There are two methods that a U.S. Person living abroad can use to reduce their U.S. tax liability. The two methods are the Foreign Earned Income Exclusion (“FEIE”) and the Foreign Tax Credit (“FTC”). Even if one of these methods were to eliminate the U.S. Person’s U.S. tax liability, the U.S. Person is still required to file their U.S. tax return if their income exceeds the filing thresholds for the tax year. […]
U.S. Taxation of U.S. Citizens and U.S. Tax Residents Residing Overseas
U.S. citizens and U.S. tax residents (“U.S. Persons”) are taxed in the United States on their worldwide income no matter where in the world they reside. The U.S. taxes based on citizenship, which is different than almost all other countries in the world that tax based on residence.
This often catches U.S. Persons who have never lived in the U.S. or have lived abroad for a number years by surprise. Any U.S. Person living abroad with income for tax year 2023 above the following thresholds must file a U.S. tax return: […]
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Tax Filings for the International Executive
Recently we were transitioning to take over the tax filing for an executive who was a U.S. tax resident because he had a green card but resided outside the U.S. This executive has considerable income and the country that he resided in also taxed at higher rates than the U.S. federal income tax rates. Our review of the executive’s tax return not only found there were informational reporting errors, but that the income of the executive had been over reported by more than $160,000 […]
PFIC Testing for Foreign Portfolio Companies
Funds with U.S. investors, U.S. family offices, and individual U.S. investors (collectively, “U.S. Investors”) must be cognizant of whether their foreign investment in private companies is an investment in a passive foreign investment company (“PFIC”). Typically, a foreign portfolio company would be classified as a corporation for U.S. income tax purposes unless an election was made to have it taxed otherwise. The issue with PFICs is that unless certain elections are made, distributions from a PFIC may be subject to an excess distribution regime resulting in a punitive tax and interest charge. In certain bad circumstances, the punitive tax and interest charge can be the amount of the distribution. […]
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Importance of Semiannual and Annual OZ Testing
Fund managers must ensure their qualified opportunity funds (“QOF”) meet the requirement that 90 percent of the QOF’s assets are held in qualified opportunity zone (“QOZ”) property. Failure to meet the test can result in significant penalties to the QOF that can have a significant impact on the investment return to its investors. […]
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FATCA Compliance for Offshore Funds
It is important that fund managers understand their responsibilities under the Foreign Account Tax Compliance Act (“FATCA”). FATCA imposes a 30% withholding tax on U.S. source payments to foreign financial institutions (“FFI”) that do not comply with requirements to identify their U.S. account holders, as well as to non-financial foreign entities that do not identify their substantial U.S. owners, unless an exception applies. For offshore funds, understanding their FATCA reporting requirements is of the utmost importance to avoid withholding tax. […]
Streamlined Coordinated Services – Immigration and Tax
Transitioning key talent from one country to another presents complex issues for the multinational corporation. Global mobility requires coordination of services between in-house legal, human resources, and other divisions in multiple countries. The typical approach is to hire one of the large immigration firms and the big accounting firms to handle the immigration and tax work, believing this is the best way forward. We have seen too often under this model that the services are not customized and collaborative to the multinational corporation or the employee transitioning to work in a new country. […]
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Not Over Taxing Gains on QSBS (Qualified Small Business Stock)
The exclusion from gain applicable to the sale of qualified small business stock (“QSBS”) is a key benefit in selecting C corporation status for startups and other businesses. QSBS stock allows the noncorporate taxpayer to exclude from gain the greater of $10 million or ten times the taxpayer’s basis in the stock (“QSBS Eligible Exclusion Amount”). Properly excluding this gain from tax is an important tax savings opportunity and significantly increases the noncorporate taxpayer’s return on investment. […]
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Power of the CRUT and Importance of Correct Tax Reporting to Receive the Desired Benefits
Family offices and private clients (“Clients”) have complicated investment and estate planning structures that require professionals to understand how to handle the needs from legal, accounting, and tax reporting. One of the planning tools frequently implemented for these Clients is a charitable remainder unitrust (“CRUT”). The CRUT allows for the tax-free liquidation of a highly appreciated asset, the tax-free growth of the assets inside the CRUT, with the income building inside the CRUT only being taxed to the extent of distributions to the lifetime beneficiary. This is a powerful tool if the tax reporting occurs correctly. We have noticed a gap between the estate planning and the tax reporting often resulting in phantom income being taxed to the detriment of the beneficiaries. […]
Customized Mergers and Acquisitions Due Diligence Services
In the acquisition of a business, it is important the buyer has a clear understanding of the target’s financial, commercial, operational, technical, human capital, and tax condition. Too often, certain parts of the due diligence do not receive the attention required, either because the firm performing the due diligence does not have the necessary background, or there is a lack of coordination among professionals in different fields of expertise. This is a critical opportunity for the buyer to learn of issues with the target as the nonidentification of key issues will have a financial impact down the road for the buyer. […]
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