EXPAT TAXES – FREQUENTLY ASKED QUESTIONS

• As a U.S. Expat Living in Australia, Do I Need to Complete a U.S. Tax Return?

If you are a U.S. citizen or hold a green card, you are required file a U.S. income tax return (Form 1040) on an annual basis to report your worldwide income (over certain threshold amounts). This is true even if you live outside and work outside the United States. This is also true whether or not you owe tax to the U.S. government.

Optimizing your U.S. tax return is important to ensure that your U.S. federal tax liability is minimized by virtue of the various exclusions and credits you can take – and this is where we can help!

• Am I required to file any forms besides my federal income tax return (Form 1040)?

The answer depends on your situation. The most typical form required outside the IRS Form 1040 is the FBAR, since most expats hold non-US bank or pension accounts by virtue of living abroad.

In addition to the Form 1040 and FBAR, expat taxpayers may be required to file certain other federal tax forms depending on their activities and income amounts. These include forms to report a non-US corporation, partnership, trust, gift, and other non-US assets and activities.

We prepare any and all forms that an expat taxpayer may need to file.

• Do my activities in Australia have U.S. tax implications?

With each item of income that an expat earns and with each foreign asset that is owned or acquired, special considerations need to be addressed. The following are examples of common activities in Australia and their potential U.S. tax implications:

• Australian Trusts

While the registered company remains a very common and well-understood entity for carrying on a business in Australia, the trust entity has become an increasingly popular business vehicle because of its combination of business advantages (e.g., asset protection and limitation of liability) and tax benefits (e.g., capital gains on sale of assets may be eligible for 50 percent discount). The two main types of trusts that are utilized in Australia are unit trusts (where beneficiaries have a fixed entitlement to income and capital based on the proportion of units they hold in the trust) and discretionary trusts (where the trustee has discretion to distribute income and capital to one or more beneficiaries of the trust as the trustee sees fit).

For all the advantages that the trust entity offers under Australian law, the U.S. expat should be aware that utilization of this type of entity may not necessarily be sound planning from a U.S. tax perspective. For instance, an entity that is characterized as a trust for Australian tax purposes can be classified as a business entity for U.S. tax purposes that is akin to a corporation if the trust operates a business. Such characterization under U.S. tax law may trigger the U.S. anti-deferral regimes, such as the “controlled foreign corporation” regime, the new “global intangible low-taxed income” regime, or the “passive foreign investment company” regime, all of which are generally designed to prevent taxpayers from deferring U.S. tax by shifting income to foreign entities. Careful planning is often needed to ensure that these regimes do not subject your income to highly punitive U.S. federal tax rates.

• Australian Pension Plans

Foreign pension plans, including Australian pension plans, generally do not qualify for the beneficial tax-deferral treatment afforded to certain U.S. pension plans under Section 401 of the U.S. Internal Revenue Code (e.g., a 401(k) plan). As such, employer contributions and plan earnings may be subject to U.S. tax on a current basis and required to be reported on the individual’s U.S. income tax return, even though these items may not be currently subject to Australian tax. In the case of a foreign pension plan that qualifies as an “employees’ trust” within the meaning of Section 402(b) of the Internal Revenue Code, employer contributions are taxed currently but plan earnings may be tax deferred until retirement assuming certain conditions are met.

In this regard, over 90 percent of employed Australians currently have savings in a superannuation pension account – employment contributions to these accounts may be tax deferred in Australia but are generally currently taxable in the U.S. Further U.S. tax and reporting implications may arise depending on whether the superannuation fund is a public super fund or a self-funded super fund. In some instances, a self-funded super fund may be viewed as a “foreign grantor trust” for U.S. tax purposes, which may trigger additional reporting obligations, such as the requirement to file a foreign trust form (IRS Form 3520). For these and many other reasons, it is essential that U.S. expats participating in a superannuation or other pension fund understand the full U.S. tax and reporting implications associated with plan participation.

• How Can Expat Tax Professionals Help Me File U.S. Taxes?

Our U.S. tax return filing service is tailor made for the U.S. expat. Our process is fast, easy, and intuitive, and our tax return deliverable is rigorous, accurate and complete. Our in-house tax professionals are the core of our offer and of what makes us unique. We provide expert support from U.S. CPAs, EAs and tax attorneys at every step to tax compliance, providing the resources, knowledge and understanding of our clients’ needs to deliver the highest level of service and optimized outcomes.

Yes, we prepare tax returns. But we do so much more for U.S. expats around the globe. We strategically optimize your opportunities at every turn. It’s a story built on trust, on commitment and on serving our clients like we want to be served – with insight, care and a focus on supporting both short and longer-term goals. We offer fair and affordable fees and customize our solutions to meet the unique needs of each unique client we serve.

Contact us today to start the process!