The following is a synopsis of our DA Bologna meeting on March 5, 2016, with Tony Bonanno on the topic of “US Tax Issues for Americans Living Abroad, including FATCA”.
Tony's talk on US tax issues was structured as a short summary of the answers to questions frequently asked by Americans living abroad, including:
1. Citizenship versus Residence-based Taxation. The US and Eritrea are the only two countries that tax on the basis of citizenship on worldwide income. Although there have been proposals for US residence taxation, none have succeeded.
2. How double-tax (US and foreign) is minimized. The US section 911 earned income exemption of approximately $100,000; the foreign tax credit; and tax treaties.
3. Requirement to file a US tax return. Generally, approximately $10,000 for singles/married filing separately; $20,000 for married filing jointly. A US tax return is required to be filed to claim the section 911 earned income exemption.
4. Streamlined-filing- A kind-of amnesty allowing Americans living abroad who have not filed tax returns or tax forms in the past to correct their non-willful mistake and in general file for the past 3 years.
5. US citizens giving up their US citizenship- Depending on worldwide assets owned, there could be a significant tax charge on expatriation (officially giving up one's cituzenship). This is, of course, a major decision.
6. US gift tax. There are two levels of tax exemption: (1) annual $14,000 for singles; $28,000 for marrieds and (2) lifetime of $5,430,000 for each spouse. The gift tax (if any) is on the donor. The donee gets a cost basis of fairmarket value.
7. US estate tax. Lifetime tax exemption of $5,430,000, inclusive of gifts to be counted. The tax is on the estate of the deceased. There is no US tax on the recipient.
8. FAST Act. New tax law that would revoke a US passport if there is a seriously delinquent tax debt greater that $50,000. IRS regulations are being drafted for guidance. Second passports may be a good idea.
9. FATCA. It’s not a tax, but a filing of a tax form. It reports foreign financial assets (cash, dividends, etc, not real estate) over certain dollar thresholds (married filing separately- $200,000 on the last day of the tax year; $300,000 during and married $400,000 on the last day of the tax year and $600,000 during). Some foreign financial institutions do not want US citizen clients because of FATCA. Members reported that generally banks in Italy have not caused problems with respect to their bank accounts.
Democrats Abroad want to have an exemption to FATCA if the accounts are in the same country as the US citizen is resident; the Republicans would like a repeal.
For more information about events in Bologna contact Joanne Maloney and Peggy Kidney at [email protected]