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Mail Bag #10: CAD Accounts, Child Tax Credits, Inherited IRAs, Publicly Traded K-1 Income, Property Sales, and Saudi Job Offers

Mail Bag #10: CAD Accounts, Child Tax Credits, Inherited IRAs, Publicly Traded K-1 Income, Property Sales, and Saudi Job Offers
Ines Zemelman, EA
10 December 2017

Inherited IRA

I have a friend in my neighborhood who is quite old and frail. She is English but lives in the US and earned all her money in the US. I promised her I'd find the answer to this question but cannot find a definitive answer on the internet.

She has most of her money in a Roth IRA. Two relatives in England - young - will inherit the Roth IRA. Will they have to pay tax on it do you think?

With an Inherited Roth IRA, you don’t pay taxes on distributions. With an Inherited Traditional IRA, you’ll pay taxes on any distributions you take.

Inherited IRA

Canadian accounts

I am a Canadian who moved down to the US (California) for work on October 10, 2016. I filed my taxes for the period October 10 - December 31, 2016 (using form 1040), but have recently been advised that: (1) Contrary to what I believed, I need to disclose all foreign accounts that were open in 2016 (not only those that were open when I moved to the US - I consolidated and closed many of my Canadian accounts prior to my move) - this is a FINCA or FATCA or some other type of form?; and (2) That I may also have had to file a 1040NR (though I don't believe this to be the case).

Your service has been recommended to me by an expert in the area, and I am wondering if you might be able to help me. If so, may I ask for the fee structure that would apply?

Once you meet the Substantial Presence test you will be a U.S. resident for tax purposes. You will become subject to the same filing obligations as U.S. citizen, i.e. you are required to declare your worldwide income and non-US financial accounts.

For the 2016 tax year, you could have filed the dual-status alien return (form 1040NR for the nonresident part and form 1040 for the residne part). Alternatively, you could have filed 1040NR for the entire year as you did not meet the Substantial Presence test. You chose to file 1040 for the entire year, which could likely increase your US tax obligations. No worries - we can file an amended return to correct this. In short, form 1040NR is $450/$550 (over $100k). If you choose to amend to 1040NR then you would be not required to file FATCA (form 8938) for 2016 year, which is another incentive to amend the 2016 to 1040NR.

For the 2017 tax year, you will file form1040 and FBAR if applicable. Of course, we will determine all necessary forms after analyzing your completed tax questionnaire and reviewing your documents.

Canadian Accounts

Child Tax Credit

Hello. My husband and I are both Americans living in London since April 2011. We have 2 children (born 30 July 2013 and 19 May 2016).

My husband earns approximately 75,000 GBP and I earn 32,000 GBP. We both work for UK companies and pay UK tax. We live here on a Visa.

In the past years, I have simply filed with TurboTax as married (filing jointly) and taken the Foreign Earned Income Exclusion. We have not owed any US tax.

A friend has told me that we also be able to qualify for the Child Tax Credit refund ($1,000 per child) if we file as married (filing separately), and use the FTC (Foreign Tax Credit) filing method. This seems too good to be true, so I thought I should check, before hiring an Expat tax service to amend my prior returns.

I am a bit behind, and I have not actually yet filed for 2016.

Do let me know your advice on this matter.

Indeed, in the past, we have processed refundable child credit of $1,000 for each child to all expats with earnings under $100k. There was a small trick that enabled the credit regardless of the foreign earned income exclusion.

Now - the wrinkle. As of 2015 tax year, the IRS has changed this ruling and disallowed additional child credit to taxpayers who claimed the foreign earned income exclusion. Although they have not explicitly said it, there is a high probability that amending prior years utilizing that trick will not work and credit on the amended return will be disallowed. What we can do: There are still ways to get the child credit, but it depends on your situation. We can review your prior year return ($100), and I would let you know if it is possible for you to do so and if it makes sense to file an amendment for up to 3 years. There is no need to file separately. At the same time we will let you know if you can get the additional child tax credit for 2016, which has not yet been filed yet.

Should an amendment be warranted, the $100 would go towards tax prep fees.

Child Tax Credit

K-1 income

I recently received a K1 from a publicly traded lp which I bought and sold in 2016. I am unsure if I now have to file a us tax return?

To give you some background information I am a UK citizen (born and bred in the UK) and I buy and sell us stocks using a w8ben form so my US taxes are normally held at source. I would like advice on this matter as if a return it is due I would like to act expediantly.

The non-resident tax return (form 1040NR) is necessary - both to report income from K-1 and disposal of interest in Publicly Traded Partnership.

The publicly traded partnership must withhold tax on any actual distributions of money or property to foreign partners.We would file a non-resident (form 1040NR) US tax return for you, claiming this refund if tax withheld qualified for exemption. The cost of a standard 1040NR is $450/$550 (if over $100k).

Of course, we would determine your filing requirements after reviewing your completed tax questionnaire and reviewing your documents.

K-1 Income

Foreign Property Sale

What are the tax implications when selling foreign property?

When you sell property (whether in the United States or in a foreign country), you will be responsible for capital gains taxes. There are exclusions available which can reduce your tax hit to 0 - we will calculate this for you during tax prep. Please see our article on this subject - Foreign Property Sales

Foreign Property Sale

Saudi Job Offer

I’m receiving a job offer to relocate from Texas to Saudi Arabia. Can I still be paid in US Dollars are receive all the IRS exclusions/deductions for salary, housing, hardship, ETC?

Yes certainly - you can get paid in any currency; it makes no difference with regard to your qualification for the foreign earned income exclusion.

Note that employer housing subsidy, hardship and other additional benefits that you receive will first be added to your US taxable income. Further they can be excluded but there is a limit for the exclusion while there is no limit for adding those items to taxable income.

We can prepare a projection for you to determine what your US tax obligation would be.

Saudi Job Offer

Ines Zemelman, EA
Founder of TFX