International tax laws can be confusing and cause much unneeded stress if there isn’t proper planning for your assets regardless if you are a foreign person conducting activities in the US or if you are US person conducting outside of United States.
As a US Person, you are subject to reporting you worldwide income and foreign assets as well.
A U.S. person for tax purposes can be considered, natural individual, corporation, partnership, trust, and estate. Therefore, it is imperative to speak with a knowledgeable International Tax consultant to assist you in this matters.
For example, If you are a U.S. Person for tax purposes, and let’s say you own a Foreign bank account with interest income, you MUST include your Foreign Bank account income even if it is ONE Dollar. So regardless if you earn that income that income on the Moon, Mars, another galaxy, per the U.S. Code Section as a U.S. Person, you are still subject to reporting that income for U.S. taxation purposes. A U.S. Person is responsible for reporting their worldwide Income.
For instance, interest income from Non-US bank accounts, dividends, rental income, etc. ANYTHING that produces income for a U.S. Person, they have to report it and include it on to the U.S. Tax Return.
Also, keep in mind there are other Foreign reporting requirements as well, Such as Foreign Bank Account Reporting, If you have aggregate balance of USD 10,000 or more in Non-US Bank Accounts, Indian Provident Funds, Indian Public Provident Funds, Non-US Time Deposits, LIC Life Insurance Policies, Non-US Mutual Fund Transactions, you have to report that as well. If you have any questions regarding, please let me know.
So for example:
For 2014, the highest bank account balances were the following:
Foreign Bank Account: 4,000 US Dollars
Indian Provident funds: 3,000 US Dollars
LIC Life Insurance Policy with cash surrender value: 4,000 US Dollars
Aggregate balance for 2014: 11,000, Therefore, a FinCen Form 114 MUST be Completed since the aggregate balance is greater than USD $10,000.
There are also other foreign information returns that needs to be filed as well:
Form 8938 – Disclosure of certain foreign financial assets; filed with U.S. tax return.
Form 8865 – Disclosure of interests in certain foreign partnerships; filed with U.S. tax return.
Form 5471 – Disclosure of interests in foreign corporations; filed with U.S. tax return.
Form 3520 – Disclosure of certain transactions with foreign trusts and receipt of large foreign gifts/bequests; filed with U.S. tax return. You may be required to file these form if you have Tax Free Savings Accounts & Registered Education Savings Plan in Canada, Public Provident Funds In India, and other pension plans.
Form 3520-A – Disclosure of transactions with a foreign trust; due on March 15 but can be extended.
Form 8621 – Disclosure of interests in passive foreign investment companies; filed with U.S. tax return.
As a Foreign person generating income from U.S. Sources can be convoluted as well. There are few types of income generating activities as a foreign person:
– FDAP Income – Fixed Determinable Annual Periodical Income. This sort of income is fixed and known ahead of time. If International tax treaty is not utilized than there is 30% tax rate for income that is not effectively connected with your U.S. Trade or Business.
– ECI – Effectively Connected Income – per the IRS (Internal Revenue Service) this is when a foreign person engages in trade or business in the united states, all income from sources within the United States connected with the conduct of that trade or business is considered to be Effectively Connected Income. Again, we can utilize International Tax Treaties to determine the taxability of your income to ensure you are not taxed multiple times.
– FIRPTA – Foreign Investment in Real Property Tax Act. There are withholding rules when there is a disposition of US Real estate property held by a Foreign Person.
With FATCA – Foreign Account Tax Compliance Act, it is important more than ever to ensure proper due diligence is being done to report your international accounts as there can be stiff penalties If the foreign assets are not properly reported. As an International Tax CPA, we see many cases where the taxpayer is unaware of their international tax requirements and have failed to abide by FATCA.
We assist numerous clients by assisting them to enter into OVDP – Offshore Voluntary Disclosure Program, Streamlined Domestic Offshore Procedure, Delinquent FBAR Submission Procedures, and Delinquent International information Return Submission Procedures.
Modi CPA is a licensed firm in the state of Texas in The Colony, TX. We are a qualified firm to discuss Domestic and International tax services to ensure your compliance with the United States’ International tax laws. Do not hesitate to contact our office should you have further questions. Our Phone number is (214)618-0468 and email is firstname.lastname@example.org