Tax Questions
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.
Related threads:
Tax Discussion Thread. Instead of focusing on specific questions and specific cases, broader ideas can be discussed on the Tax Discussion Thread.
Tax Compliance (or not) Discussion Thread
Sub-threads (more will be added as they occurs):
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.
Rose
You can renounce and ignore the tax filing Renunciation does not depend on your tax compliance . Many have gone down this route with no problems. You are a minnow and not worth their while chasing.
@Rose
http://isaacbrocksociety.ca/renunciationrelinquishment-interactions-between-department-of-state-and-the-internal-revenue-service/
Rose, the common sense solution is to not worry about this and do nothing. If you need to renounce for FATCA or banking reasons, simply do so. If not, save yourself a trip to the consulate. Under no circumstances need you bother with FBARs or tax returns. Now relax, there is no reason to be concerned.
@Rose…..all good advice above!
Arguably, you lost your US citizenship when you became a British citizen because naturalizing as a citizen of another country is an “expatriating act” according to US citizenship law. If, as you say, you have never had a US passport, have no SSN, have never filed US taxes, have no US assets, and have never voted in a US election, then you have lived your life solely as a UK citizen with no ties to the US whatsoever.
Forget about what the “compliance condors” say. You can’t possibly be a “covered expatriate” because the IRS has no basis to make such a determination if you have never filed anything. They don’t even know you exist. Keep it that way. For God’s sake don’t enter the US tax system at this late date because that will only to give them something they can use to try to penalize you. If you feel compelled to renounce, insist that you relinquished your US citizenship many years ago and merely want to document that fact. (Its possible your relinquishment predates the exit tax so it wouldn’t apply to you anyway.) But honestly, unless you are experiencing some sort of banking difficulties, your best course of action is to do nothing and continue to live your (non US) life as a British citizen.
But above all, relax. Unless you voluntarily offer yourself as a sacrifice, the US government can’t possibly touch you.
Rose. Whatever you do, don’t let anybody frighten you into filing anything to do with US taxes.
At the moment, they don’t know you exist and they won’t unless you tell them.
You have two choices. Forget the whole thing. This has the considerable advantage of saving $2350 and a trip to London. Or, renounce if you must. Remember you do not need to file anything before or after renouncing. Feel free to return here any time you need support.
Rose, in your situation this is quite literally not something worth losing any sleep over. My advice remains the same: do absolutely nothing unless you begin to encounter banking or investment problems; if that happens the only solution may be to renounce. Are your banks aware of your US citizenship? If not, endeavour to keep it that way by never telling them. (If you’ve had the accounts a long time and speak with a British accent, they may never suspect a thing and never ask about your place of birth.)
I opened my account 42 years ago and so yes they do know. That’s why I’m concerned. I’m reassured by all your comments and advice, and do thank you all for your help and support. I’m not usually such a wimp!
Are you absolutely certain that the bank knows about your US citizenship? If yes, then two problems:
(1) Is the bank denying you any type of service or investment product? If yes, the only cure is to renounce, i.e. buy a CLN (for which US tax compliance is not needed).
(2) Do you believe yourself to be subject to FATCA reporting? (Is the bank reporting all US-person accounts or only those above some sort of limit?) If you think this to be true you can either renounce to stop it, or not worry about it because the IRS isn’t likely able to do anything with the data and has no means to penalize you anyway.
Problem 1 is fairly obvious. How you approach problem 2 depends on your personal appetite for taking small but unknowable risks. Some folks would be perfectly happy to ignore any potential future consequences of FATCA reporting, others would not sleep a wink until they’ve renounced and done a full “clean exit” of the US tax system.
@Rose
We have all had those OMG moments, lost sleep and had problems with spouse and family. You are not alone.
If you opened your accounts long ago, citizenship and birthplace was not asked on your application. It may be they have no idea. It is if you wish to open any new accounts that the question is asked and birthplace is noted. It is like the sword of Damocles hanging over your head. I did not have a US birthplace but I wanted to rid the US from my life permanently to
Renounce and be free of them. You can still travel to the US on a British passport with an ESTA with no problem.
Sounds like renouncing is the right choice for you. To be honest, it’s unnecessary. As for a pop up asking for your US address best to not answer or answer none.
Knowing how poorly software is written, I suppose the programme won’t accept those responses. Good lucjk. You will have to throw a hell of a party for us to fly from Canada.
The US treasury is apparently receiving 100s of millions of FATCA reports. There is zero probability they can use them proactively to go after minnows. They are used to pile on the penalties for serious miscreants who are detected by other means. Not for you to worry about.