Tax Questions Thread
Ask your questions about Tax and FBAR here.
This thread will be focused closely on tax questions and answers. If the conversation starts to ramble, those comments will be moved to another thread.
Previous Tax thread:
US Expat Tax and FBAR discussion thread, part 1
US Expat Tax and FBAR discussion thread, part 2
Sage advice from tax guy Phil Hodgen on his expat blog.
Bottom line. Being a ‘covered’ expat is no fun. Avoid if at all possible.
Portland–why should anyone avoid being a ‘covered expatriate’? I have deliberately chosen to fall into that category, as I have renounced and I haven’t filed any US tax returns, including the 8854. I can’t see that being ‘covered’ has any affect on my life whatsoever. Can you elaborate?
Your choice is perfectly reasonable.
My point is that for those who have to file or choose to file, it’s best to plan in advance and take steps to avoid covered status if necessary. Lower taxable income, lower net worth, It’s doable .
Clearly every person’s circumstance is different, and while being a covered expat may have zero impact on some, it can have significant impact on others – e.g. someone who has been compliant and wants to properly exit the tax US system, but would run afoul of the net worth test thus triggering a major tax event that could have been avoided by gifting prior to renunciation. Know before you go.
@Birdperson
Phil’s blog post here will be aimed at people with ‘lingering’ US connections such as US based assets — perhaps a 401k or IRA — or US citizen heirs. These are where the most nasty and spiteful US exit tax traps lie. If you have no financial or other significant connection to the US, the exit tax is a paper tiger. If you do though, it can be a maneater, because the IRS has the leverage to enforce it. All down to circumstance.
Yes, all down to personal circumstances. I was reacting to the sweeping generalisation.
Not sure where to post this without going off-topic. This thread seems closest.
I just completed our US tax forms, like a good, frightened little patriot. What a rude surprise! Trump’s “simplified” tax form turns the 1040 postcard-sized, as he promised. But to actually accomplish that, they’ve divided the 1040 into seven separate documents. So instead of filing one double-sided 1040 you file as many as 12 pages of forms (in addition to all the usual extras–schedules B, E, 2555, and so on). Some simplification!
But the most suspicious one is Schedule 6. You’re required to file it only if you have a tax preparer or a “foreign” address. It asks only for the province and country on the form, not the actual address. Since those items also show up in the full address you write on 1040, then what is the meaning of this redundant form?
My mind swirls with dark thoughts that this is intended as a red flag, stating “Here I am! A probable child sex trafficking tax evader!” Seriously, though, I can’t imagine the thinking behind this form, unless it’s to help them make separate stacks for people in so-called “sanctioned” and “tax haven” countries, for special scrutiny. Since I live in a so-called “low tax” country, this worries me. I’m putting off sending it in until I figure out what kind of brand new self-incrimination this is meant to induce. Any ideas?
I would not waste any time worrying about it.
With the tax giveaway to the very wealthy, they tried to toss a scrap to the ordinary folk by simplifying the 1040. As you mentioned, In order to get it to 1 page they offloaded a lot of stuff to a bunch of new schedules. not really any simpler.
Your chances of being flagged haven’t changed. They haven’t the resources to bother you unless something else doesn’t add up.
It would be quite sensible to separate forms filled in by tax preparers and non-US-residents from those filled in by US residents, as the former probably are the most likely to require human attention. Having a separate formlet solely for distinguishing between the two groups may help save time in getting those politically all-important refunds out to the voting masses.
At the last minute I’ve discovered that this year’s 1040 instructions explicitly warn against using non-standard (US) size paper. I’ve always used A4 without issues in the past, but there wasn’t (at least, to my knowledge) an explicit warning against this sort of thing in the instructions before which is slightly worrying. That said, they don’t state that such returns would be rejected outright, only that processing might have issues. I also imagine this was always the policy, it just wasn’t as clearly stated.
Yet another way for expats to get screwed…
“Assemble any schedules and forms be- hind Form 1040 in order of the “Attach- ment Sequence No.” shown in the upper right corner of the schedule or form. If you have supporting statements, arrange them in the same order as the schedules or forms they support and attach them last. File your return, schedules, and oth- er attachments on standard size paper. Cutting the paper may cause problems in processing your return. Don’t attach cor- respondence or other items unless re- quired to do so. Attach Forms W-2 and 2439 to Form 1040. If you received a Form W-2c (a corrected Form W-2), at- tach your original Forms W-2 and any Forms W-2c…”
Oh dear. It’s almost enough to make you feel sorry for them.
They’ve been required this year to produce a form the size of a postcard to hold more information than can be put on a postcard, while at the same time being first closed down and then ordered to work unpaid, yet somehow getting refunds processed as fast as possible so the voters won’t be more disgruntled about the TCJA than they already are. It’s a plea, not a warning, IMO.
Morale must be at rock-bottom.
MJ
Here is a more detailed answer
In my opinion, since they don’t answer the question “please tell me where they should be entered on form 1040″ except by stating “the benefits are taxable only in Canada”, I don’t see why they should even be mentioned.
US tax condors will tell you you have to invoke the tax treaty and even include a tax treaty form. More work for them.
It seems your US accountant had no idea . Time for a new one.
Or, better still, as Nancy Reagan said, “just say no” and walk away- stop filing US taxes- nothing will happen
“In my opinion, since they don’t answer the question “please tell me where they should be entered on form 1040″ except by stating “the benefits are taxable only in Canada”, I don’t see why they should even be mentioned.
US tax condors will tell you you have to invoke the tax treaty and even include a tax treaty form. More work for them.”
They should not be mentioned, and they don’t have to be reported on form 8833 because reporting is waived.
See https://www.irs.gov/individuals/international-taxpayers/claiming-tax-treaty-benefits, or even better look at 8833 and then look at the actual statute which states which treaty exemptions don’t need to be reported. Form 8833 gives the statute reference.
Well worth a look.
“…require a tax return be filed only if tax is actually owed.”
(http://isaacbrocksociety.ca/2019/06/16/brock-project-could-you-share-examples-where-lower-income-americansabroad-would-be-required-to-pay-u-s-taxes/comment-page-2/#comment-8643413)
My opinion: the US is committed under its Double Taxation Treaties to allow credit for foreign tax paid where the taxpayer is entitled under the treaty to claim it. It’s hard to see how the IRS could take any action against a US citizen living and paying tax in a treaty country simply for not filing, if no tax was due.
They could audit, but they can’t turn zero into a tax bill, merely because a return wasn’t filed to put in a claim for tax credits.