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Tax guide
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Tax Guide
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Case studies

Case study 1

Client: Teacher, Argentina

Tax situation: A former New York City school teacher took a teaching job in Argentina. The school year in Argentina runs from March to December. In 2009, he filed the federal tax return for 2008 excluding his entire foreign earned income. On his NY state tax return he included only his salary earned in January, before he became an expat. Six months later, Bryan received a notice from the NYS Department of Taxation and Finance indicating that he owes state and city taxes on his entire income earned in 2008 plus interest and penalties.

Taxes for Expats Solution: We analyzed the original state tax return and found out that the Bryan did not include form IT-360, change of residency. We filed an amended state return for 2008 on his behalf, including the missing form, properly indicating his change of residency status . As a result, the entire amount of proposed tax liability was dismissed.

Case study 2

Client: Landlord, Israel

Tax situation: Currently living in Israel owner of multiple rental properties in the U.S. inquired about the possibilities of applying deduction for rental losses he incurred in the U.S. due to the economic downturn. However, his gross income exceeded the level allowed for taking rental loss. In addition to the foreign earned income, the expat taxpayer also received income from a U.S. family partnership subject to income tax at the marginal rate of 35%.

Taxes for Expats Solution: We analyzed the character of the taxpayer participation in the partnership and came to the conclusion that he qualifies for the status of a passive partner. As a passive partner, he could offset his "passive income" from the partnership with the "passive loss" from his rental property. As a result, the U.S. part of his taxable income was reduced.

Case study 3

Client: Private Investor, UK

Tax situation: In 2009, an expat civil engineer received a letter from the IRS. The letter stated that the taxpayer's income information for the year 2008 reported by other sources did not match the numbers reported on his Tax Return. According to the letter, Kevin did not report his entire capital gains amount for the year. Unpaid tax on capital gains, including interest and penalties, was estimated at $34,200.

Taxes for Expats Solution: We found out that the taxpayer placed dozens of trades online. There were gains and losses on the individual transactions, and his cumulative capital gain for the entire year was close to zero. The previous tax preparer who filed his tax return did not file schedule D, the capital gains and loss schedule form, itemizing each transaction and entered the small capital gains amount directly on line 13 of form 1040.

We requested the copies of the transactions for the entire year from the brokerage firm and filled out schedule D indicating each transaction cost basis. Although the letter only provided the 30-day window to reply, we requested an extension because the taxpayer living abroad received the letter past the 30-day period. Two months later, we received a letter from the IRS dismissing previously requested tax liability.

Case study 4

Client: Performing artist, France

Tax situation: Self-employed musician took classes to polish her skills while performing in Parisian clubs. She inquired about the possibilities of deducting her educational expenses from the foreign self-employment income on her U.S. tax return.

Taxes for Expats Solution: We thoroughly analyzed the nature and relevance of the educational expenses to Samantha's music business venture and found them to be a valid business expense that could be deducted from her self-employment income. Deducting educational expenses resulted in the decrease of her net business income and overall reduction in self-employment taxes of 15%.

Case study 5

Client: IT Manager, UK

Tax situation: Before taking a consulting job for a U.S. company in Dubai, while also working full time for a UK firm, client asked us to estimate the most efficient work load for the upcoming year from an efficient tax management prospective. He was willing to make additional income to the extent where his dual tax obligations would not wipe out extra earnings.

Taxes for Expats Solution: We performed cost-benefit analysis and provided our client with the recommendation as to what number of consulting work hours would be most efficient from the tax management standpoint considering his dual tax obligations.