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How tax treaties affect your income tax obligations when you're living abroad
The United States maintains tax treaties with many nations that determine or define the tax obligations of U.S. citizens and residents otherwise subject to tax in those countries. Most of the Western nations are parties to these treaties. Find out more about your tax obligations by reading IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
you may claim the housing deduction for amounts paid for with self-employment proceeds. Tip: For more on the foreign earned income exclusion and the housing exclusion and deduction, read IRS Publication 54. The foreign earned income exclusion and the housing exclusion or deduction can be claimed on Form 2555 or Form 2555EZ. Tip: Excluded income may still be subject to Social Security taxes.
Exit tax
A U.S. citizen who relinquishes that citizenship is subject to a one-time tax imposed on their assets at the time of expatriation--a so-called exit tax. The tax applies to those who: Have a net worth of $2 million on the date residency is terminated Have an average annual net income tax liability for the five years preceding the date of termination that exceeds $151,000 (in 2012; $147,000 in 2011), or Fail to certify that he or she has complied with all U.S. Federal tax obligations for the five years preceding the citizenship termination date.
However, exceptions may apply to individuals who are born with dual citizenship, or who relinquish U.S. citizenship before the age of 18. The tax is calculated on the net unrealized gain in property on a "marked to market" basis, as if the property had been sold for its fair market value on the day before the expatriation or residency termination. Gain from the deemed sale is taken into account at that time without regard to other Internal Revenue Code (IRC) provisions. Any loss from the deemed sale generally is taken into account to the extent otherwise provided in the IRC, except that the wash sale rules of IRC Section 1091 do not apply. A net gain over $651,000 (in 2012; $636,000 in 2011) is recognized. Any gains or losses subsequently realized are adjusted for gains and losses taken into account under the deemed sale rules, without regard to the exemption. Deferred compensation items, interest in nongrantor trusts, and specified tax deferred accounts are excepted from the mark-to-market provision but are subject to special rules. Also, a transfer tax is imposed on certain transfers to U.S. persons from U.S. citizens who relinquish that citizenship and meet the above qualifications, or from their estates. Technical Note: The exit tax, part of the Heroes Earnings Assistance and Relief Tax Act of 2008, replaced the expatriation tax that subjected expatriators to taxation on certain U.S. sourced income for 10 years after the date of expatriation.
JDG Wealth Management Group, LLC Disclosure: is a Registered Representative with and, securities are offered through LPL Financial, Member FINRA/SIPC
JDG Wealth Management Group, LLC Jamie D. Grant, CRPC Managing Principal 1250 E. Copeland Rd., Ste 540 Arlington, TX 76011 817-900-8455 jamie@grantwealthgroup.com www.grantwealthgroup.com
Page 5 of 5 March 27, 2012 Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012