2019 Tax News Letter

American International Tax – US Tax Changes in the New Year 
Happy New Year! 

As 2019 has now arrived and a new tax year begins, it’s time for our annual letter about tax changes affecting American expats and potential new tax pitfalls. However, I’d first like to personally thank everyone for helping us to grow so significantly in 2018, not just within Thailand but across Southeast Asia. Our primary source of this growth was due to the significant number of client referrals, which is the way we want to continue to grow in the future. For the new year we’re still based in our familiar office on Lat Phrao Soi 3.

There’s some good news going into the new tax year: changes to the tax law have both lowered tax rates and increased the standard deduction. The Additional Child Tax Credit has also increased from $1,000 per child to $1,400 per child. Not only will these changes raise the threshold for US tax liability, the potential tax refund for American taxpayers with children has increased significantly.

However, keep in mind that the IRS is still processing the most substantial changes to the US tax system in more than 20 years. Between the current government shutdown and the extent of the changes, I suspect that the start date for electronic filing for the new tax year may be delayed. If you’re expecting a refund, these changes may also result in delays.

Tax Scams

I’d like to briefly mention a major problem we saw a lot more of over the last year. There was quite a noticeable increase in the number of scamming attempts using the guise of the IRS to trick people into transferring money. Many of these have moved beyond email phishing scams, and are now sophisticated scams involving online dating or a supposed American investor. The scams may run for months, and typically end up with a supposed transfer of money from America to a Thai account, only to be held up by the “IRS” who then request a withholding tax paid into a specific account.

IRS contact procedures are very strict and very regimented.  Notices are sent through the mail if those are not answered they will send a new notice by certified mail.  E-mail contact is never used, and phone contact is rarely attempted, and only done so after all other contact methods have been exhausted.

As a standard rule the IRS will never:

  • Send an e-mail asking you to verify account information
  • Send e-mail notices for taxes or penalties owed
  • Stop a bank transfer in order to ask for taxes
  • Call to demand payment over the phone
  • Threaten to immediately contact local law enforcement if taxes are not paid
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe
  • Ask for credit or debit card numbers over the phone

If you’re contacted by the IRS for any reason, especially if you’re unsure if it’s really the IRS trying to get in touch, please feel free to give us a call. We will not only help verify the authenticity of the e-mail/letter/call, but can assist in responding to actual IRS correspondence as well.
One more important note regarding real notifications: DON’T PANIC! Most notices are simply looking for additional information or clarification and as such any questions are generally easy to resolve.

Social Media and the IRS

News reports are suggesting that the IRS will start more formal programs designed to scan social media for signs of tax evasion. The practicality of how this will be done is a complex issue, as IRS employees are barred from using their personal accounts in work situations and they are also prohibited from using false flag identities to gain access to information.  I assume that this will essentially become an audit tool, where the IRS may eventually consider an audited individual’s social media account information. For example, an individual claiming poverty but frequently posting photos of yacht charters on the French Riviera may have some explaining to do. I don’t think that the IRS will be actively monitoring social media, however it may mean that if questions arise the IRS will be able to check.

Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion has increased to $104,100 for the 2018 tax year. However, the ability to claim has become slightly more limited due to the IRS now including the following line:
“You are not considered to have a tax home in a foreign country for any period during which your abode is in the United States. For tax years beginning after December 31, 2017, you are not considered to have a tax home in a foreign country for any period during which your abode is in the United States”
Essentially, the IRS is getting a bit tougher on those who attempt to reside in the United States while claiming some of the benefits of the Foreign Earned Income Exclusion. This does not really affect the physical presence test, but does have a bit of a detrimental effect on those with homes in the United States when they want to claim the bona fide residence test.  This is a rare case but the definition of abode will become more important when claiming the exclusion going forward. Again, if in doubt call us.

Standard Deduction
For 2018 taxes filed in April of 2019, the standard deductions are as follows:

Personal exemptions are suspended until 2025.

2018 Income Tax Rates

Rate    Individuals         Married Filing Jointly
10%    Up to $9,525         Up to $19,050
12%    $9,526 to $38,700         $19,051 to $77,400
 22%    38,701 to $82,500         $77,401 to $165,000
24%    $82,501 to $157,500         $165,001 to $315,000
32%    $157,501 to $200,000         $315,001 to $400,000
35%    $200,001 to $500,000         $400,001 to $600,000
37%    over $500,000         Over $600,000

Again, if you have any questions or need any clarification about any aspect of the new tax changes, just give us a call to discuss the issue. An ounce towards prevention is far less expensive and worrying than a pound of tax problems.

Regards,

Thomas Carden
+66 9 4681 9734

How do I put my Thai wife on my return

One of the most common questions we get is how do I put my Thai wife on my tax return.   The first thing you have to do is to apply for an ITIN number for her.  However you may not have to.

A nonresident alien may file a joint return if (s)he is married to a U.S. citizen or resident at the end of the year.  If the couple files a joint return, both spouses are treated as U.S. residents for the  entire tax year. If a taxpayer chooses to be treated as a U.S. resident, both spouses are taxed on worldwide income.

However a taxpayer is considered unmarried for head of household purposes if the taxpayer’s spouse  was a nonresident alien at any time during the year and the taxpayer does not choose to treat his or her nonresident spouse as a resident alien.  A taxpayer’s spouse is not a qualifying person for head of household purposes.  A taxpayer must have another qualifying person and meet the other tests to be eligible to file as a head of household.

In short if you have a child you don’t need to include your non resident alien wife on your return.  However if your wife does not have any income it may lower your taxes if you have any because the standard deduction is increased.

Do I need to file an FBAR or an 8938

Generally, any U.S. citizen, resident, or person doing business in the United States who has an ownership interest in, or signatory authority or other authority over, a financial account (or several accounts) in a foreign country with an aggregate value in excess of $10,000 at any time during the calendar year must file a Form FinCEN Report 114, “Report of Foreign
Bank and Financial Accounts” (commonly referred to as an FBAR), reporting certain information with  respect to that account by April 15 of the subsequent year or the extension due date of October 15. Failure to file an FBAR is subject to both civil and criminal  penalties.

In addition to the FBAR individuals must use Form 8938 to report specified foreign financial assets with an aggregate value greater than $50,000 at the last day of the year or more than $75,000 at any time during the tax year (this threshold doubles for married individuals filing jointly). The Form 8938 is required to be filed with an individual’s annual income tax return.  Individuals not required to file an annual income tax return are not required to file the Form  8938.  While the purposes of the Form 8938 and FBAR are similar, and there is significant overlap. Yet filing the Form 8938 does not relieve an individual of the requirement to file the FBAR. Many individuals will be required to file both the Form 8938 and the FBAR to report substantially the same information.  Oddly the reports go to different parts of the government.  The FBAR is filed with FINCEN.GOV while the 8938 is filed with the IRS.   Despite the similarities, there are some differences between the FBAR and the Form 8938. The FBAR is not filed with an individual’s federal income tax return and must be filed with the Treasury by April 15 each year. In addition, the filing  thresholds for the Form 8938 and the FBAR are different, and the foreign financial assets that must
be reported on the Form 8938 are not limited to bank and financial accounts.

Many US expatriates inadvertently share the same tax violations as Trump’s recently indicted advisers

Seven of the charges that former Trump advisers Paul Manafort and Richard Gates face are for failing to report their foreign bank accounts, as required by the Financial Crimes Enforcement Network of the US Department of the Treasury. The US government requires both citizens AND Green Card holders to report all their foreign accounts annually when the combined value of any accounts outside of the United States exceeds the equivalent of $10,000 USD. The truth is that while failing to file a US tax return is not a criminal matter, failure to report foreign bank accounts is a criminal matter, with potential fines of fifty percent of the high balance of the unreported account and potential prison time.  Manafort is not the first to be ensnared in this law: Beanies Babies founder Ty Warner was forced to pay $53 million in penalties in 2013, and in 2016 Dan Horsky an, emeritus professor of business administration at the University of Rochester was forced to pay a $100 million dollar fine and serve 15 years in prison after being found guilty of failing to file his FBARs and properly report tax.

The bad news is that while most US expatriates do not have anywhere near the level of wealth of Manafort, Warner, or Horsky, they are required to file their foreign bank accounts all the same, and failure to do so leaves anyone with more than $10,000 equivalent in foreign bank accounts open to fines of 50% of the high account balance and potential prison time. (As Manafort had also failed to report interest in several foreign companies, thus violating Controlled Foreign Corporation reporting rules, he’s subject to additional massive penalties.)

The good news is that had Manafort and Gates been proactive, they would have been able to take advantage of IRS programs that would have eliminated criminal penalties as well as potentially eliminated financial penalties, depending upon circumstances and intent.

Streamlined filing allows for those who are not criminally wilful to report their last three years of tax returns and last 6 years of foreign bank accounts, while paying no penalties on either tax due or FBAR violations.

American International Tax Advisers has experts with decades of experience helping US expatriates resolve serious tax issues, and can assist with both filing tax returns and FBARs. In many cases, clients owe no income tax and have no FBAR penalties. In some cases, clients are even owed tax refunds that they would have lost had they not filed properly.

Contact James Martin, Global Client Manager of American International Tax Advisers at James@aitaxadvisers.com for a free call to discuss how we can help you resolve your US tax issues.

 

James Martin has joined American International Tax Advisers

American International Tax Advisers is pleased to announce that James Martin has joined our firm as Global Client Manager.

James studied international business at California Polytechnic State University, and has been working throughout Southeast Asia since graduating in 2011. Prior to coming on as Global Client Manager in 2017, James worked in finance for five years, assisting with international pension planning and offshore pension transfers. He also has extensive experience setting up both private and corporate health plans. He now manages new client accounts across Asia and coordinates with our partners around the world.

The IRS moves to revoke passports

The IRS announced that in early 2017 it would begin sending the list to the State Department which taxpayers owe back taxes requiring the revocation of their passports.

According to Dictionary.com the word onerous is defined as 1. laborious or oppressive 2. law (of a contract, lease, etc) having or involving burdens or obligations that counterbalance or outweigh the advantages. A bill is currently working its way through congress that is onerous to US citizens who live or work abroad. The IRS requiring U.S. Citizens living overseas to file tax returns certainly meets the definition of onerous.

In the fall of 2012 the Orwellian bill titled “Moving Ahead for Progress in the 21st Century Act” passed. The bill has a provision that allows the United States Department of State to “deny, revoke or limit passport rights for any taxpayers with serious delinquencies”. Though the main part of the bill was meant to reauthorize funds for transportation programs, a small section introduced by Senator Barbara Boxer allows the IRS to revoke the passports of U.S. Citizens who owe back taxes.

The tax debt has to exceed 50,000 U.S. Dollars. Furthermore, the IRS will have to file a lien or assess a levy for the outstanding balance in order to suspend or revoke the passport then it can send a certification to the State Department to have a passport revoked. The bad news is that all the IRS has to do is send notices to the last known address of the taxpayer. The problems for many U.S. citizens who reside overseas is that many have not filed their U.S. tax returns for many years, so their last known address may be years or decades old.

The onerous part of the bill for US citizens who live abroad is that through the use of foreign tax credits and exclusions, most will not owe any US taxes when their returns are completed properly. However, the IRS will assume that all their income is taxable in the US until they file a return with the IRS. Thus with FATCA reporting income through international banks without those exclusions and credits, the IRS may assume that the expat owes substantial amounts of tax and move with no knowledge of the expat to revoke their passport.

If you are a U.S. Citizen who is residing overseas you need to come into compliance with your U.S. Tax obligations and your financial account disclosures. The IRS has the power to force International Financial Institutions to report the balances of all U.S. Citizen account holders. While it is possible to avoid penalties by entering certain IRS programs, once the IRS detects non compliance they will move to enforce horrendous penalties of 50 percent of the accounts balance and seize assets and yes revoke passports. By treaty they can deport U.S. citizens from Thailand to face tax fraud prosecutions.

If at any point you believe that you have undisclosed assets or you have not been completing U.S. Tax returns, contact us at James@aitaxadvisers.com for a free consultation. We can help you solve all problems you may have.

American International Tax Advisers is an IRS Authorized Efiler.

Do I need to file a U.S. tax return

The United States reserves the right to tax its citizens on their worldwide incomes regardless of where they are residing at the time the money is earned. If you reside overseas you will still have to file a tax return if you meet certain income levels that depend on your filing status and age. If you live overseas you must file a return for 2016 if your gross income from worldwide sources is at least the amount shown for your filing status in the following table:

 

IF your filing status is. . . AND at the end of 2016
you were*. . .
THEN file a return if your gross income** was at least. . .
Single under 65 $10,350
65 or older $11,900
Head of household under 65 $13,350
65 or older $14,900
Married filing jointly*** under 65 (both spouses) $20,700
65 or older (one spouse) $21,950
65 or older (both spouses) $23,200
Married filing separately any age (if your spouse itemizes deductions) $4,050
Qualifying widow(er)
with dependent child
under 65 $16,650
65 or older $17,900

The United States gets a guilty plea and a 100,000,000.00 U.S.D. FBAR fine

In November 2016 New York emeritus professor Dan Horsky, pled guilty to conspiring with others to defraud the United States and to submitting a false expatriation statement to the Internal Revenue Service (IRS). Mr Horsky used a series of offshore companies and Swiss accounts to conceal his very successful investments in start up companies. Upon retirement teaching business administration Mr Horsky decided to retire renounce his citizenship. While he had previously failed to disclose the accounts on his FBAR forms and substantial investment in foreign companies and partnerships. Mr Horsky compounded his problem by filing an expatriation statement where he substantially understated the value of his assets.

The IRS has not disclosed how it discover Mr Horsky’s fraud but in their press release they said.

“The Department and its partners within the IRS are receiving a tremendous amount of information from a wide variety of sources, and we are using that information to pursue and prosecute individuals like Mr. Horsky, who violate our nation’s tax laws”.

It’s also important to note that the IRS paid out a record amount of money in whistle blower rewards. The incentive to report someone with undisclosed assets is very real.

Mr Horsky is to be sentenced on February 10th to what is supposed to be substantial prison time.

While it may be easy to see the IRS prosecuting Mr Horsky many U.S. citizens living abroad do not know that they are now in the cross hairs of the IRS international accounts investigations. This is because failure to file Foreign Bank Account Reports (FBAR) on offshore accounts with aggregated high balances over ten thousand U.S.D. during the year may result in fines of up to 50 percent of that high balance and possible prison time,  because failure to file the correct forms is a criminal matter not a civil one in the case of foreign accounts. Because the fines are so large the IRS has looked at them as massive revenue stream. The problem for U.S. Citizens living overseas is that many are not filling out the correct forms and still others are not aware they are even required by law to file a U.S. Tax return and FBAR forms, regardless of the length of time they have lived overseas.

The good news for those with undisclosed accounts is that the IRS currently has a series of programs that allow for individuals to come into compliance with minimal penalties as long as they are deemed to not have been willful in hiding assets.

If at any point you believe that you have undisclosed assets, contact us at James@aitaxadvisers.com. We will help you come into compliance with the IRS.

American International Tax Advisers is a IRS Authorized Efiler.

 

Deductible moving expenses for foreign moves

Moving to a foreign country can be a daunting and expensive undertaking. Many individuals are unaware that if the move to a foreign country is for employment the cost of the move may be deductible. The good news is that extra expenses are deductible when the move is foreign. In this case a “foreign move” is deductible when you move to start work where your tax home is outside of the United States.  A foreign moves include a move from the United States to a foreign country, a move from one foreign country to another foreign country, or a move within a foreign county. Moving back to the United States has a separate set of rules.
The biggest advantage is that a foreign move has a broader category of deductible moving expenses. For a foreign move, the deduction for moving household goods and personal effects from the old residence to the new residence is expanded to include expenses for both moving those goods and effects to and from storage, and storing those goods and effects for part or all of the period during which the new place of work continues to be the taxpayer’s principal place of work. In a domestic move any storage of goods either prior to shipping to the new location or on arrival are not deductible however in a foreign move they are.
It is important to note that any expenses attributed to income that is excluded under the Foreign Earned Income Exclusion will not be able to be deducted. It is important to understand that the devil is in the details in taxation and that the situation discussed may not meet your specific tax situation. Consult us, qualified expat tax specialists, to see if you can use the extra deductions at James@aitaxadvisers.com

IRA rollover rules

Many U.S. expats have IRAs. Starting in 2015 the IRS will only allow one IRA roll over per year from an IRA to an IRA. In this case a “rollover” is specifically defined as withdrawing funds from an IRA and holding them for less than 60 days then depositing them into a new IRA. While it is rare to do this more than once a year it has been used in some advanced tax and income planning to minimize borrowing cost for generally high net worth business owners. And occasionally due to unforeseen circumstances. If however a person does a transfer directly between IRA accounts and never holds the funds these transfers are unlimited.

The penalty for making more than one rollover per year is steep as the second withdrawal is treated as taxable income and a 6% excise penalty is paid on the reinvestment if it exceeds the IRA contribution limits for that year.

If you are looking at doing any type of rollovers it is best to discuss your options for tax planning with us, qualified expat investment advisers at James@aitaxadvisers.com