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Essential US Tax tips for Americans Living Abroad

As specialist US tax accountants to US Expats we are all too familiar with the issues that occur when US Expats overlook their tax filing obligations. Below are our top 10 tax tips for Americans living abroad.

1.     File your US tax return

It may seem obvious, but with millions of US Expats failing to file their tax return every year it has to be mentioned. You must file a US tax return if your income exceeds the filing threshold, which is set extremely low.

2.     Foreign Earned Income Exclusion (FEIE) will save you money!

Foreign Earned Income Exclusion can be used to exclude up to $100,800 of foreign income on your US tax return. In order to claim FEIE you must pass a residency test, as well as the physical presence test.

3.     Use Foreign Tax Credit (FTC) to reduce taxes

Foreign Tax Credit allows you to offset US taxes that you have already paid tax on in another country.

4.     File your FBAR

The FBAR deadline falls on Tax Day, 18th April 2017. US Expats receive an automatic extension to the 15th June, which can be extended further to 17th October. You are required to file an FBAR if you have $10,000 or more in your foreign accounts at any point during the year.

5.     You can offset your housing costs

Foreign Housing Exclusion means that US Expats are able to offset some living expenses incurred abroad.

6.     Be aware of FATCA

The Foreign Account Tax Compliance Act means individuals must report their foreign financial assets if they exceed a set level.

Contact us now for more US Expat tax advice

How to register for and file your Self Assessment tax return

If you’ve been earning any income at all off of self-employed work you must register for a self-assessment and Class 2 National Insurance. You must do this even if you have completed tax returns previously.

If you do not register by the 5th October of your business’s second year you are at risk of being fined.

If you have sent a tax return before you and register online (form CWF1). You will need to know your UTR number that was used when you registered for a Self Assessment previously.

If you haven’t previously sent a return before you can register online and get your UTR number as well as be enrolled for Self Assessment.

For help registering contact us now.

US COMPANY TAX ADVICE: How to get an EIN Number for an LLC

 

Background information

 

An Limited Liability Company (LLC) is a business structure that involves the combination of the pass-through taxation of a partnership or a sole proprietorship and the limited liability protection of a corporation. 

 

How to get an EIN Number for an LLC?

 

Getting a EIN Number for an LLC can be done relatively easy if the correct steps are taken. Up until recently, businesses had to apply for an EIN through fax or by mail, however you can now apply online.

 

1.     Prepare Your Information

There can be some complex questions that need answering in order to apply for an EIN. Having good general knowledge of your business and it’s owners will be important at this stage.

2.     Name a Responsible Party

No matter how many members are in your LLC, the IRC will only recognise one responsible party for each Tax ID. Therefore you will have to establish you the responsible party is going to be for your company.

3.     Apply got EIN Online, or by Mail or Fax

·      Online

o   If you would like to apply for you EIN online you can use the Online IRS EIN Application. The online application process take on average 30 minutes and is open 7:00 am to 10:00 pm PST.

·      Mail

o   An EIN number can also be applied for via mail. This option takes between 4 and 5 weeks.

·      Fax

o   The IRS also accepts EIN number applications via fax. This takes up to 4 days to process.

4.     Receive Tax ID Documents

You will receive an email containing your LLC’s EIN, as well as a tradition mailed letter containing your official Tax ID document from the IRS

 

Contact us now for more advice

 

Essential US Tax tips for Americans Living Abroad

As specialist US tax accountants to US Expats we are all too familiar with the issues that occur when US Expats overlook their tax filing obligations. Below are our top 10 tax tips for Americans living abroad.

 

1.     File your US tax return

It may seem obvious, but with millions of US Expats failing to file their tax return every year it has to be mentioned. You must file a US tax return if your income exceeds the filing threshold, which is set extremely low.

 

2.     Foreign Earned Income Exclusion (FEIE) will save you money!

Foreign Earned Income Exclusion can be used to exclude up to $100,800 of foreign income on your US tax return. In order to claim FEIE you must pass a residency test, as well as the physical presence test.

 

3.     Use Foreign Tax Credit (FTC) to reduce taxes

Foreign Tax Credit allows you to offset US taxes that you have already paid tax on in another country.

 

4.     File your FBAR

The FBAR deadline falls on Tax Day, 18th April 2017. US Expats receive an automatic extension to the 15th June, which can be extended further to 17th October. You are required to file an FBAR if you have $10,000 or more in your foreign accounts at any point during the year.

 

5.     You can offset your housing costs

Foreign Housing Exclusion means that US Expats are able to offset some living expenses incurred abroad.

 

6.     Be aware of FATCA

The Foreign Account Tax Compliance Act means individuals must report their foreign financial assets if they exceed a set level.

 

Contact us now for more US Expat tax advice

US Expatriate Tax Help- FBAR, FATCA, FEIE and FTC advice

The US ‘Tax Day’ is only a few weeks away. US Expats may have an automatic filing extension, but that doesn’t mean you should sit back and leave everything to the last minute. There are a number of different forms you may need to file and a wide variety of deductions and exclusions you must be aware of.

 Do you need to file an Foreign Bank Account Report (FBAR) or a Foreign Account Tax Compliance Act (FATCA)?

If you’re a US Expat you may have already heard of an ‘FBAR’ or/and an ‘FATCA’. However, you may be confused about what exactly they are and whether you have to file one.

 Foreign Bank Account Report (FBAR)

The FBAR form is used to report any foreign bank account information you may have to the US Treasury Department> The form must be filed annually by US individuals and businesses who own or have an interest in foreign bank or financial accounts that exceed $10,000 at any point during the calendar year. The FBAR deadline will be due on the 18th April this year. For US expats the automatic deadline extension until the 15th July 2017.

Foreign Account Tax Compliance (FATCA)

 The FATCA (8938) form is used to report any foreign financial accounts that you may have. You must file the form if your foreign assets are greater than $200,000 on the last day of the tax year or over $300,000 at any point during the year for single or married filing separately taxpayers. For married filing jointly taxpayers, you must file the FATCA form if the value of your foreign assets are greater than $400,000 on the last day of the year or more than $600,000 at any point during the year.

 

Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC)

Another area many US Expatriates struggle to understand is FEIE and FTC. Luckily for US Expats, there are a number of tax credits, deductions and exclusions these are classed under either FEIE or FTC.

 Foreign Earned Income Exclusion (FEIE)

 FEIE can be used to reduce or eliminate the risk of being taxed by both your host country and the US. FEIE can exclude up to $101,300 of your foreign earned income on your US tax return. To do so you must pass either the Physical Presence Test or the Bona Fide Residence Test.

Contact us now for more information on FEIE

Foreign Tax Credit (FTC)

 FTC can be used to reduce your US tax liability on your foreign earned income. You cannot claim FTC against income you have already excluded through FEIE.

Contact us now for more advice on FTC

UK families to see tax-bills cut as date announced for the launch of Tax-Free Childcare

UK parents can now pre-register for the governments new childcare offers. (Available at https://www.childcarechoices.gov.uk/).

From the 28th April Tax-Free Childcare will be available to parents of young children. Childcare costs for working families across the UK should be cut by as much as £4,000 per child each year.

Approximately 2 million working families are eligible for the Tax-Free childcare.

The scheme will be gradually rolled out, with the parents of children under two being the first eligible to enter the scheme.

Parents of three and four year old children living in England will have access to 30 hours of free childcare from September 2017.

By December 2017 eligible parents will be entitles to government top-ups of £2 for every £8 the parent pays for their Tax-Free Childcare account. This will be open to all working parents across the UK with children under 12, or 17 if disabled.

 

Contact us now for more tax advice.

2017 US Expat tax Changes. FBAR Deadline has moved.

The Foreign Bank Account Report (FBAR) is a tax document, commonly used by US Expats, which is used to report foreign financial account balances. The FBAR tax deadline has been moved up this year to fall in line with Tax Day. The change should help US expats to remain compliant with their reporting requirements.

Contact us now for details on your reporting requirements.

Previously, FBAR forms had their own separate filing deadline and were due at the end of June. Starting this year, FBAR’s will be due on 18th April, (otherwise known as Tax Day). As a US Expat living abroad, you are entitled to an automatic extension for filing your FBAR and tax return- making the deadline for both 15th June.

There can be series penalties and interest for those who fail to file their FBAR. For those who were not aware they had to file the fine could be as high as $10,000 per violation. On the other hand, those who know their filing obligations and still fail to do so could face a fine of $100,000 or 50% of the balance of the account at the time of violation (whichever is greater).

Contact us now for help filing for FBAR or US taxes.

Conservative Party revolt threatens rises in NIC for the self-employed

The announcement, in the 2017 Budget, of increased National Insurance Contributions (NIC) for the self-employed has triggered a growing rebellion amongst Conservative MP’s.

According to figures expressed in The Guardian, there are at least 18 potential conservatives that oppose the NIC increase decision. Therefore this could determine the governments working majority vote: 17. 

The general concerns expressed from the Conservative MP’s about the NIC rise ranges from the perception that the rise unfairly targets the self-employed and entrepreneurs; as well as the fact that the 2015 Conservative manifesto promised no income tax, VAT or NIC rises before 2020.

While it is not certain what percentage of MP’s oppose the 2017 NIC changes, the numbers are likely to apply pressure on to Chancellor Hammond and the prime minster to reconsider the policy.

Chancellor Hammond has argued that higher NIC charges for the self-employed in fact narrows the gap between the self-employed and workers to promote fairness.

Contact us now for expert advice on tax as a self-employed worker

2017 Budget Announcement: What the tax rise for the self-employed really means

In todays 2017 budget it was announced that millions of self-employed workers are to face high National Insurance rates. This will essentially narrow the gap between the self-employed and conventional PAYE employees.

The average self-employed person will face a 60p more expense per week. The most affected party by the change is partners in professional firms, such as accountants and lawyers. 

The tax-free dividend allowance that is often used by company directors, will be cut from £5,000 to £2,200.

Self-employed workers will now have to pay two types of National Insurance:

1.     A tax fund that benefits the state pension

2.     Job seekers allowance

The 2017-18-tax year will see self-employed workers pay Class 2 NI at £2.85 per week on profits between £6,025 and £8,164. Profits that exceed the £8164 cap will be subject to Class 4 NI at 12% on earnings between £8,164 and £45,000.

From April 2018 Class 2 NI will be abolished and Class 4 NI will rise from 9% to 10%. The national insurance is due to rise a further 1% in April 2019.

Chancellor Hammond's argument supporting the decisions behind the 2017 Budget are that it is unfair for an employee earning £32,000 to pay £6,170, while a self-employed worker will pay just £2,300.

Much like employees, self-employed workers have a ‘personal allowance’ this means that they can earn up to £11,500 in 2017-18 before having to pay income tax. However, unlike employees, self-employed workers pay income tax on the previous year’s profits, revenues after business expenses. IT is possible to deduct certain costs and losses from previous years in some cases.

Income Tax and National Insurance is paid on the 31st January each year, based off of the profits that were made in the previous year.

 

Contact us now for help on your tax return

Musicians Expenses Explained

As specialist accountants to musicians our aim is first and foremost to make sure that you are claiming all the eligible expenses, so that you can lower your taxes and avoid unnecessary penalties! Musicians have many tax deductions that are unique to any other industry.

 

Below we have broken down some of the expenses and deductions you are entitled to as a musician.

 

I’m a musician. What are my claimable expenses?

 

Expenses that are wholly and exclusively for the purpose of your trade are regarded as an allowable expense on your tax return on your tax return. Please note: Some expenses can be for dual purposes. Therefore a certain percentage of this dual-purpose expense can be claimed as a business expense.

 

Below is a list of expenses that can be claimed as an expense as long as they relate to your business:

·      Accountancy and other professional fees

·      Administrative costs

o   Stationary

o   Postage

o   Fax

o   Photocopying

o   Other office costs

·      Advertising

·      Agents and Managers fees/commission

·      Research

o   CDs

o   DVDs

o   Downloads

o   Books

o   Scripts

o   Sheet music

o   Theatre tickets

o   Cinema tickets

·      Clothing- is allowable if is specifically and exclusively for work. A self-employed person cannot claim a wardrobe of everyday clothing. However, clothing worn for a gig is claimable as a business expense.

·      Cosmetic Surgery- The surgery must have taken place for the purpose of business only. You will need a letter from an applicable person, such as an agent, to confirm that this was truly a business expense for the expense to be allowable.

·      Costume and props- This includes repairs, laundry and cleaning

·      Use of home costs-  The home cost expenses incurred due to work- such as practicing or holding meeting are all claimable. The expenses must be apportioned appropriately.

o   Council tax

o   Gas

o   Electricity

o   Insurance

o   Water rates

o   Mortgage interest/rent

·      Website costs

·      Subscriptions

o   Musicians Union

o   Other organisations that relate to your business

·      Maintenance of instruments and insurance

·      Make up and hairdressing costs that you incurred solely for work

·      Photographic sittings and reproductions

·      Professional publications

·      Start up costs

·      Telephone, mobile and internet

·      Travelling expenses to interviews, auditions and training courses

o   Taxis

o   Train

o   Tube

o   Bus

o   Car, van, motorcycle and bicycle

·      Travelling and subsistence on tour

·      Tuition and coaching

·      Capital expenditure- items that are used for a long period of time e.g., a laptop.

 

Contact us now for more advice on accounting for musicians

 

Everything you need to know about the new VAT Flat Rate Scheme

On the 5th December 2016 the HMRC released the Tackling aggressive abuse of the VAT Flat Rate Scheme- technical notes. This document went into the details of the new VAT Flat Rate Scheme. Below we have highlighted the key points everyone should know.

Why have these changes been introduced:

These changes have been introduced to crack down on those who misuse the VAT flat rate scheme.

The new rules will be introduced from 1 April 2017.

  • These will primarily affect Limited Cost Businesses

What is a Limited Cost Business:

  • You'll be classes as a 'limited cost business' if your goods cost less that either:

    • 2% of your turnover

    • £1,000 a year (if your costs are more than 2%)

    • When working out the amount spent on goods, the following purchases cannot be included:

      • Capital goods

      • Food and drink (such as staff lunches)

      • vehicles or parts for vehicles (unless running a vehicle hire business)

Who will be affected:

  • The introduction of this new scheme will increase the VAT paid by labour-intensive business who spend very little on goods. e.g. IT contractors, photographers and consultants. 

How to stay compliant:


Additional Info:

Contact us now for more advice

US EXPAT TAX ADVICE: Do I have to pay social security for both the US and my country of residency? US Totalization Agreements

Whether you, a US Expat, have to pay social security to the country you live in and the US depends on whether the country you reside in has a totalization agreement with the United States.

Generally, if you receive employment income from an American employer you are subject to pay into the US Social Security system. Many affiliates of American companies are also subject to this payment liability.

Dual social tax is a normal tax for a expat to receive. This is because most countries impose social taxes on individuals performing services within their territory.

If the country has a totalization agreement with the United States US expats are not required to pay two social security taxes. Under the US totalization agreement, workers who are eligible to coverage under both the U.S. and a foreign social system are subject to only the coverage laws of the country where he or she is working.

Contact us now for US Expat tax advice

Passport Revocation beginning for those with late US tax

The IRS’s new power to revoke the passports of late taxpayers was announced during 2016 and is well on the way. US citizens who owe the IRS more than $50,000 are at risk of having their passports revoked. The IRS have confirmed that passport revocation will begin in early 2017.

Expats are particularly at risk, since although $50,000 may seem quite dear, the FATCA Form 8938- a filing requirement for many Americans abroad with assets overseas- has a hefty $10,000 penalty for failing to file and increases for continued failure to file. 

The IRS will issue certification notices to the State Department of applicable, late taxpayers. At this point the taxpayer will be give 90 days to resolve erroneous certification issues, make a full payment of the debt or enter into a satisfactory payment alternative with the IRS.  Once the decision to revoke an individuals passport is made, the department may choose to limit the passport only to return travel to the US.

How will this negatively affect US Expats?

Having your passport revoked for a late US tax payment can be particularly complicated for US expats, since your passport is your key identity while living abroad.  This can lead to the loss of your job and home abroad. 

Thankfully, most US expats do not owe money on their tax returns due to Foreign Earned Income Exclusion, Foreign Tax Credit and tax treaty provisions. However, it is more essential than ever to avoid penalties and the interest that can come from failing to file your tax return or filing incorrect forms.

 

For advice on your US tax return contact us now