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Passive Foreign Investment Company (PFIC) – What the heck is that?

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  Over the years, we’ve helped countless new clients clean up an issue that could have been avoided with better planning: the surprising tax implications of non-U.S. mutual fund investments for U.S. taxpayers. In short, when a foreign corporation has over 50% passive income or over 50% of passive assets in a single tax year, it is considered a Passive Foreign Investment Company (PFIC). This means virtually all foreign mutual funds, including indirect investments through pension plans or life insurance policies, are PFIC’s. The downsides to PFIC taxation can be significant. For every PFIC investment, you are required to file separate forms and disclosures, which makes tax compliance much more costly. And, when selling a PFIC, you are hit with punitive tax rates and interest charges, stretching back to the original purchase date. All that said, there may be instances where the potential upside of a PFIC investment outweighs the tax liabilities and compliance costs. Our team of experi...
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What You Need To Know About Paying US Taxes While Living In Switzerland

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  Living in Switzerland is a fantastic experience but if you’re one of the 40,000 Americans living in Switzerland, there are some important things you need to know about paying the US taxes Switzerland residents are required to pay. US tax laws are something that can be daunting but they don’t have to be. Knowing the basics of how taxes work for expats like you will help you avoid any tax penalties in the future. All US citizens and US green card holders who earn a minimum of $10,000 (US Dollars) (or just $400 in self-employment income) anywhere in the world are required to file a US federal tax return and pay tax to the IRS. It doesn’t matter where you live or where your income is generated, a US federal tax return is required. The good news is that doesn’t necessarily mean that you’ll owe US tax to the IRS. If you are paying income tax in Switzerland, there are several tax exclusions and exemptions available to prevent you from paying tax twice on your income and being required t...
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Do Foreigner’s Need to File a U.S. Tax Return?

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  Greetings, non-U.S. entrepreneurs. If you’re looking to establish a business presence in the United States, a Limited Liability Corporation (LLC) might be the perfect entity for you. These entities are easy to form and inexpensive to maintain, making them a popular choice for non-U.S. persons. However, there is a critical issue that many are not aware of – the tax filing requirements that come with LLCs. So, what exactly is a U.S. LLC? Despite its name, an LLC is not taxed as a corporation. If an LLC has only one owner or member, it is treated as a disregarded entity, and any income generated is taxed on the owner’s individual income tax return, regardless of its source. This means that if the income generated by the LLC is deemed taxable in the United States to nonresidents, a non-U.S. owner would have to file a U.S. income tax return. But here’s where things can get a bit tricky. While a single-member U.S. LLC is treated as a disregarded entity for tax purposes, it is still con...
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Why Am I Being Asked to Provide a Form W-8?

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  If you’ve ever done business in the United States from abroad or received dividends from U.S. securities, you’ve likely been asked to complete a Form W-8 or W-9. These forms, created by the IRS, are intended to identify the individual or entity receiving income from US sources. It’s important to note that foreign, non-U.S. based individuals or entities complete a W-8, while U.S. based persons or entities complete a W-9. These forms help identify the type of entity, the taxable status of an entity, and how much U.S. tax is due to be withheld from the gross amount paid. Without a properly prepared W-8, the person or entity making a payment to you would need to withhold taxes at the maximum rate, currently 30%. Meaning, if you didn’t submit a complete and accurate form, the IRS will end up with more of your money than they should! This often leads to non-US persons needing to file a US income tax return to reclaim tax that was over-withheld, a costly and time-consuming process. At U...
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Are Foreign Investments Worth it From a Tax Perspective?

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  Life insurance, mutual funds and ETFs are popular investments for US persons living abroad. However, if not properly executed they can fall under the rules of a “Passive Foreign Investment Company”, aka THE PFIC. If this happens, expenses can rise dramatically, and the investment can become more costly than beneficial. Understanding PFIC’s requires hours of study and calculations to determine if one is subject to PFIC treatment. However, we will leave the links below for those who, like us, are fascinated by esoteric tax rules. One example of PFIC’s that we see often in our practice is foreign life insurance. As the US tries to discourage Americans from making foreign investments, it issues complex rules with punitive consequences on these investments. Income from these investments can be subject to the highest US marginal income tax rate as well as interest that accrues from the first day of ownership. When adding all this together, easily 50% of the gains from foreign investmen...
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CARES Act: Calculating your rebate

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  As part of the recently-passed massive  Coronavirus Aid, Relief, and Economic Security (CARES) Act , taxpayers will receive a direct stimulus payment within the coming weeks. This one-time remittance is based on an individual’s 2019 adjusted gross income (line 8b of your 2019 Form 1040) and is considered an advance payment of a refundable credit. If the taxpayer has not yet filed their 2019 tax return, the IRS will use their 2018 adjusted gross income (line 7 of your 2018 Form 1040) to calculate their allowable credit. We’re answering some of the most common questions about the recovery rebate below, including who’s eligible, amounts and questions about dependents. Rebate amounts and qualifications Every United States resident or citizen who filed a tax return in 2018 or 2019 may be eligible to receive a recovery rebate under the CARES Act. Filers are eligible for a $1,200 rebate ($2,400 for married filing jointly) according to the following gross adjusted income parameters:...
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What do Americans in Switzerland need to know about US tax compliance?

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  As an American expat, you may have heard about US tax compliance laws like FATCA but you may not know what impact these tax laws have on you as an American abroad and what compliance with them is required. The FATCA legislation has forced foreign financial institutions to report assets held by Americans directly to the IRS. Tax compliance reporting requirements have always been important but FATCA has serious consequences that make compliance with tax laws more important now than ever. What is FATCA? FATCA stands for Foreign Account Tax Compliance Act and this legislation was passed in 2010. FATCA is a broad yet complex set of rules designed to increase tax compliance by Americans that have financial assets held outside the United States. This is largely a response to recent off-shore banking scandals that revealed that many Americans were keeping large financial holdings in Swiss bank accounts without reporting or paying the US tax due on those assets. FATCA created some new sel...
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