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Tax Planning Tips For Expats At Year End

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If you do your planning, you can maximize deductions and exclusions and improve your retirement savings. 

Avoid Penalties

You need to avoid penalties for 2019 if you are self-employed or if you owed 2018 taxes. 

If your tax withholding is insufficient, or if you are self-employed, you have to pay quarterly estimated taxes. If you do not pay the required amount of taxes at the due date, you might be penalized.  For the September 1st to December 31st, 2019 tax period, you have to pay your estimated taxes by the fifteenth of January 2020.

Bundle Deductions

Since the standard deductions have been increased to $12,000 for individuals and to $24,000 for married couples who file jointly, even fewer ex-pats will benefit from itemizing.  If you are close to these thresholds, you should consider moving your deductible expenses up into 2019.  Make charitable contributions and selected state and local tax payments in 2019 instead of 2020, except if you are going to be in a lower tax bracket next year. If so, you should bundle more expenses into 2020.  Just remember that not all international charities are recognized by the IRS.

Be careful not to trigger Alternative Minimum Tax AMT. You have to consult a tax expert to avoid unintended tax consequences. 

In terms of the TCJA 2017, you cannot deduct unreimbursed employee tax preparation expenses anymore, although business and independent contractors can still deduct home office and similar expenses on Schedule C.

Comply with new crypto guidance

The IRS released new guidance for cryptocurrencies, and it is worthwhile to review your returns to ensure that you specifically identified crypto sales to optimize previous returns.

  

Contribute To a 529 Educational Plan

You can contribute up to $15,000 per year into a 529 tax-advantaged savings plan for tuition and education expenses. The savings grow tax-free and can only be used for eligible education expenses.  If you contribute above $15,000 gift tax limit, it will count against your lifetime exclusion for gifts, which you have to report on IRS form 709.

Harvest Capital Losses

When you sell off an investment trading at a loss, you can use the loss to offset taxable capital gains from stocks, bonds, and ETFs.  Also, you are permitted to apply a loss-carry-over from previous years against gains.  If your capital losses exceed your profits for the year, you can use up to $3,000 of the net capital loss to offset other taxable income, including salary, interest or dividends. Losses above that can be carried over to next year.

 

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Opportunity Zones (OZ)

Investment in  OZ is a great strategy to reduce capital gains tax.  The TCJA 2017 provides the opportunity for taxpayers with substantial gains to roll over their investments into investments in real estate and businesses in distressed zones.  What you gain is a deferral of capital gains, and possibly the reduction of taxes on the capital gains to a zero rate when the length the investment is held in the OZ is long enough.

Other Tax Planning Options

With the support of your accountant, additional options are available. You might want to set up a defined benefit plan if you are over 55-years of age. This will allow you – if you are a sole owner entrepreneur – to save hundreds of thousands of dollars into a pension account – depending on your income and age.   You can also save money with land easements: this happens when you donate land to a land trust or government agency. If it is to the benefit of the public, eg. By permanently protecting conservation resources for example, you can qualify for charitable tax deductions on your federal income tax return.   Investment in US oil drilling can provide deductions relative to the size of the drilling costs.

Qualify For The FEIE (Important For Expats)

You must take careful consideration of your travel dates and residency status abroad to qualify for the Foreign Earned Income Exclusion(FEIE).  For 2019, the FEIE is as much as $105,900. 

Here’s How It works

To meet the physical presence test, for twelve months, you had to spend a minimum of 330-days (full days) in foreign countries. You need to review your calendar for travel dates to ensure that you have twelve months for the 2018 tax year that meets these requirements.  If you are a bona fide resident of a foreign country, you will be allowed more flexibility to the US despite other strict requirements you have to adhere to.

 

Tax Planning for U.S. Expats

Roth IRA Conversion

Ex-pats with a 2019 income below $105,900 are allowed to convert money from their traditional IRA to a Roth IRA, TAX-FREE.  You must do such a Roth IRA conversion before the end of 2019 to get the benefits, although you can make 2019 IRA contributions until the April tax deadline.  Yes, year-end tax planning for ex-pats is vital! 

DISCLAIMER: DO NOT MAKE THE CONVERSION WITHOUT THE GUIDANCE OF AN EXPERIENCED TAX-ADVISOR.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

We look forward to helping you get the most benefit from these tax law changes. Please contact us for more information, in FAS CPA & Consultants are ready to assist you with all of your offshore tax matters. You can call us or email at support@fascpaconsultants.com and request a free consultation that will answer your most pressing tax questions.

Like this article? Join our U.S. Tax Expat Facebook Group: US Expats Tax Intelligence

 

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA is a Certified Public Accountant, specialized in Tax Planning for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution and Offshore Strategies. You can email him to fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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