Cecil Nazareth, CPA (www.nazarethcpas.com) deconstructs international tax planning issues at the New York State Society of CPAs (live session and webinar) in NYC.

1. International Tax Planning
& Update 2019
Presenter: Cecil Nazareth, ACA, CPA,MBA
NAZARETH CAs + CPAs
GLOBAL ACCOUNTANTS
www.nazarethcpas.com
cecil@NazarethCPAs.com
203-956-4899

2. International Tax
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3. Disclaimer
The following presentation is for education
purposes only. It is not intended for, or to be
construed as, legal or compliance advice.
Always consult with an attorney and/or CPA
and/or tax professional with expertise in
compliance issues.
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4. Agenda
1. Income Sourcing: U.S. income vs. Foreign income
2. US Tax: TCJA 2017 & 2019 Tax planning
◼ Individuals
◼ QBI – deduction
3. International
◼ Often omitted international forms
◼ Corporate
◼ International Tax Planning
4. Summary/Wrap up
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5. IRS Focus -Penalties Are Stiff
◼ Owe more than $50K to the IRS? Your
passport can be revoked.
◼ 5471: Director + 10% of Foreign Entity
($10,000 per year penalty for non
compliance).
◼ Real estate professional (750 hours) and
strong documentation.
◼ Passive losses more scrutiny.
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6. INCOME SOURCING:
U.S. VS. FOREIGN
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7. Income Sourcing
Income U.S. Sourced Foreign sourced
Interest income Debtor U.S.
resident/domestic
corporation
Foreign Debtor
resident /foreign
corporation
Dividend income Payer Domestic
corporation
Payer Foreign
corporation
Personal service income
Pension
Services performed in
U.S.
Services performed in
outside U.S.
Rentals & royalties Property used in the
U.S.
Property used abroad
Gain on sale of real
property
Property located in
the U.S.
Property located
abroad
Gain on sale of personal
property
Seller is U.S. resident Seller is foreign
resident
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8. TCJA 2017
INDIVIDUAL & PTE
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9. Tax Planning 2019
◼ PTEs 20% deduction for QBI (sec 199A).
◼ Business auto $10,000 depreciation, $16,000 Yr. 2,
$9,600 Yr. 3.
◼ Maximize retirement accounts - 401(k) $19,000 for
2019. Additional $6K for people over 50.
◼ Sell stock capital loss of $3,000.
◼ Flexible spending accounts (FSA) pretax saving.
◼ Heath saving accounts HSA ($6,850).
◼ Reasonable comp for S corp owners.
◼ SALT (state and local) restricted to $10K.
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10. Tax Planning
◼ Move your Sch A taxes to Sch E – Rental
properties.
◼ Cost segregation.
◼ Capital gains for zero bracket tax payers
($77,200K- MFJ and 38,600 single).
◼ Medical threshold reduced to 7.5% of AGI.
◼ Opportunity Zones: Reinvesting CGs to defer
or eliminate CG tax.
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11. Winners
◼ Individual rate 39.6% to 37%.
◼ C-Corps 35% to 21%.
◼ Estate tax exemption from $11.18 million per person
with portability. State exemption much lower.
◼ 529 Plan for elementary & secondary school…up to
$10,000 tuition for public, private school.
◼ PE firms: 3 year holding period for carried interest.
◼ Gifts: Limited to $15,000 per person.
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12. Old and New law
Old
Tax Law
New
Tax Law
Corporate 35% 21%
Individual 39.6% 37%
Capital gains 23.8% 23.8%
Standard deduction individuals MFJ $13,000 $24,000
No state and local deduction (SALT) Allowed $10,000
cap
No Personal exemptions Allowed Repealed
Mortgage Interest deduction Fully allowed Up to
$750,000
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13. Old vs. New Tax Law
Other deduction and credits
Old
Tax Law
New
Tax Law
Child care credits $1K $2K
529 plans College Additional middle and high
school
Medical expenses >10% AGI 7.5% of AGI
Individual health care
mandate/penalty
$630 Repealed in 2019
Charitable
Contributions
Full No Change
Misc. deductions >2% Not deductible
No limitation on
Itemized
Haircut Fully deductible
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14. High Income earners
Planning
1. CapEx - Sec 179 deductions for equipment.
2. NIIT – Net investment income tax 3.8%.
3. Pay down mortgage: Make 1-2 extra
payments per year to increase interest
deduction.
4. Charitable donations – approved charities.
5. Move passive to active business.
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15. Retirement Accounts & Credits
◼ SEP plans: Set up before Dec. 31 and fund by Sept
15, 2019 (max $55K)
◼ Set up before Dec. 31, Defined Benefit Plans (max
$220K).
◼ IRAs: Fund IRAs before April 15, 2019.
◼ Tuition expenses – AOTC credit max $2,500 or
Lifetime learning $2K is a refundable credit.
◼ 529 kids or grandkids – up to $10,000 CHET in CT
some states. NYS similar deduction.
◼ Foreign tax credits (Form 1116).
◼ Child care credits $2K.
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16. Fewer Brackets
Brackets Old
Tax Law
New
Tax Law
.> $600,000 39.6% 37%
>$400K - $600K 39.6% 35%
> $315K to $400K 33% 32%
>$165K to $315K 28% 24%
> $77.4K to $165K 25% 22%
>$19,050 to $77,400 15% 12%
< $19,050 15% 10%
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17. Pass Through Entities (PTEs )
◼ PTEs QBI (qualified business income) 20% deduction of
taxable income.
◼ QBI – deduction
◼ Less than $315K - full deduction
◼ $315K to $415K - phase out
◼ Greater than $415K - no deduction.
◼ SSTB (specified services trade or business) doctors,
accountants, consultants, finance professional and all personal
services subject to the limitation.
◼ Top rate for some PTE 29.6% (e.g. REIT).
◼ Other business – full deduction of 20%.
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18. Sec 199A QBI
◼ 20% deduction for qualified business income.
◼ Compare taxable income with AGI
◼ deduction 20% of lower amount.
◼ Three main factors:
◼ Taxable income
◼ W2 wages of the entity
◼ Unadjusted basis.
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19. Planning for Kids &Grandkids
◼ Teach kids financial skills.
◼ Have them earn money. Don’t just give or
leave money to kids.
◼ Crummey Trusts for kids.
◼ Gift of stock : Purchase stock instead of cash
for grandkids, e.g. Coke for a kid 1st birthday.
◼ Parents matching charitable contributions.
◼ 529 plans – kids and grandkids.
◼ 529 plans for elementary/secondary school.
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20. INTERNATIONAL
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21. Often Omitted International
Tax Forms (new FBAR)
◼ 5471: 10% ownership + director.
◼ 5472: Non-U.S. 25% holder of U.S. entity.
◼ 8802: Certificate of residency.
◼ 8621: Foreign mutual funds (PFIC).
◼ 3520: Gifts and estate.
◼ 8938: Specified foreign financial assets.
◼ 8288: FIRPTA – Non-resident selling US real
estate.
◼ Penalty for not filing: $10K per year.
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22. TCJA 2017 CORPORATE
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23. C- Corp
◼ All C corps to be taxed @ 21%.
◼ Corporate AMT eliminated.
◼ R & D credit remains – 6% of qualified
expenses.
◼ Sec 179: Investment in equipment is
increased to $1 million.
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24. Foreign Tax Planning
◼ Sec 988 Fx losses.
◼ Defer income/gains by moving income to the
following year. Do the transaction on Jan. 1,
2019 instead of December 31, 2018.
◼ Foreign income including CG’s attracts state
tax with no FTC.
◼ If retired, move to a non-taxing state (FL, NV
TX etc.).
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25. FBAR & Other Issues
◼ FBAR OVDI program closed Sept 28, 2018.
◼ FBAR compliance still required.
◼ India-US can still cooperate jointly investigate
taxpayer.
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26. Top 10 International
1. Quasi-Territorial vs. Credit.
2. C-Corp from 35% to 21%.
3. DRD: C- corps only – SFC 20% deduction.
4. Foreign Derived Intangible Income (FDII) 13.125%.
5. GILTI: 10.125%
6. One-time tax: 15.5% liquid and 8% illiquid.
7. Inventory: Production only no 50/50.
8. Sub F changes: 10% of valuation added.
9. Interest Limitation: 30% of EBITDA.
10. Base Erosion Anti-Abuse Tax (BEAT): Minimum tax.
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27. Optimum Entity
◼ C-Corp still double taxation @ 21%.
◼ S Corps: taxed only once at individual rate.
◼ Partnerships: also taxed only once at
individual rate
◼ Schedule C – subject to social security taxes
◼ ROI after tax.
◼ U.S. State tax in addition to Fed tax.
◼ U.S. competitive in world.
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28. Comparable Corp Rates
Risk /transparency
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Country Corp tax
rate
Risk GDP
Growth
%
Transpa
rency
Comments
China 25 9 6.55% 5 No FX Outflow
Corruption – trade war
France 33 5 2.04% 8 EU compliance
Germany 30 5 2.01% 8 EU compliance
Japan 31 5 1.21% 8 Slow growth
India 30 6 7.35% 6 IT – FX outflow Corruption
Tier 1 (NATO status)
U.K. 19 7 1.62% 8 Brexit
U.S. 21 4 2.93%
%
9 Fed and State
Political – trade war/tariff

29. U.S. vs. Foreign
M & A
◼ Foreign companies wanting to do business in
the U.S. – Global footprint.
◼ U.S. companies wanting to do business in
Internationally.
◼ Tax structures very important to become tax
efficient.
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30. SUMMARY & WRAP
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