U.S. income tax return (Form 1040NR) even when there is zero income earned in the United States?

Because yes, nonresidents with zero income must sometimes file U.S. income tax returns.... continue reading

Friday Edition
July 27, 2017 - Haoshen Zhong

Loss From Selling a PFIC

Here is a question we often get from emails:

I own shares in an exchange traded fund. It is a PFIC. I have not made any elections for the shares. What happens if I sell it at a loss?

This post describes why the loss from the sale is most likely a capital loss.

What is a PFIC?

A passive foreign investment company (PFIC) is a special classification under US tax law. It applies to foreign corporations that meet at least 1 of 2 tests (IRC §1297(a)):

  • Income test: At least 75% of the foreign corporation’s income is passive income or
  • Asset test: At least 50% of the foreign corporation’s assets generate passive income or are held for generating passive income.
... continue reading
PFIC and CFCs