FBAR – New Revision of TDF90-22.1 Form

Posted by Don W on May 18, 2011 under Expatriate Taxes, First Time Filing as an Expat, Foreign Bank Account Reporting (FBAR), Tax Matters in the News

The IRS has published a new revision to the annual reporting form for FBAR – Foreign Bank Account Report – Form TDF90-22.1, revised March 2011. 

The form warns not to use earlier versions of this form when reporting the existence of any NON-US bank or broker accounts in which the balance – or combined balances – exceeds US$10,000 for as much as a single day in the year (in this case, 2010).

If you have already reported for 2010 using the previous version of TDF90-22.1, I would think it reasonable that the US Treasury (to whom this form actually goes) would not have any problem about it at this writing (May 19th).  Except that they – via the IRS – have not been very reasonable in the administration of the program ever since they started ramping it up in 2009.   

Please know that this form is due no later than June 30, 2011 – and this means THEY MUST HAVE ARRIVED AT THE US TREASURY’S POST OFFICE BOX BY JUNE 30TH.  Draconian fines for being late or not filing at all.

There isn’t any good news when it comes to FBAR; it is a pain in the patoot burden to millions of US taxpayers who own or have signing authority over a non-US bank or brokerage account (and some foreign trusts) with draconian fines for non-c0mliance or incomplete compliance.

For more on this unfortunate topic, check out our webpage on FBAR and FATCA at: http://www.globaltaxhelp.com/fbar-new-enforcement.  You can also find the newly revised forms – short or long – of TDF90-22.1 PDF for download or printing.  Filing address is shown on the form.  Good luck.

FBAR Update – recent news

Posted by Don W on February 5, 2011 under First Time Filing as an Expat, Foreign Bank Account Reporting (FBAR), Foreign National Taxes, Tax Matters in the News

There are very few news or journal articles about the IRS’s FBAR (Foreign Bank Account Reporting) initiative – their Voluntary Disclosure Program (VDP),  a controversial and troubled program in which thousands of US taxpayers find themselves.

For the most recent newpaper article on the current status of the program see “Navigating the latest US Tax Maze” from Gulf News (based in UAE) which was published last week on January 29th.

One interesting recent article found on the Forbes website, “FBAR Penalty: One Court Pushes Back Against the IRS,” shows that – even when a taxpayer is hardly the model of good behavior – the penalty process is contentious.

Our website has more recent articles with additional information on both FBAR and the new FATCA (I’ll talk more about this one in future blogs!).  If you’re interested click on the “FBAR and FATCA” webpage on the site.

IRA Conversions to ROTH in 2010

Posted by Don W on December 14, 2010 under Estate Tax and Planning, Retirement tax planning, Tax Matters in the News

Back in 2006, President Bush signed a bill that liberalized rules for Roth IRA conversions.

Starting in 2010, taxpayers – including those with modified adjusted gross income of more than $100,000 – will be allowed to convert a traditional IRA to a Roth IRA – AND -recognize the income recognition (and the tax) on those 2010 conversions over the 2011 and 2012 tax years. This both delays, and spreads out the tax bite over the two years following the conversion year.

This 2-year tax rule applies to the tax year 2010 ONLY so if you wish to take advantage of it call your broker (or check your online broker’s site) for details. You have only two more weeks to act.

A thorough discussion of the how-to’s and should-you’s of Roth conversion in 2010 can be seen at: http://www.bankrate.com/finance/retirement/7-steps-to-a-2010-roth-ira-conversion-1.aspx. Upon reading this, you should be able to make an informed decision as to whether or not you should consider doing so.

My broker told me that the breakeven point for converting is about 8 1/2 years, so if this fits into your future retirement and longevity plans, consider doing so (but quickly!).

Q&A: Are education assistance, housing, and vehicle benefits taxable income?

Posted by Don W on October 25, 2010 under Expatriate Taxes, First Time Filing as an Expat, Relocation and Taxes

Q: I’m getting transferred to the UAE and I can get up to $13,000 USD for education assistance for my elementary school daughter. Is this taxable income? What about housing and company car? I would appreciate your assistance.

A: Yes, the money would be included in your gross foreign income.  The same applies to housing and vehicle benefits. The easiest way to think about it is that anything that you would have had to pay with your own cash is taxable.

Q&A: How do we handle residency when we’ve left our US home to foreclosure?

Posted by Don W on October 10, 2010 under Expatriate Taxes, Relocation and Taxes

Q: In July 2009, we “walked away” from our Ohio home, deciding to leave it to foreclosure. As we are officially homeowners in the state of Ohio, until such time as foreclosure occurs, does Ohio still consider us as residents and subject to Ohio state taxes?

A: Residency, especially if you don’t have any economic ties to the state, is up to you. If you don’t intend to return to Michigan then you can renounce your statehood.

Q&A: Are lottery winnings in a foreign country taxable in the US?

Posted by Don W on September 25, 2010 under Expatriate Taxes, Foreign Bank Account Reporting (FBAR)

Q: I am a US citizen living in England.  If I were to win the UK lottery (which is tax free) – would I still be liable to pay taxes to the U.S?  I file U.S. taxes each year along with the foreign earned income form.

A: Yes, foreign lottery winnings are taxable by the IRS in the US (though they are generally exempt from the particular state income tax).  Do remember that if the aggregate value of of your foreign bank accounts exceed $10,000 at any time during the calendar year you have a legal requirement to file form TD F 90.22.1– please see the IRS FAQ page on FBAR (Foreign Bank Account Reporting).

Q&A: Should I pay into the US Social Security system so that I can receive Medicare benefits down the line?

Posted by Don W on September 7, 2010 under Expatriate Taxes

Q: I am considering whether it would be worthwhile for me to pay into the US social security system, in order to receive a Social Security payment and receive Medicare benefits later on. I am a US citizen, self-employed and living in Spain since 1994. I was born in 1962. I have worked in the US as well, for a total of about 3 years. I file income taxes here in Spain (as I am based here) and the US, though I have not yet had to pay taxes to the US. I pay for social security here in Spain but would like to look into whether I can also pay into the US system as well, for some extra coverage and to secure Medicare for later. To do this, I would need to know how much I would need to pay and what the return would be, and whether I would indeed be covered by Medicare (when in the US, as I understand that Medicare does not cover outside the US). Can you please advise?

A: To be eligible for Social Security you must have paid into the system for 40 credits (approximately 10 years). http://www.ssa.gov/retire2/credits2.htm

You can certainly pay in to the US system. This is calculated on Schedule SE, generally used in conjunction with Schedule C. The tax rate is 15.3% of your net self-employment income. This represents both the employer and employee portions of Social Security and

Q&A: Can we deduct moving expenses and mortgage interest/taxes abroad in our US return?

Posted by Don W on August 20, 2010 under Expatriate Taxes, Relocation and Taxes

Q: My wife is a dual Australian / US Citizen.  We are now residents of (and homeowners in) Australia. In June 2009, we incurred approximately $10,000 in moving expenses from Tennessee to Australia.  Are any of our moving expenses to Australia deductible? Does US Tax Code allow us to deduct any of the mortgage interest or taxes paid for our primary residence in Australia?

Also, my wife and I have spent only 10 days in the USA since July 2008, so for TY 2010, 330 Rule is assured. Given the benefit of US Taxes 330 Rule, is it better to file as a US Citizen and offset Australian tax liabilities against that filing?

A: For Federal purposes you can deduct your moving expenses. You can also deduct foreign mortgage interest on Schedule A.

As for filing, there is only one option –  all US citizens are required to report their worldwide income to the IRS each year.  You can get a tax credit for foreign taxes paid, but your US tax return is still your primary tax return (in the eyes of the IRS).

Q&A: If I take a cruise departing from the States, how will it affect my Physical Presence Test?

Posted by Don W on August 2, 2010 under Expatriate Taxes

Q: I am a US expat living in Brazil.  I am trying to find some data on US expats taking cruises. I recall something about if a cruise departs from a US port, it will still be considered as time in the US and would count against the physical presence requirements. I have checked the IRS website as well as the State Dept Travel website, but I have been unsuccessful in finding the answer to this question.

A: If you are living in Brazil, then your tax home is Brazil.  That doesn’t change because you are on a cruise for a week or two. In this instance, you are still outside of the US and you have established a tax home already.

However, all bets are off if you are wondering if you can live on a cruise ship and also qualify for the Foreign Earned Income Exclusion.

The Physical Presence Test has two parts:

  • Tax Home
  • 330 days

You must meet both.  For more information on this test check out the Foreign Earned Income Exclusion section of the Expat Tax Basics page on our main site.

Q&A: I’m self-employed and confused– what do I need to do about US Self-Employment taxes if I have already paid into a foreign system?

Posted by Don W on May 13, 2010 under Business Tax Issues, Expatriate Taxes

Q: I have been in Finland for 12 years, and I am returning the the United States and filing previous year’s taxes. I am confused by the apparently contradictory information that I find in the the 2009 IRS publication 54, page 11, titled “Exemption from Social Security and Medicare Taxes”.

I paid all my self employment taxes in Finland dutifully all the years I lived there, and understand the Totalization Agreement with Finland means I don’t have to pay them again in the US, but my accountant says I have to pay the 15.3% Self-Employment tax.

Who is correct?

A: The basic rule is this – you must be paying into one system or the other (assuming there is a Totalization Agreement).

In your case, if you have been paying into Finland’s social system then you would not be required to pay Self-Employment tax on the income.  You would just be required to pay income tax.

Please check out the SocialSecurity.gov overview of the Totalization Agreements by country (you can also find full text of the Agreements on the site).  Keep in mind that these agreements only apply to the years spent abroad.  Once you return to the US you will again be responsible to US system.