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How does US estate tax work with foreign assets?

How does US estate tax work with foreign assets?

Published on February 28, 2024
by Deborshi Choudhury, EA

Deborshi Choudhury, an IRS Enrolled Agent with 16 years of expat tax experience, specializes in U.S. tax preparation, tax planning, and tax advice for U.S. citizens and Green Card holders living and working in the UAE and Canada.

Table of Contents

How does US estate tax work with foreign assets?

US estate tax applies to the global assets of US citizens and residents, which means that foreign assets like overseas real estate, bank accounts, and investments are included in the estate’s taxable value.

What is US estate tax?

The US estate tax is a tax on the transfer of the estate of a deceased person. For US citizens, green card holders, and residents, it includes global assets, meaning foreign assets are subject to US estate taxation. This ensures that all assets, regardless of their location, are considered in the valuation of the estate for tax purposes.

Foreign assets are subject to US estate tax because the US tax system operates on a worldwide income basis for its citizens and residents. This means that all assets, including those held outside the US, are included in the estate’s total value for tax assessment. The inclusion of foreign assets ensures a fair and complete evaluation of an individual’s estate.

How does the IRS determine the estate tax residency of the deceased?

The IRS determines the estate tax residency of the deceased based on their domicile at the time of death, not just citizenship. Domicile is established by living in a place with the intent to make it a permanent home. Therefore, US expats living abroad may still be considered US residents for estate tax purposes if their domicile is deemed to be in the US.

What constitutes foreign assets for the estate tax?

Foreign assets for estate tax purposes include any property or investments located outside the US. This can range from real estate, bank accounts, and investments in foreign companies to tangible assets like art or jewelry situated abroad. It’s important for US expats to understand what qualifies as a foreign asset to accurately assess their estate tax liabilities.

How are foreign assets valued for the estate tax?

For US estate tax purposes, foreign assets are valued based on their fair market value at the time of the owner’s death. This valuation includes real estate, bank accounts, stocks, and personal property located outside the United States. 

The fair market value is the price at which the asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

STREAMLINED AMNESTY

It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.

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What are the estate tax exemption limits?

The estate tax exemption limit is the amount up to which an estate is not subject to federal estate tax. As of 2024, the exemption amount is $13,610,000 for individuals. This means that estates valued below this threshold are generally exempt from federal estate taxes. However, US expats should be aware that these limits can change, and they should stay informed about current exemption limits.

Which IRS forms are used for reporting foreign assets in an Estate?

  • Form 706: This is the United States Estate (and Generation-Skipping Transfer) Tax Return, used for reporting the estate of a deceased US citizen or resident.
  • Form 706-NA: Nonresident aliens use this form for reporting US-situated assets.
  • Form 8938: This form may be required to report specified foreign financial assets if the total value exceeds the applicable reporting threshold.

Additionally, the standard deadline for filing federal estate tax returns is nine months after the date of death. However, an automatic six-month extension is available if requested before the conclusion of the nine-month period. This extension does not extend the time for payment of any tax due.

How are foreign trusts and entities treated for estate tax purposes?

Foreign trusts and entities, when involved in a US expat’s estate, are subject to specific rules under US estate tax laws. These entities are evaluated based on their ownership structure and the value of their assets. 

If a US citizen or resident has ownership or interest in a foreign trust or entity, the value of that interest is typically included in their estate for tax purposes. This inclusion is crucial for ensuring a comprehensive assessment of the estate’s value.

If all of this tax jargon is making you dizzy, it’s highly recommended to get advice from a tax professional specialized in estate tax.

What are the reporting requirements for gifts or inheritance from foreign persons?

US expats receiving gifts or inheritance from foreign persons must adhere to certain reporting requirements:

  • Form 3520: This form is used to report transactions with foreign trusts and the receipt of certain foreign gifts or bequests.
  • Threshold for Reporting: Gifts or bequests valued above a certain threshold from foreign persons must be reported. For 2023, the threshold is $100,000. However, it’s important to note that the threshold varies each year, so it’s best to check the current limits.

Additionally, for purported gifts from foreign corporations or foreign partnerships, you are required to report the receipt of such purported gifts only if the aggregate amount received from all entities exceeds $18,567 for 2023 (adjusted annually for inflation). You must separately identify each gift and the identity of the donor.

Are there any strategies for minimizing US estate tax on foreign assets?

  • Utilize Exemptions and Credits: Understand and make full use of available estate tax exemptions and credits, including the unified credit and foreign tax credits.
  • Ownership Structuring: Consider the structure of foreign asset ownership. Certain structures may offer more favorable tax treatment.
  • Gifting Strategies: Implementing gifting strategies during one’s lifetime can reduce the taxable estate. This should be done in compliance with both US and foreign gift tax laws.
  • Trust Planning: Utilizing trusts, both domestic and foreign, can be an effective tool, but it requires careful planning to ensure compliance and tax efficiency.

Given the complexity of US estate tax laws, especially concerning foreign trusts, entities, and assets, US expats are highly encouraged to seek the advice of a tax professional. 

An expert can provide tailored strategies to minimize estate taxes and ensure compliance with all reporting requirements. Their guidance is invaluable in understanding the intricacies of US and international tax laws.

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How long can I be audited by the IRS? | Expat Tax Online

How long can I be audited by the IRS?

How long can I be audited by the IRS?

Published on February 26, 2024
by Andrew Landin

Andrew Landin, a Tax Lawyer and IRS Enrolled Agent with 20 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia.

Table of Contents

How many years back can the IRS audit me?

The Internal Revenue Service (IRS) typically has a three-year window to audit your tax returns. This means they can audit returns filed within the last three years.

However, this period may extend if substantial errors are found or if a return was filed fraudulently. This is why US expats need to maintain accurate records and understand that their tax returns remain open to scrutiny for this duration.

How far back can the IRS audit prior tax returns?

While the standard period for an IRS audit is three years, there are exceptions where they can go further back. If the IRS suspects a significant underreporting of income (more than 25% of your gross income), they can audit up to six years back.

But in cases of fraud or failure to file a tax return, there is no time limit, and the IRS can audit tax returns from any year.

Why am I being selected for an audit?

  • Random Selection: Sometimes, returns are chosen randomly for an audit.
  • Discrepancies in Reporting: If there are discrepancies between your tax return and the information reported to the IRS by employers, banks, or other third parties, it may trigger an audit.
  • Complex or Unusual Transactions: Returns with complex or unusual transactions, especially those involving foreign income and assets, may be more likely to be audited.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

STREAMLINED AMNESTY

It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.

Get a quote here.

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How am I notified of an audit?

The IRS notifies individuals of an audit through a formal letter. This notification will include the details of the audit, such as the tax years under review and the specific items being questioned.

It’s crucial to understand that the initial contact from the IRS is sent through postal mail.

Afterward, the IRS will provide all contact information and instructions in the letter you will receive.

How will the IRS conduct my audit?

The IRS can conduct audits in several ways:

  • By Mail (Correspondence Audit): The most common method, especially for simpler issues. You’ll receive a request for additional information about certain aspects of your tax return.
  • In an IRS Office (Office Audit): More complex issues may require you to visit an IRS office to discuss your return.
  • At Your Home, Business, or Accountant’s Office (Field Audit): The most comprehensive audit type, where an IRS agent will conduct a thorough review of your records and accounts.

What do I need to provide for my audit?

For your audit, you may need to provide:

  • Documentation: This includes receipts, bills, legal papers, loan agreements, logs, employment documents, and other records that can substantiate the items of your return that are being audited.
  • Explanation of Records: You might also need to explain how you used these documents to prepare your tax return.
  • Amendments to Your Tax Return: If errors are found, you may need to file an amended return.

How do I know if the IRS received my response?

To confirm that the IRS has received your response to an audit notice:

  • Use Certified Mail: When sending documents, use certified mail with a return receipt. This provides proof that the IRS received your response.
  • Follow-up: If you haven’t heard from the IRS within a reasonable time (usually 30 days), follow up with a phone call to ensure they received your information and to inquire about the status of your audit. Usually, you will find the contact number or method within the initial letter the IRS sent you.

What if I need more time to respond to my audit?

If you need more time to respond to an IRS audit, it’s possible to request an extension. This is especially common when gathering the necessary documentation requires additional time.

To request an extension, you should contact the IRS agent handling your case as soon as possible, explaining your situation and specifying how much extra time you need.

The IRS is often willing to accommodate reasonable requests for extensions, particularly if it helps in providing accurate and complete information for the audit.

What are my rights?

As a taxpayer under audit by the IRS, you have specific rights, including:

  • The Right to Professional Representation: You have the right to hire a tax professional, such as an attorney, certified public accountant, or enrolled agent, to represent you in your dealings with the IRS.
  • The Right to Privacy and Confidentiality: Your tax matters should be handled in a manner that respects your privacy. Any information provided to the IRS should be treated confidentially.
  • The Right to Know Why the IRS Is Requesting Information: You have the right to understand why the IRS is asking for information, how it will be used, and what will happen if the requested information is not provided.
  • The Right to Appeal Disagreements: If you disagree with the IRS’s findings, you have the right to appeal the decision.

How does the IRS conclude an audit?

An IRS audit can conclude in several ways:

  • No Change: If the IRS finds that everything in your tax return was correct, they will issue a “no change” notice, meaning you owe no additional tax.
  • Agreed: If the IRS proposes changes and you understand and agree with these changes, you will sign an examination report or a similar form and may have to pay additional tax.
  • Disagreed: If you disagree with the IRS findings, you can request a conference with an IRS manager, file an appeal if eligible, or seek mediation.

What happens when I agree with the audit findings?

If you agree with the IRS audit findings, the process is relatively straightforward. You will need to complete any necessary paperwork, which typically includes signing an agreement form provided by the IRS. This form acknowledges your acceptance of the audit results.

Once you agree with the findings, you may need to make additional tax payments if the audit determines that you owe more taxes.

What happens when I disagree with the audit findings?

Disagreeing with the IRS audit findings opens up several options:

  • Request a Conference with an IRS Manager: You can request a further review of your case by a higher authority within the IRS.
  • File an Appeal: If you still disagree after the conference, you have the right to file an appeal with the IRS Office of Appeals. This is a formal process where you can present your case to an independent IRS appeals officer.
  • Seek Mediation or Go to Tax Court: As a last resort, you can opt for mediation or even take your case to tax court if you strongly believe the audit findings are incorrect.

How many years in a row can the IRS audit me?

There is no limit to how many consecutive years the IRS can audit you. However, continuous audits are rare and usually happen only if the IRS finds significant issues with your tax returns in successive years.

Repeated audits can occur if you have a history of tax evasion, substantial errors, or a pattern of questionable tax activities.

Can the IRS audit me two (2) years in a row?

Yes, the IRS can audit you two years in a row.

Continuous audits might occur if the IRS finds significant or recurring issues in your tax returns. However, repeated annual audits are generally rare and usually triggered by substantial errors or suspicious activities noted in your returns.

Can the IRS audit me after three (3) years?

The standard statute of limitations for the IRS to conduct an audit is three years from the date you filed your tax return. However, there are exceptions to this rule.

If you underreported your income by more than 25%, the IRS has up to six years to initiate an audit. In cases of fraud or failure to file a tax return, there is no time limit, and the IRS can audit your return at any time, even after three years.

Can the IRS come after me after 10 years?

Regarding tax collection (as opposed to auditing), the IRS typically has a 10-year window to collect unpaid taxes. This 10-year statute of limitations starts from the date the tax was assessed.

However, certain actions, like filing for bankruptcy or leaving the country, can extend this period. It’s important to be aware that while the IRS may not initiate an audit after 10 years, they can still take action to collect any outstanding taxes within this timeframe.

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What is the IRS Form 926?

What is the IRS Form 926?

 

Published on February 23, 2024
by Jefferson Clemente, EA

Jefferson Clemente, a CPA tax professional with 11 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working abroad.

Table of Contents

Do I need to report property transfers to foreign corporations to the IRS?

Yes, if you are a US citizen and transfer property to a foreign corporation, you generally need to report this transaction to the IRS using Form 926. This requirement applies if the value of the transferred property exceeds $100,000 during the tax year or if you own at least 10% of the foreign corporation after the transfer.

What is Form 926?

Form 926 is filed by US citizens or green card holders who transfer property to a foreign corporation, as part of the IRS’s efforts to track and tax such transfers appropriately. This form is used to report the transfer of property and to calculate any taxes owed as a result of the transfer.

Who is required to file Form 926?

Any US person or entity that transfers property to a foreign corporation must file Form 926 if the transfer meets certain criteria set by the IRS.

  • This includes individuals, trusts, estates, partnerships, and corporations based in the US The requirement to file is triggered if:
  • The US person owns at least 10% of the foreign corporation immediately after the transfer, or
    The value of the property transferred exceeds $100,000 at any time during the tax year.

What information do I need to include on Form 926?

When filing Form 926, you’ll need to provide detailed information about both the transferor and the transferee, as well as the transferred property, including:

  • The name, address, and EIN (if applicable) of the US transferor.
  • Detailed information about the foreign corporation receiving the property, including its name, address, and country of incorporation.
  • A complete description of the transferred property, including its fair market value and the method used to determine this value.
  • The date of the transfer and the percentage of stock or securities of the foreign corporation owned by the US person after the transfer.

Additionally, you may need to disclose any monetary or non-monetary exchange involved in the transfer, such as cash payments or the assumption of liabilities by the foreign corporation.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

STREAMLINED AMNESTY

It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.

Get a quote here.

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What are the filing requirements for Form 926?

Transfers of Cash
When a US person transfers cash to a foreign corporation, the need to file Form 926 is determined by the amount transferred and the ownership stake in the foreign corporation post-transfer.

If the transfer exceeds $100,000 during the tax year or if the transfer results in the US person owning 10% or more of the foreign corporation, Form 926 must be filed. This requirement ensures that substantial transfers are reported to the IRS, allowing for proper oversight and taxation.

Transfers of Stock or Securities
Similar rules apply to the transfer of stock or securities to a foreign corporation. The factors triggering the filing requirement include the value of the transferred stock or securities and the resulting ownership percentage.

If these transfers meet or exceed the thresholds mentioned earlier, the US person must report the transaction using Form 926. This includes detailing the type and value of the securities transferred, the date of transfer, and the ownership stake in the foreign corporation after the transfer.

Distributions by Domestic Liquidating Corporations
Distributions by domestic liquidating corporations to foreign corporations also fall under the purview of Form 926. When a domestic corporation in the process of liquidation distributes its assets to a foreign corporation, this transaction must be reported if the US person has significant ownership or if the value of the distributed assets meets the reporting criteria.

When is Form 926 Filed?

Form 926 must be filed by a US person or entity that transfers property to a foreign corporation during the tax year if the transfer meets certain criteria. The form is due at the same time as the transferor’s income tax return, including tax extensions, for the year in which the transfer occurred.

This means if you’re transferring property in 2023, and your tax return is due in April 2024, Form 926 should be filed alongside your 2023 tax return by April 2024, or by the extended due date if an extension is filed.

Who doesn’t have to file Form 926?

Not all transfers to foreign corporations require the filing of Form 926. There are exceptions based on the nature of the property transferred and the relationship between the transferor and the transferee.

For instance, transfers of property that are considered normal business transactions, where the total value does not exceed $100,000 during the tax year, may not necessitate filing Form 926.

Additionally, if the US person does not directly or indirectly own at least 10% of the foreign corporation following the transfer, they may be exempt from filing.

However, it’s important to note that the rules are nuanced, and consulting the latest IRS guidelines or a tax professional is advisable to determine specific exemptions.

What if the property transferred has changed in value since the transfer?

If the property transferred to a foreign corporation has changed in value since the transfer, it’s the initial value at the time of transfer that matters for Form 926 reporting purposes.

The IRS is interested in the fair market value (FMV) of the property at the time of the transfer, as this value is crucial for determining the tax implications of the transfer. If the value changes after the transfer, it does not affect the reporting requirement on Form 926, but may have implications for future transactions or valuations of the foreign corporation’s assets.

Are there any penalties for failure to file Form 926?

If you fail to file Form 926 without reasonable cause, you may be subject to a penalty. Additionally, failure to file can open the door to further scrutiny of your tax returns and potentially extend the statute of limitations for the IRS to audit the tax year in question.

Here’s a detailed look at the penalties associated with failing to file Form 926:

  • Base Penalty: The IRS imposes a penalty of 10% of the fair market value (FMV) of the property transferred to the foreign corporation at the time of the transfer.
  • Penalty Cap: The penalty for not filing Form 926 is capped at $100,000 unless the failure to file is found to be due to intentional disregard of the filing requirements. In cases of intentional disregard, there is no cap on the penalty, which means the financial consequences can be significantly higher.
  • Intentional Disregard: If the IRS determines that the failure to file was due to intentional disregard of the filing requirements, the penalties can escalate beyond the $100,000 cap.
  • Increased IRS Scrutiny: Failing to file Form 926 not only results in financial penalties but also flags your account for increased scrutiny by the IRS. This can lead to more comprehensive audits of your tax returns.
  • Extended Statute of Limitations: Typically, the IRS has a three-year statute of limitations to audit a tax return. However, failure to file Form 926 can extend this period, giving the IRS more time to investigate and potentially challenge your tax filings.
  • Additional Consequences: Beyond the penalties for not filing Form 926, taxpayers may face other repercussions, such as penalties for underpayment of tax if the failure to report results in an underpayment of tax due. Interest on unpaid taxes and penalties starts accruing from the due date of the tax return, increasing the total amount owed over time.

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IRS Form 4549

What is Form 4549?

Can I dispute the IRS’s findings on Form 4549?

Published on February 19, 2024
by Deborshi Choudhury, EA

Deborshi Choudhury an IRS Enrolled Agent with 16 years of expat tax experience, specializes in U.S. tax preparation, tax planning, and tax advice for U.S. citizens and Green Card holders living and working in the UAE and Canada.

Table of Contents

Yes. If you disagree with the IRS’s findings on Form 4549, you have the right to dispute the adjustments.

What is Form 4549?

Form 4549, or Income Tax Examination Changes, is a document the IRS uses to propose adjustments to your income tax return.

Essentially, if the IRS conducts an audit of your tax return and determines that changes are necessary, they will outline these adjustments in Form 4549. This form serves as a detailed report of what the IRS believes should be corrected on your return, including any additional taxes owed or refunds due.

When is Form 4549 typically issued?

You might receive Form 4549 after an audit or examination of your tax return, which can occur for several reasons. Audits can be triggered by discrepancies in reported income, excessive deductions, or random selection, among other factors.

If the IRS decides your return needs a closer look and finds discrepancies, they will issue Form 4549 to propose adjustments.

What information is included on Form 4549?

Generally, these are found on Form 4549:

  • Summary of Proposed Changes: This section outlines the differences between what was reported on your tax return and what the IRS believes should have been reported. It includes proposed changes to your income, deductions, credits, and tax liability.
  • Explanation of Changes: The IRS provides a detailed explanation of each adjustment, giving you insight into why each change was proposed.
  • Tax Computation: This part calculates the additional taxes owed or the refund due based on the proposed changes. It also includes any penalties or interest that may apply.
  • Response Options: Form 4549 outlines your options for responding to the proposed changes. You can agree and sign the form, thereby accepting the adjustments, or you can disagree and provide additional documentation or clarification.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

STREAMLINED AMNESTY

It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.

Get a quote here.

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Pricing
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How is the total tax liability determined on Form 4549?

The total tax liability on Form 4549 is calculated based on the findings from an IRS audit of your tax return. This form outlines any discrepancies between the income, deductions, credits, and taxes you reported and what the IRS deems correct.

The total tax liability reflects:

  • Adjustments to your reported income, which could include unreported income or corrections to the income amount you’ve declared.
  • Revisions to deductions and credits, possibly disallowing certain deductions you claimed or adjusting the amounts.
  • Application of any relevant penalties and interest due to underreporting or late payment of taxes.

The form provides a detailed breakdown of these adjustments, culminating in the total amount of taxes the IRS believes you owe, minus what you’ve already paid, plus any penalties and interest.

Do I have to sign Form 4549 after an IRS audit ends?

Signing Form 4549 is an acknowledgment that you agree with the IRS’s findings and adjustments. However, if you do not agree with the conclusions of the audit, you are not obligated to sign the form. Instead, you can:

  • Request a conference: You can ask for a meeting with an IRS manager to discuss the audit findings.
  • Appeal the decision: If you’re unable to resolve the disagreement through documentation or discussion, you have the right to appeal the audit’s conclusions by submitting Form 12203.

What supporting documentation should I provide when disagreeing with Form 4549?

If you disagree with the IRS’s findings on Form 4549, you can provide documentation to contest the adjustments. This could include:

  • Receipts and Invoices: To substantiate expenses or deductions you’ve claimed.
  • Bank Statements: To verify income amounts or corroborate the timing of transactions.
  • Employment Records: Such as W-2s or forms 1099 that might have been missed or incorrectly reported by employers.
  • Correspondence: Any relevant communication that supports your case, including letters or emails related to disputed transactions.

What form should I submit to request an appeal?

You will need to submit Form 12203, Request for Appeals Review, to request an appeal of certain IRS decisions. This form is typically used when you disagree with the IRS’s findings from an audit or proposed adjustments to your tax return.

By filing Form 12203, you’re asking for a review of the decision by the IRS Appeals Office, a separate entity within the IRS that works to resolve disputes between the IRS and taxpayers. The appeal process provides an opportunity to present additional documentation or arguments to support your case in a less formal setting than tax court.

What if I want an audit reconsideration after an IRS audit?

You can choose to do so. It’s a process available to taxpayers who disagree with the results of an IRS audit, where you can resolve disputes without the need to submit a formal appeal.

This allows you to submit additional documentation or evidence that wasn’t considered during the original audit.

To initiate an audit reconsideration, you should contact the IRS office that conducted the audit and provide a detailed explanation of your disagreement, along with any supporting documents.

What should I do if I receive a notice of deficiency after an IRS audit?

A Notice of Deficiency, often referred to as a “90-day letter,” is issued by the IRS to inform you of the intention to assess additional tax based on the findings of an audit.

This notice provides you with a 90-day window to either agree with the proposed changes or dispute them. If you receive a Notice of Deficiency, you have several options:

  • Agree with the Notice: If you agree with the IRS’s findings, you can sign and return the notice, after which the IRS will process the additional assessment.
  • File an Appeal: If you disagree with the notice, you can file an appeal using Form 12203, Request for Appeals Review, to have your case reviewed by the IRS Appeals Office.
  • Petition the Tax Court: If you prefer to contest the IRS’s findings in court, you must file a petition with the U.S. Tax Court before the 90-day period expires. This option allows for a judicial review of the IRS’s decision.

Can I negotiate a settlement with the IRS based on the findings in Form 4549?

Yes, negotiation is possible with the IRS, especially if you’re disputing the findings in Form 4549.

If you disagree with the audit findings, you can present your case to the IRS, including any supporting documentation that justifies your original tax return positions.

In some cases, you may be able to settle your tax debt for less than the full amount owed through an Offer in Compromise. This option requires demonstrating that payment in full would create financial hardship.
If you are unable to pay the full amount, you might be able to negotiate an installment agreement, allowing you to pay over time.

What should I do if I have questions or need assistance regarding Form 4549?

If you have questions or need assistance regarding Form 4549:

  • Contact the IRS: The notice will typically include contact information for the IRS representative or office that handled your audit. They can provide clarifications and guidance on the findings.
  • Seek Professional Help: Consider consulting with a tax professional, such as a Certified Public Accountant (CPA) or a tax attorney. These professionals can offer expert advice, help you understand your options, and represent you in dealings with the IRS.

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What is the IRS Form 8300?

What is the IRS Form 8300?

Published on February 16, 2024
by Deborshi Choudhury, EA

Deborshi Choudhury an IRS Enrolled Agent with 16 years of expat tax experience, specializes in U.S. tax preparation, tax planning, and tax advice for U.S. citizens and Green Card holders living and working in the UAE and Canada.

Table of Contents

Do I need to report cash payments over $10,000 to the IRS?

Yes, if you receive cash payments over $10,000 in a single transaction or related transactions in your trade or business, you are required to report it to the IRS using Form 8300.

What is Form 8300?

Form 8300, “Report of Cash Payments Over $10,000 Received in a Trade or Business,” is an important document for businesses in the United States; it’s used to report cash payments over $10,000 received from a single buyer as part of a single transaction or two or more related transactions within a 12-month period.

The form serves to provide information to the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN) to support their efforts in combating money laundering activities.

Who needs to file Form 8300?

Form 8300 extends to any “person” engaged in a trade or business. This definition means individuals, companies, corporations, partnerships, associations, trusts, or estates.

Suppose any part of a cash transaction occurs within the United States, including all 50 states, the District of Columbia, or US territories (such as American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, and the US Virgin Islands), and it exceeds $10,000. In that case, the business must file Form 8300.

Why do I need to file Form 8300?

Filing Form 8300 is a measure against illegal activities; money laundering, tax evasion, and terrorist financing are serious concerns, and large cash transactions can sometimes be suggestive of such activities.

By reporting these transactions, businesses play a part in the broader effort to maintain the integrity of financial systems and national security.

Moreover, businesses are required to provide a written statement to each person named on Form 8300 by January 31 of the year following the transaction. This statement must include the total amount of reportable cash received and inform the person that this information will be reported to the IRS.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

STREAMLINED AMNESTY

It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.

Get a quote here.

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Pricing
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How do I file Form 8300?

This form can be filed electronically through the Financial Crimes Enforcement Network’s (FinCEN) BSA E-Filing System or mailed in paper form directly to the IRS.
However, since January 1, 2024, if you’re required to file 10 or more returns of any type during the calendar year, you must e-file Form 8300.

What are the Form 8300 rules and requirements?

Here’s what you need to know:

  • Who Must File: Any business that receives more than $10,000 in cash from a single buyer as part of a single transaction or related transactions must file Form 8300.
  • When to File: The form must be filed within 15 days after receiving the cash payment.
  • Providing Statements to Payers: Businesses must also provide a written statement to each person named on Form 8300 by January 31 of the year following the transaction. This statement must include the total amount of reportable cash received and notify the person that the information has been reported to the IRS.

Additionally, trades and businesses must report cash payments received if all of the following criteria are met:

  1. The amount of cash received is greater than $10,000
  2. The business receives the cash as:
  • One lump sum of more than $10,000, or
  • Installment payments cause the total cash received within one year of the initial payment to total more than $10,000, or
  • Previously unreported payments causing the total cash received within a 12-month period to total more than $10,000

3. The establishment receives the cash in the ordinary course of a trade or business

4. The same agent or buyer provides the cash

5. Business receiving the cash in a single transaction or in related transactions.

Can I request a waiver to file paper for Form 8300?

Yes, businesses can request a waiver from the electronic filing requirement for Form 8300 if they can demonstrate that filing electronically would cause undue hardship.

To request a waiver, businesses must submit Form 8508, “Request for Waiver From Filing Information Returns Electronically,” to the IRS. If the waiver is granted, it applies to all Forms 8300 required to be filed during the calendar year.

Remember, it’s important to note that since January 1, 2024, businesses required to file 10 or more returns of any type during the calendar year, including Forms 8300, must file electronically unless a waiver is granted.

Note that businesses required to file electronically but choose to file on paper without an approved waiver may face penalties.

What happens if I don’t report cash payments exceeding $10,000?

The IRS may impose fines for each instance of non-compliance, and these penalties can accumulate quickly. Additionally, beyond these financial penalties, failure to report can also attract scrutiny from the IRS and other federal agencies, potentially leading to audits or investigations into money laundering or other illegal activities.

What are the consequences of failing to include full information when filing Form 8300?

Incomplete filings or submissions with incorrect information can result in penalties. The IRS requires detailed information about the transaction, including the payer’s identity and the nature of the transaction. If a business knowingly files a form with incomplete or false information, it may face not only financial penalties but also legal consequences, including criminal charges in severe cases.

Can I get a tax professional to help me in filing Form 8300?

Absolutely, you can—and perhaps should—seek the assistance of a tax professional when filing Form 8300. Given the complexities of tax laws and the potential for significant consequences if not done correctly, enlisting a tax professional’s help can be a wise decision.

They can provide expert guidance on whether you need to file, how to accurately complete the form, and ensure that you meet all reporting requirements to stay compliant with IRS regulations.

  • Expertise: Tax professionals are well-versed in the nuances of tax laws, including the specific requirements for reporting cash payments over $10,000. 
  • Accuracy: Ensuring that Form 8300 is filled out correctly is crucial. Mistakes or omissions can lead to penalties. A tax professional can help ensure that all necessary information is accurately reported.
  • Timeliness: Professionals can help ensure that the form is filed within the required 15-day period after receiving the cash payment, helping you avoid late filing penalties.
  • Advisory: Beyond just filing the form, tax professionals can offer advice on record-keeping practices and how to handle future transactions to remain compliant with IRS requirements.

Which funds should be filed in Form 8300?

Form 8300 is required for reporting cash payments over $10,000 received in a single transaction or related transactions.

But what exactly counts as “cash” for the purposes of this form?

The IRS defines cash as currency and coins of the United States or any other country, which are accepted at face value, and certain cashier’s checks, money orders, and bank drafts. These funds, when part of a transaction exceeding $10,000, necessitate the filing of Form 8300 to report the payment.

What does the IRS consider as a transaction?

A “transaction” in the context of Form 8300 includes the sale of goods or services, the sale of real property, personal property, intangible property, or any other payment received in the course of a trade or business.

What do I do after being penalized by the IRS but unable to pay?

If you’re penalized for non-compliance with Form 8300 filing requirements and cannot afford to pay, the IRS offers several options. You may qualify for an installment agreement, allowing you to pay over time.

There’s also the Offer in Compromise program, which could let you settle your tax debt for less than the full amount owed if you meet certain conditions.

Is there an audit reconsideration for Form 8300?

Yes, there is. If you disagree with the results of an IRS audit concerning Form 8300, you may request an audit reconsideration. This process allows you to present additional documentation or information not previously considered.

The IRS will then review your case and the new information to determine if changes to the audit findings are warranted.

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Form 8621 instructions

Am I required to file Form 8621 for my PFIC holdings?

Published on February 14, 2024
by Clark Stott

Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.

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Yes, if you are a US person and have any direct or indirect holdings in a Passive Foreign Investment Company (PFIC), you are required to file Form 8621. This requirement applies regardless of the amount of your investment or whether you received any distributions from the PFIC during the tax year.

What is Form 8621?

Form 8621, “Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund,” is a tax form used by certain US persons who have investments in passive foreign investment companies (PFICs).

This form is used to report the income and any gains or losses from such investments. It’s a crucial form for US expats as it relates to investments in foreign mutual funds, index funds, hedge funds, or other pooled investments that are based outside of the United States.

Who is required to file Form 8621?

The requirement to file Form 8621 applies to US persons, which include US citizens, residents, and entities such as corporations, partnerships, or trusts, who:

  • Directly own shares in a PFIC,
  • Are indirect shareholders of a PFIC through an entity,
  • Have made certain elections regarding their PFIC holdings,
  • Receive certain direct or indirect distributions from a PFIC,
  • Recognize gains on a direct or indirect disposition of PFIC shares.

What are the filing requirements for Form 8621?

It usually depends on the taxpayer’s situation, however, it generally includes:

  • Annual Filing: Generally, Form 8621 must be filed annually with the taxpayer’s federal income tax return.
  • Reporting Income: Taxpayers must report their share of earnings and any gains distributed or recognized on PFIC investments.
  • Election Reporting: If certain elections, like the Qualified Electing Fund (QEF) or Mark-to-Market election, are made, these must be reported on Form 8621.
  • No Tax Due Filing: In some cases, Form 8621 is required even if there is no tax due. This can occur if the taxpayer did not receive any distributions and did not recognize any gains on their PFIC shares during the tax year.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

STREAMLINED AMNESTY

It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.

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What foreign investments are reported on Form 8621?

This form is required for investments in Passive Foreign Investment Companies (PFICs). Specifically, those with interests in foreign mutual funds, hedge funds, insurance products, or other pooled investments typically need to use this form to comply with US tax regulations.

What types of investments are considered PFICs?

PFICs generally include foreign-based investment vehicles that meet either of the following criteria:

  • Income Test: At least 75% of the corporation’s gross income is passive income, such as dividends, interest, or royalties.
  • Asset Test: At least 50% of the corporation’s assets are investments that produce passive income.

Additionally, common examples of PFICs include foreign mutual funds, money market accounts, pension funds, and other pooled investments that are based outside of the United States.

What information do I need to report on Form 8621?

When filing Form 8621, you’ll need to provide detailed information about your PFIC holdings, including:

  • Identification of the PFIC: Name, address, and tax identification number of the foreign corporation.
  • Shareholder Information: Your details as the shareholder, including the number of shares held during the tax year.
  • Income and Distributions: Details of any income received from the PFIC, such as dividends or interest.
  • Elections Made: If you’ve made any specific tax elections regarding your PFIC holdings, such as a Qualified Electing Fund (QEF) or Mark-to-Market election, these must be reported.
  • Calculations of Gains or Losses: If you’ve sold or disposed of PFIC shares, you need to calculate and report any gains or losses.

Is there a minimum ownership threshold for reporting a PFIC?

There is no minimum ownership threshold for reporting a Passive Foreign Investment Company (PFIC) on Form 8621. US taxpayers, including expats, are required to file Form 8621 if they have any direct or indirect ownership in a PFIC, regardless of the amount.

This means even a small investment in a foreign mutual fund or similar financial vehicle could necessitate filing Form 8621. The key is whether the foreign investment meets the criteria of a PFIC, not the amount of the investment.

Are there different rules for individuals and entities when it comes to Form 8621 reporting?

The rules for filing Form 8621 apply to both individuals and entities, such as corporations, partnerships, trusts, or estates, with some nuances:

  • Individuals: US citizens and residents must report their PFIC holdings regardless of where they live. This includes ex-pats who may have invested in foreign funds.
  • Entities: US entities, including those owned by expats, are also subject to PFIC reporting requirements. The entity must file Form 8621 if it owns, directly or indirectly, shares of a PFIC.

Can I aggregate PFIC investments on a single Form 8621?

Generally, a separate Form 8621 must be filed for each PFIC in which you have an interest.
Aggregating multiple PFIC investments on a single form is not typically allowed.

Each investment in a PFIC is treated separately for reporting purposes, requiring individual attention to detail for each form. This ensures accurate reporting of income, distributions, and any elections made for each PFIC.

What if I have multiple PFICs with different fiscal years?

When you have multiple Passive Foreign Investment Companies (PFICs) with different fiscal years, each PFIC must be reported separately on Form 8621 according to its respective fiscal year.

This means you may need to track and report each investment based on its unique reporting period. This can be particularly challenging for US expats with diverse international portfolios, as it requires careful attention to the fiscal year-end of each PFIC to ensure accurate and timely reporting.

Are there any exceptions or exemptions from Form 8621 reporting?

There are limited exceptions and exemptions from filing Form 8621, such as:

  • De Minimis Ownership Rule: If the total value of your PFIC shares is less than $25,000 ($50,000 for married couples filing jointly), you may not need to file Form 8621, unless you have received certain direct or indirect distributions or dividends from the PFIC.
  • Mark-to-Market Election: Taxpayers who make a mark-to-market election under IRC §1296 for a PFIC need to file Form 8621.

How do I file Form 8621 with my tax return?

Form 8621 should be filed along with your annual US income tax return (Form 1040). If you have multiple PFICs, a separate Form 8621 must be completed for each one.

The form requires detailed information about the PFIC and your share of its income, gains, distributions, and any elections made. It’s important to ensure that each form is accurately completed and submitted by the tax return filing deadline.

Can I get assistance or guidance on Form 8621 reporting from the IRS?

While the IRS provides general guidance and instructions for Form 8621 on its website, specific assistance or personalized guidance is limited. For complex situations, especially those involving multiple PFICs or intricate tax scenarios, it’s advisable to seek assistance from a tax professional experienced in international taxation and PFIC reporting.

How long should I retain records related to Form 8621 reporting?

It’s recommended to retain records related to Form 8621 reporting for at least seven years. This includes documentation of your investments in PFICs, calculations of income or gains, and any elections made.

Keeping thorough records is essential for substantiating the information reported on Form 8621 in case of an IRS inquiry or audit.

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What happens when non-Americans win big in Las Vegas casinos?

What happens when non-Americans win big in Las Vegas casinos?

Published on February 12, 2024
by Clark Stott

Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.

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Your winnings will be taxed. However, you can get it back with a tax refund.

When non-Americans win big at Las Vegas casinos, they often face a 30% tax on their winnings, as the IRS mandates this for all winners, American or not.

This tax applies to various forms of gambling winnings, including money won from slot machines, table games, and even game shows. While this can come as a surprise for non-US citizens, it’s a standard procedure under US tax laws.

In general, the process goes like this:
Winners receive a Form 1042-S, which details the amount won and the taxes withheld. To claim a tax refund, winners must have a U.S. Individual Taxpayer Identification Number (ITIN), which necessitates filing Form W-7 with the IRS.

This ITIN is crucial for filing a U.S. tax return as a non-resident, allowing the winner to potentially recover some or all of the withheld taxes.

Why does the IRS tax casino winnings of non-American players?

The IRS taxes the casino winnings of non-American players due to regulations aimed at ensuring that all income generated within the US is subject to taxation.

The 30% tax rate for international gamblers is a part of the US tax code’s broader approach to non-resident taxation. This rule is applied uniformly, regardless of the winner’s nationality, to maintain fairness and compliance with US tax laws.

Can non-US citizens claim back taxes on casino winnings?

Yes. Non-US citizens can claim back taxes on their casino winnings by filing a Non-Resident Alien (NRA) tax return. To do this, they must obtain an Individual Taxpayer Identification Number (ITIN) by submitting Form W-7 to the IRS.

Once they have their ITIN, they can file a US tax return, specifically Form 1040-NR, to reclaim some or all of the withheld taxes, depending on the tax treaty between the US and their home country.

Non-American casino winners should seek assistance from tax professionals who specialize in US tax laws for non-residents. These experts can guide them through the process of obtaining an ITIN, filing the necessary tax forms, and understanding their rights under various tax treaties.

What is an ITIN and why is it necessary for tax reclamation?

An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service (IRS) to individuals who are required to have a US taxpayer identification number but do not have, and are not eligible to obtain, a Social Security Number (SSN).

ITINs are essential for non-US citizens who need to file US tax returns or claim tax refunds, including reclaiming withheld taxes on US income such as casino winnings or other taxable activities within the United States.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

STREAMLINED AMNESTY

It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.

Get a quote here.

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How do I obtain an ITIN?

  1. Complete Form W-7: The first step in obtaining an ITIN is to complete IRS Form W-7, Application for IRS Individual Taxpayer Identification Number. This form requires detailed personal information and a valid reason for needing an ITIN.
  2. You’ll need a CAA (Certified Acceptance Agent) to verify your non-US passport. The IRS will only accept original or certified copies of your identification – which can be arranged by Expat Tax Online.
  3. Attach Tax Return: Typically, Form W-7 should be submitted along with your federal tax return to the IRS, as it’s often required for processing the tax return. Always send them to the IRS together.
  4. Provide Proof of Identity: You must include original or certified copies of documents proving your identity and foreign status with your W-7 form. Acceptable documents include a passport, national identification card, US driver’s license, or birth certificate.
  5. Submit the Application: The completed W-7 form and US individual tax return must be posted to the IRS in the mail.
  6. Wait for Processing: After submission, it usually takes about six to ten weeks for the IRS to process the application and issue an ITIN.

How can professionals help me with tax recovery?

Professionals specializing in US tax laws are vital in aiding non-US citizens with tax recovery, particularly in cases involving casino winnings. These experts are well-versed in US tax regulations and can guide you through the process of reclaiming withheld taxes.

They can assist in accurately preparing and filing necessary forms, such as the Non-Resident Alien (NRA) tax return and Form W-7 for ITIN applications. You must use a Certified Acceptance Agent to validate your passport or ID. Their expertise ensures compliance with IRS procedures and maximizes the chances of a successful tax recovery.

Who can reclaim casino tax?

The eligibility to reclaim casino tax extends to various non-US nationals under specific conditions:

  • Non-US Residents: Individuals who are not US citizens or resident aliens can claim back withheld casino taxes.
  • Valid Identification: Claimants must have a valid government-issued ID from their home country and obtain an ITIN from the IRS.
  • Proof of Winnings and Withholding: Documentation such as Form 1042-S issued by the casino is required to show the amount won and the tax withheld.
  • Tax Treaty Benefits: Residents of countries that have a tax treaty with the US may be eligible for a reduced rate of withholding or exemption, depending on the treaty’s provisions.

What do I need to know to get started with my tax reclamation?

  • Understand Your Eligibility: Determine if you are eligible for a tax refund. This typically applies if you are a non-US citizen who has had taxes withheld from gambling winnings in the US
  • Gather Necessary Documentation: Collect all relevant documents, including identification papers and Form 1042-S issued by the casino, which indicates the amount of winnings and tax withheld.
  • Obtain an ITIN: If you don’t already have one, apply for an Individual Taxpayer Identification Number (ITIN) using Form W-7. This is a crucial step in the tax reclamation process.
  • File a US Tax Return: Complete and submit a Non-Resident Alien (NRA) tax return to the IRS, specifically Form 1040-NR, to claim your refund.
  • Consult with a Tax Professional: Engaging with a tax professional who specializes in US tax laws for non-residents can provide invaluable assistance in ensuring that your tax reclamation process is handled correctly and efficiently.

The information provided herein is for general informational purposes only and should not be considered professional advice. While we aim to provide helpful and accurate information, we make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained here or linked to from this material.

Always get professional advice from a US international tax specialist. 

We offer professional, tailored tax advice. Contact us for more information.

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ITIN Application in the UK

ITIN Application in the UK

Published on January 08, 2024
by Clark Stott

Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.

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Can I get an ITIN when living in the UK?

Yes, as someone who needs to file a US tax return in the UK, you can apply for an ITIN. You need to complete Form W-7 and also have your identification (British passport etc) verified, usually by an IRS-authorized Certifying Acceptance Agent (CAA).

What is an ITIN?

An ITIN, or Individual Taxpayer Identification Number, is a tax processing number issued by the Internal Revenue Service (IRS) in the United States.

It’s a nine-digit number that serves a purpose similar to a Social Security Number (SSN) but is used for individuals who are not eligible to obtain an SSN, such as non-resident aliens or their dependents and spouses.

Who needs an ITIN in the UK?

In the UK, non US-citizens, as well as their dependents and spouses who are not eligible for a Social Security Number, may need an ITIN. This includes:

  • Those living in the UK who do not have an SSN.
  • Non-resident aliens residing in the UK who need to file or are included in a US tax return.
  • Dependents or spouses of US citizens or resident aliens.

What is the purpose of an ITIN?

The primary purpose of an ITIN is to allow non-US taxfilers to file a US tax return. Only people that are not eligible for a Social Security Number can apply for and use an ITIN. This includes:

  • Filing US tax returns.
  • Opening a US bank account or applying for US loans.
  • Claiming tax treaty benefits.
  • Processing a tax refund from the IRS.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

STREAMLINED AMNESTY

It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.

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Do I need an ITIN if I am a UK resident and have US income?

Yes. If you are a UK resident and have income from the United States, you will need an Individual Taxpayer Identification Number (ITIN), since it is required for individuals who are obligated to file US tax returns, or are eligible to receive certain US tax benefits but are not eligible for a Social Security Number (SSN).

How do I apply for an ITIN from the UK?

To apply for an ITIN from the UK, you need to complete Form W-7, “Application for IRS Individual Taxpayer Identification Number.” The form requires detailed personal information and must be submitted along with a US federal tax return, unless you meet an exception.

What are the required documents for an ITIN Application?

The required documents for an ITIN application typically include:

  • A completed Form W-7.
  • Proof of identity, such as a passport or a combination of documents like a foreign driver’s license and birth certificate.
  • Documents supporting your need for an ITIN, such as a US tax return or a letter from the IRS stating you need an ITIN to file a US tax return.

Where do I submit my ITIN application?

You can submit your ITIN application through several channels:

  • Mail it to the IRS along with your tax return.
  • Apply in person using the services of an IRS-authorized Certifying Acceptance Agent.
  • Use an online IRS CAA such as Expat Tax Online so you don’t have to send your passport away
  • Visit a designated IRS Taxpayer Assistance Center.

What’s the processing time for ITIN applications?

The processing time for an Individual Taxpayer Identification Number (ITIN) application can vary, but typically it takes about 7 weeks. However, this timeframe may extend to 9 to 11 weeks if the application is submitted during peak tax season or if it’s sent from overseas, such as from the UK.

How long does it take to get an ITIN from the UK?

When applying for an ITIN from the UK, you should generally anticipate a slightly longer processing time. On average, it can take up to 11 weeks, especially if additional documentation is required or during high-demand periods like the US tax season.

How much does it cost to apply for an ITIN?

There is no fee charged by the IRS for processing an ITIN application (Form W-7). However, if you choose to use the services of a professional, such as a Certifying Acceptance Agent or a tax advisor, their fees will vary based on the services provided.

Can a tax professional assist me with my ITIN application?

Yes, a tax professional can significantly assist with your ITIN application. They can provide guidance on the necessary documentation, ensure the application is filled out correctly, and help navigate any complexities, especially for those living in the UK. Their expertise can be invaluable in avoiding common pitfalls and ensuring a smooth application process.

What happens if I don’t have an ITIN but need to file US taxes?

If you are required to file US taxes and don’t have an Individual Taxpayer Identification Number (ITIN), it’s important to apply for one as soon as possible. Without an ITIN, you won’t be able to file your US tax returns, which could lead to delays in processing and potential penalties. The IRS requires an ITIN for individuals who are ineligible for a Social Security Number but still have a US tax filing or reporting requirement.

How can I check the status of my ITIN application?

To check the status of your ITIN application, you can contact the IRS ITIN Operation’s number,
1-800-829-1040 (toll-free within the United States) or 1-267-941-1000 (not a toll-free number) if you are outside the US. This service allows you to inquire about the current status of your application approximately seven weeks after you have submitted it. When calling, it’s helpful to have a copy of your ITIN application and any other correspondence from the IRS handy for reference.

How do I renew my ITIN?

ITINs need to be renewed if they have not been used on a federal tax return at least once in the last three consecutive years or if the ITIN is included in the IRS’s list of expiring ITINs. To renew your ITIN, you will need to complete Form W-7, following the same process as the initial application.

Remember to include all the required identification documents, such as your valid supporting original or certified copies by the issuing agency, identification documents, and any other required attachments.

For those residing in the UK, the ITIN process can be complex. It’s often advisable to seek assistance from a tax professional who can guide you through the application or renewal process, help check the status of your application, and ensure that you remain compliant with US tax laws.

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What’s the deadline to claim my US Covid Stimulus check?

What’s the deadline to claim my US Covid Stimulus check?

Published on January 05, 2024
by Clark Stott

Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.

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Also known as Stimulus payments, Economic Recovery Payment “EIP” or Recovery Rebate.

To claim the first and second stimulus payments, include them in your 2020 US federal tax return, due by May 17, 2024. For the third payment, claim it on your 2021 tax return, which should be filed by April 18, 2025.

The first payment was $1,200 for adults and $500 for children.
The second payment was $600 for adults and $600 for children.
The third payment was $1,400 for adults and $1,400 for children.

Are American expatriates qualified for stimulus checks?

It depends. Your eligibility for a stimulus check primarily hinges on your adjusted gross income (AGI) and your tax filing status. Individuals with an AGI under $75,000 and couples filing jointly with an AGI below $150,000 usually qualify for the full amount. If your income surpasses these limits, the amount of the stimulus check gradually decreases.

Other factors also play a role in determining your eligibility. Having a Social Security number is crucial, as is not being claimed as a dependent on someone else’s tax return. Most eligible recipients have already received their Economic Impact Payments. If you haven’t filed your 2020 or 2021 tax returns, you can still claim any missed payments.

How do overseas US expats receive their stimulus checks?

If you’re residing outside the US, the IRS typically uses direct deposit information from your most recent tax return to send your stimulus payment. If direct deposit isn’t an option, a paper check will be mailed to the latest address on file.

The amount you receive depends on various factors, including your income and number of dependents. As of March 2023, the IRS has issued all three rounds of Economic Impact Payments. If you didn’t receive the full amount for the third payment, you might qualify for a 2021 Recovery Rebate Credit, which can be claimed on your 2021 federal tax return.

Is filing a US tax return required to get stimulus payments?

Yes, filing a tax return is crucial for stimulus payment eligibility. The IRS uses your tax return information to determine if you qualify for the payments. Not filing a return for the previous year could mean missing out on these funds.

For those with low income who typically don’t file a tax return, the IRS’s Non-Filers tool offers a way to claim stimulus payments. Remember to adhere to the IRS’s deadlines for claiming any unclaimed payments.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

STREAMLINED AMNESTY

It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.

Get a quote here.

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Pricing
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What actions should expatriates take if they’re behind on tax filings?

If you’re an expatriate who has fallen behind on tax filings, the first step is to promptly catch up on any overdue returns. The IRS uses your tax return information to determine your eligibility for benefits like stimulus checks. Failing to file for the previous year could mean missing out on these financial opportunities.

Consider filing an amended return if you need to claim stimulus payments or if there have been changes in your financial situation that could impact your eligibility. This can be particularly useful for adjusting to any changes in income or family status.

How can expatriates update their overseas address with the IRS?

For expatriates, ensuring the IRS has your correct international address is key to receiving stimulus payments smoothly. Here’s what you can do:

  • Update your address with the IRS to ensure they have your current overseas location. The IRS sends payments to the latest address on file.
  • Pay attention to the format of your international address. Incorrect or unclear address details can lead to delays or non-delivery of your stimulus check.

For more intricate tax matters, seeking advice from a tax professional can be very beneficial. They can provide expert guidance and help you navigate the complexities of receiving financial benefits like stimulus checks while living abroad.

What are some special considerations for expatriates regarding stimulus checks?

Expatriates might face unique situations when it comes to securing stimulus checks:

  • If you don’t have a permanent overseas address, the IRS will use the most recent address they have, which could be a US P.O. Box or a relative’s address. It’s important to keep your address information updated with the IRS to avoid any issues.
  • For US citizens born abroad, eligibility for stimulus payments is generally the same as for those born in the US, as long as they have a Social Security number and meet the income requirements. Being born outside the US does not automatically disqualify you from receiving stimulus payments.

What should I do if I missed my initial stimulus payments?

If you didn’t receive the first or second stimulus payments, there are steps you can take to rectify this. One effective solution is to claim these missed payments through your tax return. The IRS allows you to request a Recovery Rebate Credit for the year the payment was due.

Alternatively, you can use the Economic Impact Payment tracing process. This method helps track down a payment that was sent but never received. To start this process, contact the IRS and follow their specific tracing guidelines.

How do I claim the Recovery Rebate Credit for unreceived stimulus payments?

If your stimulus payments haven’t arrived, the IRS provides a way to claim them through the Recovery Rebate Credit (RRC). When filing your federal tax return, calculate the RRC to inform the IRS of your eligibility and the amount you’re owed.

For documentation, you’ll need to complete Form 1040 or 1040-SR, which includes a designated line for the RRC. This process, while straightforward, is crucial for obtaining any stimulus payments you’ve missed.

What do I do if my stimulus payment amount is incorrect?

If your stimulus payment is less than expected, your first step is to verify the amounts of your Economic Impact Payments. The IRS offers an online portal for checking the totals of your first, second, and third payments, helping you identify any discrepancies.

To correct an error in the payment amount, use the Recovery Rebate Credit on your federal tax return. Ensure accuracy by referencing the total amount of the third payment from your IRS account or Letter 6475 to avoid errors and speed up the process.

Do non-resident aliens and green card holders have eligibility for stimulus payments?

Non-resident aliens and green card holders have specific eligibility criteria for stimulus checks. Green card holders generally qualify due to their tax resident status, while non-resident aliens are usually not eligible.

What other things should I know about?

Expatriates with dependents should also consider the Child Tax Credit. This credit is typically available to expatriates and can be claimed alongside stimulus payments. It provides additional financial support, especially for those with dependents.

The maximum claims for eligible dependents are:

  • First Stimulus Payment: $500 per dependent
  • Second Stimulus Payment: $600 per dependent
  • Third Stimulus Payment: $1,400 per dependent

For complex tax situations, seeking advice from a tax professional is advisable. They can provide tailored guidance, ensuring you take full advantage of the benefits available to you.

The information provided herein is for general informational purposes only and should not be considered professional advice. While we aim to provide helpful and accurate information, we make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained here or linked to from this material.

Always get professional advice from a US international tax specialist.

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Taxation of rental income for US citizens

Taxation of rental income for US citizens

Published on January 03, 2024
by Rose-ann De Villa, EA, CPA

Rose-ann De Villa, an IRS Enrolled Agent and CPA with 13 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in the UK.

Rose-ann has been mentioned in the Daily Express UK news wherein she talked about Stimulus payments and Child Tax Credit refunds for US expats in the UK.

Table of Contents

How can I handle my rental income taxes in the US while I’m living in another country?

While you can file your tax returns yourself, including reporting rental income, managing this from abroad can be complex. Handling rental income taxes as a US expat requires staying informed about US tax laws and diligently keeping records of all income and expenses related to your rental property.

A tax professional’s expertise is invaluable. They can ensure that you are compliant with your tax responsibilities while maximizing any deductions you might have missed.

What is rental income taxation?

Rental income taxation refers to the tax obligations arising from earning income through renting out property. It encompasses the rent payments received, as well as any other payments like cancellation fees or paid utilities.

However, it’s important to note that expenses incurred in the process of renting out your property, such as maintenance, repairs, and property management fees, can often be deducted.

You may also be able to claim depreciation on the property, which can reduce your taxable income.

Who is required to report rental income?

  • US Citizens, Residents, and Green Card Holders: All US citizens, residents, and Green Card Holders are required to report their global income, including rental income from properties located in other countries.
  • Foreign Property Owners: If you own property in a foreign country and earn rental income from it, you must report this income in both the country where the property is located and on your US tax return.

When you’re in a foreign country, handling your rental income taxation can be complex. This is why consulting with a tax professional who specializes in expatriate tax issues is highly recommended. Their guidance is invaluable in managing your rental income effectively and staying compliant with tax laws.

What if I’m way behind on my U.S. tax returns?

There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties

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How is rental income classified?

  • Monthly Rent Payments: Regular payments received from tenants for the use of your property.
  • Advance Rent: Rent paid in advance, such as the first and last month’s rent upfront, is taxable when received.
  • Security Deposits: Not typically taxable if intended to be returned to the tenant. However, if retained during the rental period, it becomes taxable income.
  • Service Charges: Payments for services provided as part of the rental agreement, like utilities, are also considered rental income.

How do you calculate and report rental income and expenses?

Start by adding all the rental income received during the tax year. This includes monthly rent payments from tenants. Include any rent paid in advance, such as the first and last month’s rent if received in the tax year.

Add other income related to the rental property, such as fees for late rent payments, lease cancellation fees, or service charges for utilities if they are included in the rental agreement.

Once you’re done with that, you will want to look at your deductible expenses:

  • Maintenance and Repairs: Sum up expenses for maintaining and repairing the property. This includes costs for labor and materials.
  • Property Management Fees: If you use a property management company, include the fees paid to them.
  • Mortgage Interest: Deduct the interest paid on a mortgage for the rental property.
  • Insurance Premiums: Include premiums paid for property insurance.
  • Depreciation: Calculate depreciation on the property’s value and improvements. This can be complex, as it involves spreading the cost over the property’s useful life as determined by IRS guidelines.
  • Other Expenses: Include any other allowable expenses like legal fees, advertising costs, and travel expenses related to property management.

Now, you’ll need to deduct the total allowable expenses from your total rental income to determine your net rental income or loss.

We understand that this can be quite difficult and mind-numbing if you’re a US expat, which is why we recommend getting support from a tax professional. They can provide expert advice on current tax laws and allowable deductions, ensuring you don’t miss out on any potential

They can also assist in accurately calculating depreciation and other complex deductions, as well as ensure that all calculations comply with IRS regulations, reducing the risk of errors and potential audits.

You also won’t need to worry about preparing and filing your tax return.

While calculating and reporting rental income and expenses can be done independently, the expertise of a tax professional is invaluable, especially for US expats who might face additional complications in their tax situation.

When and how should you report rental income?

Rental income must be reported annually on your US tax return. The standard deadline for filing your US tax return is April 15th of the year following the tax year in question. For example, for the 2023 tax year, the filing deadline is April 15, 2024.

However, US citizens living abroad typically receive an automatic two-month extension to file their tax returns. This means the deadline for expats is generally June 15th. However, any taxes owed are still due by April 15th to avoid interest charges.

As a US expat, you should report your US-based rental income on your US tax return using Schedule E (Form 1040) or 1040-SR, Schedule E, Part I. This includes detailing all rental income received and allowable expenses incurred during the tax year.

What tax deductions and credits are available for rental properties?

Based on information from the official IRS website, here’s what US property owners need to know about rental property deductions:

Deductible Rental Expenses

  • Mortgage Interest and Property Tax: These are common expenses that can be deducted on your tax return.
  • Operating Expenses: General operating expenses for the property, such as utilities, insurance, and routine maintenance, are deductible.
  • Depreciation: This allows for recovering the cost of the property over its useful life. It’s a significant deduction that can offset rental income.
  • Repairs and Maintenance: Costs incurred to keep your property in good operating condition are deductible. This includes expenses for materials, supplies, and labor for repairs.

Ordinary and Necessary Expenses

  • Common Business Expenses: Ordinary expenses, which are common and accepted in the rental business, are deductible.
  • Appropriate Expenses: Necessary expenses, deemed appropriate for the property, such as advertising, are also deductible.

Tenant-Paid Expenses

  • Deducting Tenant Expenses: If your tenant pays any rental expenses, these can be deducted. However, you must also include the fair market value of these expenses in your rental income.

Improvements vs. Repairs

  • Improvements: The cost of improving your rental property is not immediately deductible. Instead, these costs are recovered through depreciation.
  • Depreciation of Improvements: Use Form 4562 to report depreciation for improvements, starting from the year the property is placed in service or the year of improvement.

Depreciation Details

  • Form 4562: This form is used to report depreciation, including for any improvements or added furnishings.
  • Partial Deductions: Only a percentage of improvement expenses are deductible in the year they are incurred.

How does Passive Activity Loss (PAL) rules affect rental income?

The Passive Activity Loss (PAL) rules are designed to restrict the ability to offset income with losses from passive activities, which typically include rental activities.

This means that the losses from these activities can usually only offset income generated from other passive activities. The primary purpose of these rules is to prevent individuals from using passive losses to offset their regular income, such as wages or business income.

If you actively participate in your rental activity, the PAL rules allow a special allowance. It’s important to note that active participation requires involvement in meaningful management decisions like approving new tenants or deciding on rental terms.

Under this provision, you may be able to deduct up to $25,000 in losses against your other income.

Note that this $25,000 allowance begins to phase out for taxpayers with a modified adjusted gross income (MAGI) above $100,000 and is completely eliminated once MAGI reaches $150,000.

However, if you qualify as a real estate professional, the PAL rules do not apply to you in the same way. To qualify, you must spend more than half of your working hours and over 750 hours per year in real property businesses in which you materially participate.

Given the difficulties of the PAL rules and their impact on rental income, US expats are strongly advised to seek guidance from a tax professional. An expert in US tax law can help navigate these rules, ensure proper application based on your specific circumstances, and provide strategies to optimize your tax position.

What forms are needed for reporting rental income?

The key forms and documentation required include:

  • Schedule E (Form 1040): This form is used to report rental income and expenses. It details the income received from the property, along with allowable expenses such as mortgage interest, property taxes, maintenance costs, and depreciation.
  • Form 4562: If you claim depreciation on the property, this form is used to report the depreciation and amortization.
  • Records and Receipts: Keeping meticulous records of all rental income and expenses is essential. This includes bank statements, receipts, invoices, and any other relevant financial documentation.
  • Additional Forms for Foreign Properties: If your rental property is located outside the US, additional reporting may be required depending on your situation.

Should I get a tax professional’s advice?

Engaging a tax professional is highly advisable, especially for US expats with rental properties. Here’s why:

  • Maximizing Deductions: They can assist in identifying all allowable deductions to minimize your tax liability.
  • Avoiding Penalties: Accurate filing is crucial to avoid penalties. A tax professional can ensure that all necessary forms are correctly completed and submitted on time.
  • Understanding Complex Tax Laws: US tax laws, especially those related to rental income and property, can be complex and frequently change. A tax professional stays updated on these changes and can provide guidance on how they affect your rental property.
  • Strategic Tax Planning: Beyond annual tax filing, a tax professional can offer strategic advice on long-term tax planning. This includes structuring your rental activities for optimal tax efficiency and planning for future events such as property sales or expansions of your rental portfolio.

While managing rental income taxation requires diligence and understanding of IRS regulations, seeking the advice of a tax professional can provide peace of mind and financial benefits. They can offer tailored advice and strategies for effective tax planning, ensuring that you remain compliant while optimizing your tax situation.

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