I’ve never been big on sports metaphors in business – they’re overused and generally used incorrectly – and, anyway, as a Cubs fan, I prefer baseball analogies. But for 2017 tax planning purposes, we’re literally in the fourth quarter and the clock is running out on your ability to create a legitimate tax avoidance plan that will save you money this year and possibly into future years, as well.
And, as I like to remind people if we don’t create a tax plan for your specific circumstances, the Internal Revenue Service has its own plan waiting for you – and you aren’t likely to find it as useful or as efficient as one that is created around your situation and goals.
It doesn’t matter whether you’re a U.S. citizen living and working at home or are an American on an overseas posting for your employer, or you are a foreign national in the United States on an HB-1 visa (or some other legal method of living and working here), you need to plan your tax future or your tax future will be planned for you by the government.
Tax Compliance in the United States
Perhaps more than anything else, an inadvertent lack of compliance trips up more people than any deliberate attempt to evade a tax liability.
It’s easy to happen, for Americans as well as for foreign nationals. The Internal Revenue Code is extremely complex and lengthy, totaling more than 74,600 pages. Nearly every page has some arcane clause or paragraph that can trip up the unwary, resulting in penalties, interest and – in some unpleasant cases – criminal prosecution.
For many individuals who moved to the United States during 2017, an unpleasant surprise may be waiting when it comes to file your income tax form for the year: It’s entirely possible that your employer has not been withholding an amount from your paycheck sufficient to cover your tax liability for the year. It’s not that they’ve been playing a trick on you. Rather, it’s that the withholding tables assume you’ve been working in the country for an entire year, and, if you have been here for less than 12 months, the tables are skewed against you.
If you don’t pony up the additional sum owed on April 15, you may well be out of compliance.
One of the areas in which we work with foreign nationals working in America is to ensure that their withholding comes as close as possible to what you will actually owe. And beyond this, we help people here on an HB-1 visa – or a NAFTA exemption visa for senior executives or other individuals from Canada and Mexico with highly specialized skills – plan their tax liability so they aren’t surprised as we complete their tax forms for the year.
Foreign Asset Reporting
Another area that can easily trip up Americans, as well as foreign nationals working in the States, is the IRS’ foreign asset reporting requirement. As the “Panama Papers” scandal revealed not long ago, a combination of a disgruntled employee, an aggressive press corps, and a dogged IRS can expose anyone from the highest government official to a lowly middle manager on a foreign posting to assertive – and publicly embarrassing – enforcement.
American citizens, residents and holders of Green Cards are required to report all of their financial assets held outside of the U.S. This requirement covers everything from bank and investment accounts, foreign retirement plans, insurance contracts, savings schemes for a child’s education such as a Canadian RESP, and even inheritances or being a beneficiary of a trust. If there’s money involved, the IRS wants to know about it.
As important – and perhaps more common – people who own an interest in a foreign business entity means special annual filings are required. For people who’ve never revealed their ownership, we can help you take advantage of an amnesty program the IRS has underway, the Offshore Voluntary Disclosure Program. There’s no word on how long this program may remain in place but we are keenly aware of how astute IRS investigators have become at locating these unreported accounts.
Forewarned Is Forearmed
As in football’s fourth quarter, the best defense often is a strong offense. When it comes to tax planning, tax avoidance and minimizing the impact of your potential tax liability, being forewarned is to be forearmed.
Our entire approach to tax planning – whether our client is a U.S. citizen working at home or overseas for their employer, or is a foreign national working legally in America – is to ensure that they are in a position to proactively take advantage of what the law allows. And somewhere in those 74,600 pages, chances are is a way to use wise and careful tax planning to minimize your potential liability.