Simon Brady, CFP. Not A US Citizen?.. What You Need To Know

Transcription

1 Simon Brady, CFP Not A US Citizen?.. What You Need To Know

2 The Categories..

3 US Citizens Entitled to vote Liable for jury duty Subject to US income tax on worldwide income

4 Resident Aliens Green card holders are entitled to live and work in the US indefinitely Can ultimately apply for US citizenship Subject to US income tax on worldwide income

5 Non-Resident Aliens Entitled to live and work in the US with a valid working visa Visas are often valid for a specific period of time, but extensions are permitted (L-1, H1-B, H4.. over 200 types) Subject to US income tax on worldwide income

6 Income Tax On Worldwide Income US Citizens Resident Aliens Subject to US taxes on worldwide income Non- Resident Aliens

7 Estate Tax Advantages Only US Citizens Resident Aliens Entitled to full advantages of US estate tax laws Non- Resident Aliens

8 Federal Estate Tax Implications 2014 Estate tax due on worldwide assets, irrespective of residence of decedent US citizen Death Of US Citizen: Spouse is US Citizen Exemption: $5.34m Marital Deduction: UNLIMITED Spouse is Resident Alien Exemption: $5.34m Marital Deduction: NONE Spouse is Non-Resident Alien Exemption: $5.34m Marital Deduction: NONE

9 Federal Estate Tax Implications 2014 Estate tax due on worldwide assets, irrespective of residence of decedent resident alien Death of a Resident Alien Spouse is US Citizen Exemption: $5.34m Marital Deduction: UNLIMITED Spouse is Resident Alien Exemption: $5.34m Marital Deduction: NONE Spouse is Non-Resident Alien Exemption: $5.34m Marital Deduction: NONE

10 Federal Estate Tax Implications 2014 Death Of Non-Resident Alien: Spouse is US Citizen Exemption: $60,000* Marital Deduction: UNLIMITED Spouse is Resident Alien Exemption $60,000* Marital Deduction: NONE Spouse is Non-Resident Alien Exemption: $60,000* Marital Deduction: NONE * US-based assets

11 NYS Estate Tax Exemption: $2,062,500 : US citizen residents of NYS or out-of-state US citizens with NYS situs assets $60,000 : Non-Resident Aliens

12 Qualified Domestic Trust (QDOT) Federal estate tax must be paid at the time of each and every distribution (including on $ used to pay tax). The survivor spouse is not entitled to take the entire proceeds and return full-time to native country.

13 Federal Gift Tax Citizens, resident aliens and non-resident aliens are all entitled to the individual annual gift tax exclusion ($14,000 in 2014) US citizens are entitled to receive unlimited gifts from their citizen or non-citizen spouses Non-citizens (either resident or non-resident) are subject to gift tax in the form of a reduction in their unified credit by any amount received from a spouse above $145,000 per year (2014).. Example: property titling

14 Some Quick Facts.. - A Non-Resident Alien (NRA) cannot be a shareholder of an S Corp - A 529 plan is not available in some states if either the owner or the beneficiary is a NRA - In New York State, a NRA may not serve as a trustee or executor of an estate and guardians located outside the US can be disqualified at the discretion of a judge - Some insurance carriers may make life insurance unavailable for certain categories of NRAs and mortgage terms and down payment requirements are likely to be stricter for NRAs - Credit providers typically do not take good credit from overseas into account when deciding upon credit worthiness - Gift splitting is not available if either spouse is a NRA

15 FBAR & FATCA The New Reality Report of Foreign Bank and Financial Accounts (FBAR): - Created by the Bank Secrecy Act (1970) to combat use of overseas financial secrecy laws for the purpose of evading US taxes IRS press release reminder to disclose overseas accounts valued at over $10,000 Foreign Account Tax Compliance Act (FATCA): - A provision within the Hiring Incentives To Restore Employment Act (2010) designed to give teeth to the enforcement of FBAR by including the imposition of criminal as well as civil penalties - Created an additional reporting requirement hurdle at $50,000 - Enlisted the assistance of overseas financial institutions in reporting local account activity of any individuals subject to US taxes

16 Report of Foreign Bank and Financial Accounts (FBAR) The Basics Any person of any nationality and in any location who is subject to US taxes and who has signature or any other authority over bank or securities accounts outside the US must electronically file FinCEN Report 114 through the BSA E-Filing System if the aggregate value of those accounts at any point in the calendar year exceeded the equivalent of $10,000 Filing due date is June 30 th

17 FBAR The Penalties Uniquely, FBAR penalties are based on account size, not tax avoided. Failure to disclose any FBAR-liable accounts can lead to a civil penalty of up to the greater of $10,000 or 50% of the value of each account for non-willful violations or up to the greater of $100,000 or 50% of the value of each account for willful violations for every year not reported (generally up to 6 years back, but theoretically can be unlimited if FBAR is never filed).

18 A Possible Nightmare FBAR Scenario Bob has held 5 FBAR-liable accounts for 6 years, each with the equivalent of $2500 in them. Aggregate: $12,500 (so > $10,000). Bob has failed to ever file FBARs for any of these accounts, a fact which comes to the attention of the IRS, who accept that his failure was non-willful. Bob s penalty could be: 5 accounts x $10,000 x 6 years. $300,000 penalty for accounts with a total of $12,500 in them.

19 Foreign Account Tax Compliance Act (FATCA) US Persons All US Persons with any interest in accounts held outside the US valued at $50,000 or more for any period of time during the calendar year must disclose this on IRS Form This is in addition to IRS 1040 and FBAR filing.

20 Foreign Account Tax Compliance Act (FATCA) Foreign Financial Institutions Financial institutions are now reporting to the US Treasury full details of all accounts held by US persons and apply withholding to these accounts. Governments of scores of countries have already signed up to ensure that their institutions comply, with discussions ongoing with all others.

21 Foreign Account Tax Compliance Act Non-Willful: (FATCA) The Penalties Between $10,000 and $50,000 civil penalty per a/c per year 40% surcharge on any unpaid taxes related to these accounts Willful: Criminal penalties of $250,000 for individuals and $500,000 for entities Court Costs Up to 5 years imprisonment

22 Estimated # of IRS Agents Investigating Overseas Account Violations $100,000,000,000 per year

23 Renunciation of US Citizenship "Exit Tax".. You are deemed to have sold ALL your worldwide assets on the day of the renunciation application. You must arrange for a valuation of all your assets and then send a check to the IRS for all capital gains that would be due as if you had just sold everything. Only upon receipt of this $$$ by the IRS can any renunciation be authorized. Possible tax penalties on US-based heirs following death. Possible difficulty re-entering US later on. Similar problems for long-term green card holders (8 of last 15 years).

24 (646)