New Tax Obligations for Americans Living Abroad
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New Tax Obligations for Americans Living Abroad

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A PDF (32 pages) of New Tax Obligations for Americans Living Abroad

A PDF (32 pages) of New Tax Obligations for Americans Living Abroad

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    New Tax Obligations for Americans Living Abroad New Tax Obligations for Americans Living Abroad Presentation Transcript

    • Middle East Tax Services US Individual Taxation For US Citizens and Green Card HoldersDennis AllenMiddle East TaxPartner13 February 2012
    • Agenda/Contents 1. Tax Updates and Developments 2. US Taxation of Expatriates 3. State Taxation 4. FBAR and FATCA 5. How PwC can help 6. MyTaxesUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 1. Tax Updates andDevelopments
    • 1. Tax Updates and DevelopmentsIndividual Income Tax Rates 2011 and 2012 tax rates will remain the same: ranging from 10% to 35%.Capital Gains Tax Rates Will remain the same with a maximum 15% rate applied to long-term gains and qualifying dividends.Social Security tax rates The Social Security rate was reduced by 2% for 2011. This reduction has so far been extended through February 2012. The employer portion remains unchanged at 6.2%.Alternative Minimum Tax Exemptions were temporarily increased for 2010 and 2011. If no extension to this law is made, many individuals will find themselves subject to AMT in 2012. Currently, no increase in exemptions for 2012 is anticipated.American Opportunity Credit This refundable credit of $2,500 has been extended through 2012 based on expenses for the first four-years of undergraduate education.Child Tax Credit This refundable credit providing up to a $1,000 credit for children under 17 has also been extended to 2012.Foreign Earned Income Exclusion The foreign earned income exclusion was increased to $95,100 for 2012 based on inflation.Retirement Contributions The 401(k) and 403(b) contribution limit was increased to $17,000 for 2012.US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 1. Tax Updates and DevelopmentsItemised Deductions & Personal For 2011 and 2012 the phase out for itemised deductions and exemptions for high-Exemptions income earners has been temporarily extended.Dependent & Child Care Tax Credit Has been extended and increased from $2,400 for one child to $3,000 and from $4,800 up to $6,000 for two or more children.Form 8938 In addition to the Foreign Bank Account Reporting form, a new Form 8938 will need to be included with the 2011 tax return to disclose foreign assets with a value exceeding various thresholds.Sales Tax Deduction The optional deduction in-lieu of the deduction for state income taxes expired in 2011.Student Loan Interest Deduction Is extended for two more years. After 2012, this deduction will go back to where student loan interest is only deductible for the first 60-months of repayment.Due Date of Return The due date to file Form 1040 is Tuesday 17 April 2012 instead of 15 April due to the 15th being a Sunday and a holiday in the District of Columbia.Roth IRAs If a taxpayer converted or rolled over an amount to a Roth IRA in 2010 and did not elect to report the taxable amount on their 2010 return, then they generally must report half of it on their 2011 return and the rest on their 2012 return.Expired tax benefits • The Making Work Pay credit • Extra itemised deduction for real estate taxesUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • True or False? 1 I don’t need to file because I don’t work for a US company 2 I don’t need to file because I earn less than the exclusion 3 I don’t need to file because I am a green card holder 4 I don’t need to file because I am over age 65 5 I don’t need to report my income from foreign investment accounts 6 I don’t need to file because I live and work overseas and my wages are not reported on Form W-2US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • True or False? False! You always have to file.US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of Expatriates
    • 2. US Taxation of expatriatesTable of Compensation Base pay (worldwide) The following Overseas incentive allowance (foreign premium, COLA, etc.) list is an example but Housing allowance or provided housing not an Home leave airfare exhaustive list Auto or telephone allowance of taxable Education assistance/reimbursement compensation Settling-in/Relocation allowance items Tax reimbursement All other cash or benefits received in-kindUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of expatriatesNon Taxable Compensation The following list are  Transportation of household goods the main non taxable  Travel and temporary lodging expenses forms of Actual storage costs paid compensation US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of expatriatesForeign earned income exclusion Purpose: To provide tax relief for US companies and/or US workers in order to be competitive in the global market place. The US is the only major industrial country that does not completely exempt the foreign earned income of their citizens working abroad. $92,900 Foreign Earned Income Exclusion for 2011 Both spouses are entitled to their own exclusion Prorated in the year of arrival/departure Indexed for inflation on an annual basis ($95,100 in 2012)US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of expatriatesForeign earned income exclusionThe following income  Foreign source wages (sourcing is based on where work is performed - workdays)is eligible for theexclusion  Foreign allowances/benefitsThe following are  Interestexamples of income  Dividendsthat do not qualify for  Pensions  Other unearned incomethe exclusionUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of expatriatesHow to claim the foreign exclusions The exclusions must be claimed by making an election The election has to be made annually and must be made on a timely filed returnUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of expatriatesQualifying for the exclusions How do I qualify for the exclusions? 1 Must have established a foreign tax home - assignment expected to last longer than one year + Physical Presence Test (PPT) Must be physically present in a foreign country or countries for 330 full days during any consecutive 12-month period 2 Must meet one test OR Bona Fide Residence Test (BFR) Must maintain a foreign residence for a full calendar year (e.g. for a 2011 arrival - a tax home abroad beginning before 1 January 2012 and ending after 31 December 2012)US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of expatriatesQualifying for the exclusions Bona Fide Residence (BFR) example: Arrival Date 1 Sept 2011 31 Dec 2011 1 Sept 2012 31 Dec 2012 Full year resident overseas Qualifying period begins: 1 September 2011 2011 exclusion: 122/365 x $92,900 = $31,029US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of expatriatesQualifying for the exclusions Physical Presence Test (PPT) example: Arrival Date 27 July 2011 1 Sept 2011 31 Dec 2011 26 July 2012 31 Dec 2012 330 Full days outside US One Year Qualifying period begins: 27 July 2011 2011 exclusion: 158/365 x $92,900 = $40,226 Additional exclusion: 36/365 x $92,900 = $9,197US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of expatriatesQualifying for the exclusions  Possible additional exclusion in year of arrival and departureBenefits of Physical  For arrival year, tax return can be filed earlier thanPresence Test (PPT) under BFR (receive refund sooner!)  In case PPT is not met then you can fall back on BFRUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 2. US Taxation of expatriatesForeign housing exclusion (2011 maximum) $34,823 Foreign Housing Exclusion for Abu Dhabi $42,310 Foreign Housing Exclusion for Dubai There are different housing limits depending on your location Worldwide housing survey to be conducted annually should increase (but may decrease) the housing exclusion Housing expenses include – rent, utilities (excluding phone), insurance, household repairs & parkingUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 3. Tax Return Filing RequirementsUS Individual Taxation For US Citizens and Green Card Holders • 13 February 2012PwC
    • 3. What are the requirements for filing tax returns? Automatic two month extension to 15 June Additional, discretionary extensions can be requested to 15 December Special extension to qualify for exclusions - applicable for new arrivals (BFR) Foreign bank account reporting required when accounts > $10,000US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 4. State Taxation
    • 4. State Taxation: The Facts Non-resident return may be Basis for required for taxation: rental or •Residency business income •Domicile Spouse living in Not all States the US may State taxation allow foreign present issues exclusions Attending a conference or working in the US may trigger a state income tax liabilityUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 5. FBAR and FATCA
    • 5. Foreign Bank Account Reporting All US citizens, residents and business travellers to the US must report their foreign bank or securities accounts to the US Department of Treasury if the combined value of all accounts exceed $10,000 at any time during the year. The report is due 30 June and there are no extensions. Report requires The maximum value in each account The name and address of the bank/institution The account number The identity of joint holders (if any)US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 5. Foreign Account Tax Compliance Act• All US citizens, residents and resident aliens must report the value of their specified foreign financial assets if they exceed thresholds. $100,000 MFJ Living in the US $50,000 other $400,000 MFJ Living outside the US $200,000 other• The asset details and value are reported on Form 8938 which is attached to the annual tax return, e.g. Form 1040.• The penalties for not filing this form could be up to $50,000.US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 5. Types of Foreign Accounts• Bank account• Custodial account• Broker account• Stocks• Mutual Funds• Deferred compensation Accounts• Corporate Holdings• Partnerships• Trust• Debt Instruments• Insurance contract• Pensions, Annuities or Retirement Plans• Puts, calls, straddles and othersUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 6. How PwC can help
    • 6. How PwC can help Our value to you  Over 20 years of US expatriate taxation experience  US tax professionals based throughout the Middle East  E-filing of returns means quicker refunds  We simplify tax return preparationUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • 7. MyTaxes
    • 7. My Taxes  https://MyTaxes.pwc.com (MyTaxes)  Secure website – requires username and password to access it  Method of communication between PwC and the assigneeMyTaxes is a web based  Tax questionnaire will be issued via MyTaxestool provided by PwC  Tax returns can be uploaded onto MyTaxes  Access to a calendar tool – assists PwC in calculating Physical Present Test  MyTaxes is used by PwC all over the worldUS Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • Questions?US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC
    • ContactsDennis Allen Stephen DrakePartner Director+974 4419 2830 +974 4419 2831dennis.allen@qa.pwc.com stephen.d.drake@qa.pwc.comLeo Zimny Nabih DaaboulSenior Manager Manager+974 4419 2844 +974 4419 2833leo.zimny@qa.pwc.com nabih.daaboul@qa.pwc.comThis document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.© 2011 PricewaterhouseCoopers. All rights reserved. "PricewaterhouseCoopers" and “PwC” refer to the network ofmember firms of PricewaterhouseCoopers International Limited (PwCIL). Each member firm is a separate legalentity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services toclients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it controlthe exercise of their professional judgment or bind them in any way. No member firm is responsible or liable forthe acts or omissions of any other member firm nor can it control the exercise of another member firm’sprofessional judgment or bind another member firm or PwCIL in any way.US Individual Taxation For US Citizens and Green Card Holders 13 February 2012PwC