How to pay the IRS

We have compiled a list of payment methods that the IRS accepts and where you may find them. If you are confused about paying your bill do not hesitate to contact a tax professional.

Electronically

Pay using your bank account when you e-file your return

Direct Pay

Pay directly from a checking or savings account for free

Credit/Debit card

You can do this online, by phone, or any sort of device

Cash

At a participating retail partner, visit IRS.gov/paywithcash

Installment Agreement

If all required tax returns have already been filed, you may be able to start making monthly payments. You can do this by applying for an installment agreement through the Online Payment Agreement tool online.

Penalties

Taxpayers who don’t meet their tax obligations may owe a penalty.

The IRS charges a penalty for various reasons, including if you don’t:

• File your tax return on time

• Pay any tax you owe on time and in the right way

• Prepare an accurate return

• Provide accurate information returns

Foreign electronic payments

International taxpayers who do not have a U.S. bank account may follow the instructions below to transfer funds from their foreign bank account directly to the Internal Revenue Service for payment of their individual or business tax liabilities. (Find codes on the IRS website)

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If you wish to undertake work while studying in the United States, you are required to have a Social Security Number(SSN). This can pose a problem to international students. However, we aim to demystify the process of application for those studying abroad. Below are the steps you can take.

Steps to getting an SSN:

1. Talk to your Designated School Office (DSO) about working in the States

2. Your DSO will inform you about everything regarding the regulations and requirements for F and M students and confirm whether you are eligible to apply for an SSN.

3. Verify that you are active in the student and exchange visitor info system (SEVIS)

4. Your SEVIS record must be in Active status for at least two days before applying for an SSN. If you have a record in any other status, you will not be successful in applying for an SSN

5. Wait 10 days after arriving in the states before applying for an SSN

6. Social Security Administration (SSA) uses the Systematic Alien Verification for Entitlements (SAVE) program to verify your non-immigrant student status and determine if you are eligible for an SSN.

7. You can use the SAVE Case Check to see the progress of your SAVE verification check online

8. Visit your local SSA office

9. You can file your application for an SSN card in person at any SSA office. You must be prepared to provide your original documents to prove your age, identity, and authorized immigration status. All evidence of immigration status and work authorization must be unexpired.

For further advice do not hesitate to contact us. Our team of chartered accountants are experts in US expatriate tax law.

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As a US Citizen living in the UK, you will likely have a US bank account that you would like to access. Some accounts come without tax liability and some are taxable.

As an expatriate living in the UK, your tax liability will vary according to your situation especially when you have a bank account in the US. The big two varying factors are the income to that bank account and your residential status in the UK.

Different types of income to the bank account

Firstly, it is important to understand the different types of income that you can have in an offshore account. The UK legislation lists nine types of income but for the sake of simplicity, we’ll just be looking at the four main types you are likely to have.

• UK employment income – this is employment income that has been earned in the UK where UK tax has been withheld or is due to be paid. This income can be transferred to the UK without incurring a charge.

• Foreign earnings – this is income earned outside of the UK that has not been subject to UK tax. This usually arises where a taxpayer claims Overseas Workday Relief and transferring this money to the UK would incur an income tax charge.

• Foreign investment income – this is self-explanatory but can be broken down by whether it is income or chargeable gains and whether foreign tax has been paid. If the taxpayer claimed the remittance basis and has not paid UK tax on this income, transferring to the UK will incur a charge at the top rate of income tax despite the favorable allowances and rates for certain types of investment income currently available in the UK.

• Capital – this is rather loosely defined as anything that cannot be categorized in the above. In real terms, this is usually money that was earned before moving to the UK (and does not relate to a previous period of UK residence). This money can be transferred to the UK free of charge 

Residential status

• If you’re not a UK resident, you will not have to pay tax on your foreign income

• If you’re a UK resident, you’ll normally pay tax on your foreign income. But you may not have to if your permanent home (‘domicile’) is abroad.

Tax filing obligations

If you are from the United States and your accounts have a combined total of over $10,000 You must file an FBAR by law or face fines from the IRS. If you move to another country but originated from the United States, you still must file an FBAR (Form114).

What can I do to ensure that my offshore funds are accessible in the UK?

If you have had an offshore mixed fund for multiple years, then your only option is to analyze and isolate the foreign income sources of your account. Then make a judgment on whether you would prefer to pay the tax to enjoy the money in the UK or just leave it be. This is a complex and time-consuming process; especially if there are frequent transactions with other offshore accounts.

TIP: If your income for the tax year is particularly low, the tax consequences of a transfer will be reduced. Lower-income earners have greater allowances and lower tax rates available to them. 

If you have recently arrived in the UK, a few more options available to you

• Utilize the Special Mixed Fund rules – this allows individuals claiming Overseas Workday Relief to optimize their relief and avoid the analysis of accounts required to determine whether they have retained enough foreign earnings outside of the UK.

• Open a new offshore account at the start of each tax year – this is mostly relevant to individuals claiming Overseas Workday Relief. Setting up a new qualifying account each year will allow you to isolate UK employment income which can be easily transferred to the UK without having to worry about transferring foreign earnings from a later tax year first.

• Don’t claim the remittance basis – there are significant tax savings to be made in the short term by claiming the remittance basis but if you intend to stay in the UK for a longer-term and need to bring money into the UK to buy a house, for example, then the tax savings will be reversed.

• Transfer to the UK straight away – if it is always your intention to transfer money to the UK then you should consider doing this early on before the account becomes contaminated with different sources of foreign unremittable income.

• Siphon off foreign interest income – this is not always possible, but some accounts allow you to have interest and coupons to be paid into a separate account thereby leaving your capital uncontaminated with untaxed foreign interest.

Can Americans living in the UK benefit from the tax advantages of ISAs?

As accountants that specialize in Americans living abroad, we are more than familiar with the complex area of ISA’s for US Expatriates. Feel free to contact us with any of your questions. We are always happy to help.  

Can Americans living in Britain benefit from ISAs tax advantages?

The Internal Revenue Service (IRS) identifies ISAs as Passive Foreign Investment Companies and therefore do not class ISAs as tax free in the US. This means that any money a US Expat invests into an  ISA will  be fully taxable in the US.

Fund in ISAs as a US Expat

Funds generally should not be invested into an ISA if the account holder is classed as a US citizen. This is due to the complex US reporting requirements of funds that can sometimes lead to dual taxation.

 Although the ISAs can offer US expats some tax advantages from a UK standpoint, we always recommend treating ISAs with caution as an American living abroad. It is important to consider not only the tax advantages and risks, but also the potential corresponding cost, time and stress an ISA may cause.    

This article will outline some of the major differences between ad Roth and Traditional IRA. For expert tax and accounting support for US pensions contact us.

What is an IRA

An Individual Retirement Account (IRA) is a monetary investment account that is optimised against-tax to support individuals saving towards retirement. The IRS also uses the acronym “IRA” in placement for “Individual Retirement Arrangements”. Individual Retirement Arrangements broadly refer to individual retirement accounts, retirement annuities and other trusts or custodial accounts that act as personal saving plans with tax advantages for saving money towards retirement.

Traditional and Roth IRA

Traditional and Roth IRS’s are two retirement saving arrangements that the IRS offers to tax payers. Below we will be explaining how the two IRA’s work and offering a comparison to help individuals decide which is the best type of IRA for them.

Click the button below to see our Roth IRA vs Traditional IRA calculator to get a more accurate idea of the return on investment off each of the IRA’s

How Traditional IRAs Work

A Traditional IRA allows individuals to save pre-tax income and use it for investments that can grow tax-deferred. Under this savings account the IRS does not assess capital gains or dividend income tax until withdrawals are made. This means that tax will not be paid on savings until the point of money is taken out of the account.

Investments for the traditional IRA for a given tax year must be made before the US tax filing deadline (typically April 15th ).

Maximum contributions - 100% of earned compensations

Taxpayers can contribute 100% of any earned compensation up to a specific maximum dollar amount. This amount changes yearly- see out Traditional IRA Threshold chart to identify how much can be contributed for a specific year.

Contributions may be tax-deductible depending on IRA holders income, tax-filing status and other factors.

If an individual has both a Traditional IRA and an employer-sponsored retirement plan, the IRS may limit the amount of contributions that can be deducted from taxes.

For example:

• In 2021, if a taxpayer has a 401k or pension program the individual would only be able to take full deductions if their MAGI was $66,000 or less for singles and $105,000 or less if married couple file jointly.

• With MAGIs of $76,000 for singles and £125,000 for married couples to IRS allows no deductions.

Age of distribution: 59 ½

Account holders can begin taking money out of the account at the of age 59 ½. Once the account holder turns 72 years minimum distributions (RMDs) must be taken each year. The minimum and maximum distributions allowed at different account holder ages is listed in the Traditional IRA Age Distributions chart.

Funds removed before full retirement eligibility incur 10% penalty on the amount withdrawn and taxes at standard rates. There are some exceptions for penalties:

• Money is use for purchase or rebuilding of first home (limited to $10,000)

• You become disable before distributions

• Your beneficiary receives the asset after your death 

• You use the assets for reimbursed medical expenses

• Used for medical insurance cost after losing job

• Your distribution is part of the SEPP

• Asset is used for higher-education expenses 

• Expenses incurred from adoption of a child

• The asset is distributed as a result of IRS levy

• The amount is a return on non-deductible contributions

• You are in the military and called to active duty for more than 179 days

How Roth IRAs work

A Roth IRA is a retirement arrangement that allows money to be invested after the point of tax. However, unlike with a traditional IRA, account holders do not have to pay tax on their investments at the point of withdrawal.

Roth IRAs only allow the holder the contribute earned income, ineligible funds which include:

• Rental income

• Interest income

• Pension or annuity income

• Stock dividends and capital gains

Regular contributions must be made in cash, i.e., they cannot be securities or assets.

Not everyone can have a Roth IRA

Roth IRAs are limited by your income; you cannot contribute to a Roth IRA if your income is too high. To find out who can have a Roth IRA in a given tax year based on income see this chart.

Maximum contribution limit changes yearly

The contribution limit changes yearly, for example, in 2021 the limit is $6,000 a year unless you’re 50 or over, then the limit is $7,000. To find out the contribution limits on Roth IRA’s and deduction limits for Traditional IRAs for a given tax year visit our page on the topic: Roth IRA and Traditional IRA Thresholds.

No requirement to withdraw

The IRA can be maintained indefinitely, there is no requirement to withdraw as there is with a 401k and Traditional IRA.

Roth IRA or Traditional IRA?

Which IRA suits you is entirely dependant on your individual situation, and a judgement call on what you feel your tax situation come retirement age.

For those who feel their marginal tax rate will be higher during their retirement age a Traditional IRA would be a better option. This is because of the tax-deferred nature of a Traditional IRA, allowing any investments to be taxed at a lower rate than if they were to be taxed in a traditional savings account or alternatively a Roth IRA .

A Roth IRA suits those who feel their tax rate will be higher in retirement. The Roth IRA allows individuals to pay tax on their contributions now which means upon distribution they receive the payments tax free. In contrast to the Traditional IRA, any growth from investments are allowed to grow tax-free.

Either IRA is a sound investment for your future, for any help regarding your Roth IRA or traditional IRA do not hesitate to contact us

As accountants for small-to-medium businesses in the United States, we are more than familiar with answering the age-old question of how to save money against tax as a business owner.

In the article, we will break down the basics of tax breaks for businesses in the U.S.A.

First off… What actually is a tax break? Why do tax breaks even exist?

The term “tax break” or “tax incentive” is used as an all-encompassing term for the variety of tax minimisation techniques a government allows its taxpayers. Behind every tax break is a tax law that the government passes which explains how the tax break works.

Governments typically use “tax breaks” as a medium to incentivise or encourage a particular economic activity by reducing tax payments.

Below are examples of some of the different tax incentives governments typically use:

• Tax relief schemes for specific segments of the population

• Adjustments to different tax allowances and thresholds

• Introduction of new claimable expenses

• Adjustment to income that has to be declared

Tax Credits for Small Businesses

In this section, we will break down some of the different tax credits available to SMEs.

General Business Tax Credit (Form 8300)

The General Business Tax Credit consists of a number of individual tax credits designed to encourage small business owners to undertake specific activities such as purchasing electric vehicles, entering new markets, or retaining employees. 

The General Business Tax Credit is continuously evolving. For instance, the IRS introduced the Employee Retention Credit to help and encourage employers to keep employees on their payroll during the economic downturn.

We will soon be releasing a podcast and article going into further details on the General Business Tax Credit.

Sign up for our newsletter to be notified when the article is released

Small business health care tax credit (Form 8941)

The small business health care tax credit allows eligible business owners to provide their employees with health insurance while saving up to 50% of the cost against tax.

• To qualify for this, a small business must have fewer than 25 employees and the average salary must be below $50,000  

We will be sharing more on the Small Business Health Care Tax Credit shortly!

Employer Credit for Paid Family and Medical Leave (Form 8994)

The Form 8994 Employer Credit for Paid Family and Medical leave is designed to encourage small business owners to provide leave to their employees covered by the Family and Medical Leave Act 2017. Eligible employee leave under the credit includes instances such as the birth of a child and family health emergency

In response to Covid-19, the U.S. government released a number of legislations to support businesses and employees; primarily the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

See our guides on Covid-19 support for self-employed and employed individuals in the US.

Alternative Motor Vehicle Credit (Form 8910)

Under the Alternative Motor Vehicle Credit (Form 8910) employers can access up to $8,000 towards the purchase of an “alternative” fuel source vehicle, such as a Mercedes-Benz F-Cell car or Honda Clarity.

The IRS currently recognises hydrogen power as an ‘alternative’ fuel source.

The list of qualified vehicles is currently extremely limited.

Disable Access Credit (Form 8826)

The disabled access credit is designed to make workplaces more accessible and inclusive. Under the tax credit qualifying, small business owners can claim up to 50% of eligible expenses.

• Qualifying work includes

• Installing ramps

• Improving storage and display units

• Upgrading restrooms

• Providing text in braille.  

Work Opportunity Credit (Form 5884)

The Work Opportunity Tax Credit allows employers who take on individuals with barriers to employment, such as ex-felons or veterans, a saving against tax.

We will be covering this credit in further detail in a future article!

Tax Deductions

Below are just some of the tax deductions that business owners can use to minimise tax.

• Business meals

• Client and employee entertainment

• Work-related travel expenses 

• Work-related car use

• Business Insurance

• Home office expenses

• Office (home) office supplies

• Depreciation

• Charitable contributions

• Education expenses

• Savings can be made on energy efficiency expenses

Any Further Questions?

To discuss your specific circumstance and see how we can help book a consultation or email us.

Alternatively, ready more of our resources on the US resource page

A Step By Step Process To Make America Safe Again

President Joe Biden has recently introduced his own COVID-19 takedown strategy which involves smarter testing, quicker vaccinations, and all-around health equity.

Many twitter users posted their thoughts about Biden’s pledge, one tweet by Krutika Kuppalli read “how incredibly amazing is this! so wonderful to have a government that is based on science and experts and run by people who care!”, journalist Scott Dworkin tweeted about how Biden is “giving [him] hope”. Many other twitter users showed their appreciation and relief regarding Biden’s statement on using scientific evidence as the main role in his plan. It seems that Biden’s approach for tackling the virus – or easing its spread has given many Americans a vouch for hope as life could return to normal quicker than expected. Some of Biden’s plans include regular testing, monthly benefits for parents, the re-opening of both schools and universities and increasing tax credits.

Regular Testing

The plan is outlined to ensure that everyone in the US to be able to be tested regularly for the virus. Biden aims to have everyone in the US tested by increasing the amount of testing sites. In addition, he established a ‘Health Equity Task Force’ to safeguard people of colour.

In the US, statistics indicate Covid-19 is 2.8 times more likely to affect those who are Hispanic and Black, and also 2.6 times more likely to adversely affect those of Native American decent; rather than those who are Caucasian. The strategy lists ways to get the vaccines to high-risk groups - such as different ethnicities and races. $50 billion has been allocated to improving testing centres within the US, as well as a $20 billion to develop a national vaccination (campaign) in community centres and hiring workers to manage the shots to citizens. 

Monthly Benefits for Parents

The democrats’ plan to give parents with kids under the age of 18 a year of monthly benefits worth around $250-$300, depending on their age. It provides a helping hand to parents, especially those who have been struggling with extra childcare duties due to school being closed – by reclaiming their annual tax bill for all their childcare expenses. The majority of the democrats have found this to be a worthy cause, although the details for the plan are apparently still in negotiation. This could be a very worthy cause for all parents in the US – especially for those with children under 18 as reclaiming their taxes would massively help them, as it would anyone. 

Re-opening of Schools and Universities

Biden aims to send out around $500 million to every state, with additional funding, depending on the states un-employment rate. The plan has not received strong support from the Democratic party and thus may not come to fruition.

The re-opening of schools and universities, on the other hand, has seen a more rounded support from the party. The importance of a full education is a vital part of the sociological makeup within the U.S and it stands to reason that the U.S. government will do all it can to safely re-open schools and universities.

The money that will be provided (which is said to be $170 billion) – will allow schools and universities to buy the necessary PPE equipment to enable their students to safely attend class in person. The equipment includes face masks, gloves, school supplies such as cleaning products. This could widely benefit many US citizens as not only would students be able to re-enter school with safe precautious, parents will be able to work more efficiently and some could even go back to work.

A Temporary Increase In Tax Credits

One factor of Biden’s plan that has seen a significant push-back is the plan to increase tax credits temporarily. Biden plans to boost refundable Child Tax Credits to $3,600 for children under the age of 6, and $3k for those aged between 6-17, for the year. This part of the plan is a targeted support of low-income families.

Will the Plan Pass in Congress?

Although many people have shown their support for the plan via Twitter, Reddit and other social platforms, there are some who are not quite as convinced, claiming that the relief plan is not good enough. These people believe that some items within the plan should not be passed due to a fear it will negatively impact said individual, or certain items within the relief plan just won’t come to fruition due to their nature.

We’re yet to see which items will be passed through congress, and how efficiently those that do will aid the U.S public.

We aim to keep you up-to-date with the latest tax and political news within the United States, if you want to learn more be sure to check back with out U.S Tax Advice Blog

For all other enquires, please contact us

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Spousal Security benefits: The Basics

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Written by Alistair Bambridge
Partner & Founder
About Alistair

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Spousal Social Security benefits is a benefit available to an individual's current or former spouse.

Typically Spousal Social Security benefit is issued when an individual with Social Security Benefits dies. However, the benefit is still available when there's no death, you can collect a Social Security spousal benefit equal to half of what your spouse gets when the amount exceeds the amount exceeds what you get on your own.

More about eligibility

In order to qualify, you must meet the requirements as dictated by the SSA. You must have been married for a minimum of 1 year, your spouse must already be collecting retirement benefits and you must be a minimum of 62 years old unless you are the guardian of a child who is under 16 or disabled, in which case the age rule does not apply

How much can you receive

By claiming for Spousal Social Security Benefits, you can receive a maximum of 50%, if you claim it at your FRA (Full retirement age), of what your spouse is currently receiving in social security benefits. Your FRA will vary depending on the year you were born, so it is recommended to look up your individual FRA as if you claim before you have reached it, you will receive a permanently reduced benefit.

What if your spouse dies

If your spouse dies and you are over the age of 60, you are entitled to a survivor’s benefit, which entitles you to 100% of your spouse’s Social security benefits. However, if you have reached your FRA, depending on how many years above your FRA you are, this is reduced to between 71.5%-99%.

What about divorced partners

What about divorced partners; If you are divorced you can still be entitled to Spousal Social Security Benefits, but you must meet some requirements. Your marriage must have lasted longer than 10 years and you are now unmarried. In addition to this, you must also meet the initial requirements of the age.

What if you remarry

If you decide to remarry, you cannot claim any benefits relating to your previous partner, however, if they meet all conditions and stay unmarried, they are entitled to file for Spousal Social Security Benefits against you.

What about your own social security

If you become a widow or widower and decide to claim Spousal Social Security Benefits, you also have the option to switch to your own benefit, if it becomes greater and more worthwhile to claim than your current survivor benefit.

How to apply

In order to apply you must meet the above conditions, you then have 3 options – You can apply online, by phone or by visiting your local social security office.

Contact us for expert tax advice for Social Security Benefits

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How parents can afford private school in the U.S.

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Written by Alistair Bambridge
Partner & Founder
About Alistair

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The annual average annual tuition among U.S. private schools is currently set at over $35,801 for a private university, $16,040 for a private high school, $8,700 for Private Elementary Schools and $37,590.

According to keyword search tool Ubersuggest, after searches for specific private schools within the U.S., the most searched phrases include "private school cost", "private school tax deduction" and "is private school cost claimable".

Studies have found that students are more likely to enrol in college when there are financial resources in place that can help them pay for it. A number of states are considering making the Free Application for Federal Student Aid (FAFSA) mandatory for high school seniors.

Private schooling as one of the largest expenses the average person may incur; leaving many stuck as to how they will actually afford it.

Although there is no way to get around the fact that private school is expensive, there are ways that you can plan and align your finances to be geared towards putting your children through private school. This article shares just some of the ways it can be done.

"There really is no one-fits-all approach when it comes to affording private school. It depends on income and many different background variables."

-Comments from Alistair Bambridge of Bambridge Accountants

Financial aid for private school

Federal Aids

The majority of federal aids are available towards higher education and career-furthering education.

There are a number of federal programmes that can be employed by parents saving for their child's education. For instance the Coverdell Education Savings Account (ESA), Roth IRA and Section 539 Plan.

K-12

Coverdell ESA

The ESA is a trust or custodial account that allows the contribution of up to $2,000 per year. Instalments are non-deductible contributions, however, will grow through tax-deferment.

None qualified-withdrawals may be taxed. To receive the full benefit of what the ESA has to offer, savings should go towards qualified expenses such as tuition and fees, the cost of books and in some cases room and board.

The main advantage of a Coverdell ESA is that it allows for the tax-deferred growth of its assets, as well as tax-free distributions for qualified educational expenses. Unlike, Section 592 plans, which limit how parents can invest the funds, Coverdell ESA investors can choose to invest their funds in whatever stocks, bonds, CDs, and mutual funds they believe will have the most growth over the life of their investment.

The biggest disadvantage for parents and donors is the rule requiring you to either distribute the Coverdell ESA by the time the child turns 30 or roll it over to another child. If the funds are not used by the time a child turns 30, the funds will be forced out at a 10% penalty.

Section 529 Savings Plan

Although some states have not opted to follow federal rules. In recent years the government have changed the rules in favour of using the 529 Savings Plan for K-12 education. Parents can use up to $10,000 per year from a Section 529 account to cover private K-12 expenses.

Section 529 plans are widely regarded as one of the best options for affording a child's college education. There are two types of Section 529: a savings account and a prepaid tuition plan.

The 529 plan is ideal for those who are wishing to save more than $2,000 per year and for those who are not entitled to a Coverdell ESA. Tax-deferral and tax-free withdrawals are two of the biggest potential advantages of the Section 529 plan. While the ESA does indeed offer this also, under a 529 plan it allows the parent or donor to remain in control of the assets indefinitely.

In 35 different states, 529 plans provide for in-state income tax deductions.

One of the downsides to the plan is that distributions for pre-college expenses are not considered qualified expenses. Investment options are also limited to 10-30 mutual funds.

Roth IRA

Traditionally used to save for retirement, the Roth IRA offers tax-free accumulation and withdrawal of earnings. Although we always advise clients to carefully consider potential risks associated with taking money out of pension savings; the Roth IRA can also be used for non-retirement goals, such as funding the private school.

Other areas to consider

Statewide financial aid

There is a lot of inter-state variation between the tax breaks available on private school costs. While many states do not allow tax credits and deductions for private schools, some do. Alabama, to name one, allows $2,814 for parents with children in schools classed as "failing" and Louisiana allows up to $5,000 per dependent for K-12 Louisiana based private school students.

Federal Work-Study Program

The Federal Work-Study Program allows undergraduates and graduates to work part-time and full-time jobs to help afford the costs of study. Students will earn the federal minimum wage as a minimum, and for those who live in a state with a higher minimum wage, students can expect to get a higher wage.

American Opportunity Tax Credit (AOTC)

The AOTC is a partially refundable tax credit for undergraduate college education expenses. The AOTC is worth up to $2,500 per student for the first $4,000 spent on qualifying education expenses. The maximum amount that can be claimed is $2,500 multiplied by the number of eligible students in your family.

Contact us for expert tax and accounting advice

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How Stocks and Shares are taxed in the U.S.

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Written by Molly Smith
Tax Associate
About Molly Smith

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How Stocks and Shares are taxed in the U.S.

A quick and easy guide to how your US stocks can be taxed and how you can reduce those taxes!

As an individual investing in stocks and shares in the U.S., it is important that you are aware of they are taxed and how this will affect your tax bill.

Tax On Dividends

Dividends usually come under taxable income. Ordinary Dividends, also known as "non-qualified dividends", are taxed at standard federal income tax rates.

Whereas a qualified dividend will be taxed at the capital gains rate of tax.

Therefore, the qualified dividends are taxed at rates 0%, 15% or 20% for 2020, depending on income and filing status.

• If your taxable income is $0 to $40,000 your qualified dividends will be taxed at 0%.
• If your taxable income exceeds $40,000 up to $441,550, your qualified dividends will be taxed at 15%
• If your taxable income exceeds $441,500 you will pay 20% tax on your qualified dividends

These figures are based on the tax year 2020 and if you are a single filer, for which your tax return must be filed before the deadline, 15 April following the tax year.

If you have qualified dividend income then you will obtain the advantage of a lower tax rate rather than pay tax on your dividends at the standard federal tax rates. In order for your dividends to become qualified dividends and pay a lower rate of tax, you have to hold onto your ordinary dividends until they become qualified dividends.

By owning the security for more than 60 days within the 121 day period that began 60 days before the ex-dividend date means that your dividend will be qualified. The ex-dividend date is the day on which the stock begins trading (the day you own it) in order for you to receive the dividend.

Therefore in order to reduce your tax bill, you may decide to hold on to your ordinary dividends until they are qualified.

How to report your taxable dividend income

After the end of the tax year, December 31, you will be sent a 1099-DIV from your broker or entity that have sent you more than $10 worth of dividends. This form will include what dividends you were paid, regardless of whether they were qualified or ordinary. This information will be needed when filing your tax return.

If your dividend income exceeds $1,500 you may also need to complete a Schedule B.

Capital Gains Taxes

Capital Gains taxes can apply on a variety of investments of capital assets including stocks, bonds, real estate, vehicles and other items. The gain is the profit you receive when you sell these items; any money lost is a capital loss.

If you make a capital loss this can be offset against a capital gain and you will be taxed on the overall gain: capital gains less the capital loss. This is known as your ‘net capital gain’. In the case that your capital losses exceed your capital gains, the difference can be deducted on your tax return. This is capped at $3000 per year, or $1,500 if you are filing jointly.

When you sell your shares of stock in order to make a profit, you may be subject to capital gains tax. There are two types of capital gains taxes. Which tax you pay depends on how long you hold the asset for.

Short Term Capital Gains Taxes are the same as your standard federal tax rates and are defined as the tax on profits generated from the sale of an asset that you have held for less than a year.

Long Term Capital Gains Tax rates are 0%, 15%, or 20%, as mentioned previously with qualified dividend tax rates. This type of Capital Gains Tax is the tax on an asset that you have held in excess of a year.

Therefore, this means that Short Term Capital Gains are subject to a higher rate of tax than Long Term Capital Gains. Hence it is advised to hold on to your Short Term Gains for at least a year tax advantages.

For expert US Stocks and Shares tax and accounting advice contact us

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US Taxation for Seafarers

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Written by Ben Dunster
UK Tax Associate
About Ben

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How the IRS tax Seafarers

As a new seafarer or someone who has come from a completely different industry, it may be odd at first, being paid without a tax deduction on your income. You may be confused on how to declare your income or what liabilities and obligations are attached that you are unaware of, but what might come as a pleasant surprise is the exemptions that you and your crew may just be entitled to.

Declaring Your Income

As a US national, you are required to file a U.S. tax return, declaring all the worldwide income you make during the tax year, running alongside the calendar year, from the 1st of January to the 31st of December.

Some people are capable of filing their own returns, but if you do not feel comfortable, it is recommended that you enlist the help of a professional. At Bambridge accountants, we offer an excellent service with the knowledge that comes second to none for US residents who require professional help with their return.

US Tax Exemptions

U.S. Seafarers can be eligible for FEIE, or Foreign Earned Income Exclusion. This exemption is meant for U.S. nationals who live and work overseas and gives eligible workers the opportunity to file for 100% tax relief on the first $107,600 in the 2020 year, this figure increases each year to account for inflation.

This does not mean that you and all your crewmates can now throw a party and live a tax-free life, as there are some conditions that you must meet before you can file for this exclusion!

Eligibility

In order to be eligible for FEIE, you must meet one of the following;

• The Physical Presence Test (The PPT)
• The Bonafide Residence Test (THE BRT)

Both tests are made with the intention to determine whether you stay outside of the US is sufficient enough to warrant this exemption.

The Physical Presence Test

The first of the two tests, the PPT, is judged on how many days have been spent in or outside the US in the year. To qualify for FEIE using the PPT, you must have been outside the US for 330 days of any 12-month period. The days spent travelling to and from the US do not count towards the total.

As mentioned, these days can be over any 12-month period, not just the tax year. However, if the 12 months fall outside the tax year, the exclusion will be proportioned between the 2 years, depending on how many months you are claiming for are in each tax year – For example, if the 12-month period you use is March 2018 to March 2019, 9/12 of the exclusion will be used in 2018 and the remaining 3/12 will be used for 2019.

The Bonafide Residence Test

The second of the two tests, the BRT, is tested on the basis that you have a legitimate residence outside of the US for an uninterrupted period. This uninterrupted period must include a full tax year. For example, if you are working for extended periods outside the US and have no intention of returning, you will have created a Bona Fide Residence and therefore passed this test for eligibility.

Bypassing using the BRT, it means you are not restricted to the 35 days inside the US, as you are using the PRT (365 days minus 330 days). So, once you have this residence, you could spend multiple months back inside the US, as long as you intend to keep your residence outside the US.

There are no specific guidelines on your returning period and how long you can return for, but if you are spending the majority of the year within the US, it would be hard to fight the case that it is not your primary residence and thus you would most likely lose your eligibility via BRT.

Summary

To summarise, you may be eligible for FEIE and should be making the most of it if you are! If you feel you are eligible but have already filed multiple returns for previous years, there is no need to worry as you can claim FEIE for the previous years you were eligible.

For expert tax advice for seafarers and offshore citizens contact our charters US accountants

President Biden Reducing American Citizenship Renunciation

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Written by Alistair Bambridge
Partner & Founder
About Alistair

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Data collected by Bambridge Accountants New York suggests that President Biden has had positive impact on US citizenship renunciation trends.

2020 had proven to be a turbulent year for US citizenship with the rate of renunciation at an all time high. However, The final 3 months of 2020 saw the trend reverse.

2020 the Stats

• 6,705 Americans in total gave up their citizenship in 2020
• Showing a 224% increase on expatriations compared to 2019
• 2,072 American gave up their citizenship in 2019 in total
• 2020 is highest year on record; the previous record was 5,411 cases on 2016

Of the 38244 U.S citizenships renounced over the last 10 years 72% were renounced in the last 5 years, showing a drastically increased demand U.S. for citizenship renunciation.

Biden Promotes Positive Change in trend?

Although we are early into Joseph Biden's presidency, the changing of the guard corrolates to a reduction in Americans relinquishing their citizenship. Data shows that 660 Americas gave up their citizenship in the final 3 months of 2020, compared to 732 in the prior 3 months - a 10% decrease.

Alistair Bambridge's Comments

Alistair Bambridge whilst talking to newswire explained "The Thought that Donald Trump would have another 4 years has seen a huge spike in 2020 for Americans overseas looking to renounce their citizenship, where the figures had been in steep decine since 2017."

"Actually, the record numbers of Americans giving up their citizenship in the first nine months of 2020 was just the tip of the iceberg and if the U.S Embassies and Consulates were all open, there would have been much higher levels in 2020."

"From our experience, Americans abroad are overjoyed in the change in administration. For those individuals, the election of President Biden is enough to reconsider giving up their citizenship and many Americans abroad are now talking about returning to the US."

How Will This Progress?

It's difficult to make predictions this early; however, the early data does suggest that we may see a downward trend in expatriates rennouncing their citizenship. We will be sure to keep you updated on our latest findings. For anything else contact us

“My mother had a saying: ‘Kamala, you may be the first to do things, but make sure you’re not the last”

-Kamala Harris

Kamala Harris has accepted her place in history as the First Female Vice President and she has said, “I will not be the last”.  Not only is Harris’s gender a first for Vice President, but also her heritage. Kamala is the daughter of Jamaican and Indian immigrants. 

Ahead of the president-elect speech at a victory event in Delaware, Harris took to the podium to share her thanks and thoughts on the historic moment.

Harris thanked her family and remembered her late mother, Shyamala Gopalan Harris “When she came here from India at the age of 19 she maybe didn’t quite imagine this moment,” she said. “But she believed so deeply in an America where a moment like this is possible.

“So I am thinking about her and the generations of women – Black women, Asian, white, Latina, natives American women – who throughout our nation’s history have paved the way for this moment tonight. Women who fought and sacrificed so much for equality and liberty and justice for all, including the Black women who are too often overlooked but so often prove that they are the backbone of our democracy.”

A California Democrat who previously served as the state’s attorney general, Harris’s presidential campaign revolved around the promise to be a fighter ‘for the people’.

We have put together a gallery of pictures celebrating Kamala Harris’s life so far.

Young Kamala Harris

Harris is seen with her mother Shyamala.

"My mother was born in India and came to the United States to study at UC Berkeley, where she eventually became an endocrinologist and breast-cancer researcher," Harris wrote. "She, and so many other strong women in my life, showed me the importance of community involvement and public service."

Harris tweeted in this photo in debate with Joe Biden over his opposition many years ago to the federal government mandating busing to integrate schools. In the tweet she said "There was a little girl in California who was bussed to school," she tweeted. "That little girl was me."

Kamala Harris, right, protests South African apartheid with classmate Gwen Whitfield on the National Mall in November 1982.

Harris graduates from law school in 1989. "My first grade teacher, Mrs. Wilson (left), came to cheer me on," Harris said. "My mom was pretty proud, too."

Harris is joined by San Francisco Mayor Gavin Newsom, left, and the Rev. Cecil Williams, center, for a San Francisco march celebrating Martin Luther King Jr. in January 2004. Harris was the city's district attorney from 2004 to 2011.

By Paul Sakuma

Harris officiates the wedding of Kris Perry, left, and Sandy Stier in June 2013. Perry and Stier were married after a federal appeals court cleared the way for California to immediately resume issuing marriage licenses to same-sex couples.

by Jeff Chiu

Harris, as a new member of the Senate, participates in a re-enacted swearing-in with Vice President Joe Biden in January 2017. She is the first Indian-American and the second African-American woman to serve as a US senator.

by Aaron P. Bernstein

Harris attends the Women's March on Washington in January 2017.

by Noam Galai

Harris and Biden are joined by their spouses after their victory speeches in Wilmington, Delaware, in November 2020.

Jim Watson

Alongside the second stimulus checks for $600 per person that was announced as part of the Further Consolidated Appropriation Act (FCAA), the Act contains tax reliefs for education, business meals, and help for those who did the receive the first stimulus check.

More individuals and families will also be able to claim the Earned Income Tax Credit and Child Tax Credit when they file their 2020 tax returns.

The FCAA allows for more people to claim for the Lifetime Learning Tax Credit. While the credit

remains the same, 20% of qualified tuition during the tax year, up to $10,000, the income level at

which the credit is phased out has been lifted. The level of income where the credit is phased out is

increased from $59,000 to $80,000 for single filers and $118,000 to $160,000 for married filing jointly.

After 2017, the deduction for business meals was reduced to 50%. The FCAA allows for business

meals to be expensed at 100% for tax years 2021 and 2022.

Both the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are based on individuals and

families receiving a minimum amount of earned income. The FCAA allows for these individuals and

families to use their 2019 income if that would give a larger EITC or CTC than their 2020 income. This

is a temporary relief to help people where their income fell in 2020 due to coronavirus.

Finally, the FCAA allows for individuals who missed out on the first stimulus check for $1,200 to now

claim that payment. Taxpayers who filed as married filing jointly and their spouse did not have a

social security number but had an ITIN, were denied the first stimulus check. The FCAA now corrects

that and those individuals will be able to claim the $1,200 plus any amounts for qualifying children.

Alistair Bambridge, Partner at Bambridge Accountants New York, explains: "For families and

individuals where their income fell in 2020, if they have been laid off or had reduced work, these changes to the EITC and CTC will be welcome news and will ensure they still receive the credits they

are entitled to. Many families rely on these credits to raise their children, and they are designed to lift

them out of poverty."

A lot of companies offer stock-based incentives and compensation to their employees, 62% of employees offering the options have said it consistently increases morale, incentivising employees to work hard in order to see the stocks they own, appreciate in value. We have prepared a brief guide to the pros and cons of RSU’s and Stock Options so that you can make an informed decision on which would be best if the choice is offered to you.

Restricted stock units

Restricted stock units, often shortened to ‘RSUs’, are shares given to employees by their employer as a form of compensation or incentive. RSUs come at no initial cost to yourself, they do however need to be left to vest over a certain period. For example, if your company offers you 500 Shares on an RSU basis over 5 years, once that 5-year period is over, you will acquire the shares at no cost.

The problem arising with this basis means, you could be on year 4 of 5, another job opportunity comes up that you want to take, you have now invested 4 years vesting these stocks, but if you leave before they have full time vested, you will lose them all. This is not the only condition placed on the shares fully vesting and you may have to also meet other conditions. This could be performance-based or anything else the company wants you to achieve before you receive what is on offer.

Another common misconception is the wrongful understanding of no Initial cost. While it is correct, you are not monetarily paying for these shares, you will not receive all the proceeds from these shares. For example, if your company is giving you 100 shares after 2 years and they are valued at £20, the misconception is that you will receive £2,000. This is incorrect as RSUs, once vested, are subject to income tax and must be declared, so some of your shares would have already been sold and gone before you have seen the proceeds at all.

Stock options

Stock Options are also a form of compensation or incentive to employees. A stock option is a window of time that employers will grant to employees, to purchase stocks at a certain price. The goal is to offer a certain price and for the company to grow so that the actual market price is greater than the employee accessible price agreed upon. For example, you may be offered the option to purchase shares for £20 per share for 6 months, in that time, if the market price of these shares rises to £25, the employee can take advantage of this. However, if the price remains the same or falls below the employee accessible price, the stock option is rendered useless. If you wait too long, the stock option will expire, and you will not be able to purchase at the given price.

Summary

To summarise, you have two incentivising strategies, both with benefits and drawbacks and both used to drive productivity and work toward a higher share price. Your choice between the two may be determined by your plans for the future, your financial position or your desire for choice. Either way, both options give a good opportunity for returns and should be taken advantage of if the chance arises.

Global Intangible Low Tax Income or GILTI for short, is a relatively new Tax Law in the US, it has only been in effect a short while, beginning after the 31st December 2017. It was a countermeasure to businesses that continuously have enormous turnover whilst operating in the US, but through loopholes and the shifting of profit into low or even zero tax jurisdictions, they pay little to no tax at all.

WHAT IS GILTI?

Back in 2017, when GILTI was first introduced, it was a new concept added to the Tax Code which changed the way foreign income was reported by corporations and thus changed the way foreign income was taxed. The aim for the introduction of GILTI was to rid of the incentives of holding their Intellectual Property in countries with significantly lower tax costs than the US.

Any C Corporation, S Corporation, Partnership or Individual can be subject to GILTI. It is worked out by taking the Gross Income, Income then subject to different tax regulations, foreign oil and gas extraction income, for example, is then removed. You then remove expenses from the remaining figure, to give you what is called the ‘Tested Income’.

Then taking the Tested Income and deducting the Shareholders Net Tangible Return, leaves you with GILTI. This figure is then taxed at 21%, however, if the corporation does not engage in US trade or business, this can be halved. GILTI is then taxed at the halved rate of 10.5%.

WHAT IS THE NEED FOR GILTI?

Have you ever wondered how a company like Amazon can have a profit of more than $11 Billion in 2018, yet pay $0 tax? Yes, $0 in 2018. Well, the main reason for this is, Amazon offers pretty much every employee stock-based pay or stock-based incentives, which can then be offset against the federal income tax. No foul play or anything illegal is being done, it is purely using the system to your advantage. The more successful your business becomes if you use this type of method, the less tax you pay!

So, the US decided they must come up with a way to counteract the fact that large corporations can easily move assets or use certain loopholes in order to avoid the majority, if not all tax - Introducing GILTI (pronounced Guilty!) The tax method that the US hoped would answer the problem.

The US hoped this would have corporations second-guessing whether they would need to keep their intellectual property overseas because the incentive would then be cancelled out by the new need to report GILTI.

HAS IT WORKED?

While it seems a good idea in theory, in practice there have been some drawbacks and unintended consequences of implementing GILTI. For one, the Tax Law has come under fire for focusing solely on large scale corporations and neglecting to think about smaller international traders that are trading abroad for legitimate business purposes rather than to reduce their tax bill. Because of this, they are now facing higher charges, of which some they cannot afford because the bigger corporations have been taking advantage of the system already in place. They are therefore losing out and struggling as a result of the implementation of GILTI.

Another drawback of GILTI is companies that operate in high tax jurisdictions already. Now initially this may come as a surprising drawback, as GILTI is only supposed to come into effect with companies that have an effective tax rate of 13.125%. However, when delving deeper into some of the tax laws at work, you can see why they can cause some issues. For example, Foreign tax credits are limited in the US depending on which proportion of your income derives from the US and which proportion is international, so a company who earns 60% of their income internationally will therefore only be able to claim Foreign tax credits in the US against the 60% of their total income. But then when taking into account some expenses allocation rules, companies are required to allocate some expenses against foreign income rather than US income. This in turn lowers the Foreign profit and thus Foreign tax credits can only be used on a reduced amount of total income. For example, if your 60% of profit becomes 30% due to additional expenses being allocated, your foreign tax credits have then also been restricted further. Not only this, but if these expenses then reduce your effective tax rate below the threshold, you could be in a high tax jurisdiction, whilst also being charged additional tax for GILTI.

SUMMARY

GILTI has been implemented to try and address a problem that has been occurring for many years, it is a step in the right direction, but more refinements and adjustments need to be discussed and perfected before it can achieve the goal that it was set out for.

Foreign Bank Account Reports

A quick and easy guide on everything you need to know about Foreign Bank Account Reports (FBARs)

FBARs, or Foreign Bank Account Reports, is an overview of your worldwide accounts that you are required to file if you're a United States resident and have accounts held in countries outside of the United States. They are required by law and by not filing, an individual could face fines and penalties from the Internal Revenue Service (IRS). This is the most common civil penalty dealt to citizens by the IRS and can rise to a maximum of $10,000 per account violation, per year. It is therefore of the utmost Importance you know how to file an FBAR, and if you need to file.

What is AN FBAR?

An FBAR is an overview of all the worldwide accounts you hold in a calendar year, they denote the highest figure you held in each account throughout the year at any given point.

They require the information on not just your accounts, but also any joint accounts, pensions, securities, business accounts, or any account that you are a signatory. This means even if you are in control over your child's account to save for them, it will need to be disclosed on your FBAR!

This isn't all that needs to be disclosed however, the full list of accounts is as follows;

• Bank, securities, financial instruments accounts.
• Accounts held in commingled funds (mutual funds) and the account holder holds an equity interest in the fund.
• Individually owned bonds, notes, stock certificates, and unsecured loans are not "accounts".
• Foreign life insurance or annuities with cash surrender value are "accounts".
• "Foreign" Online Gambling Accounts – IRS Says FBAR filing is required.

Who needs to file an FBAR?

If you are from the United States and your accounts have a combined total of over $10,000 You must file an FBAR by law or face fines from the IRS. If you move to another country but originated from the United States, you still must file an FBAR.

A lot of people are unaware of this and thus have missed years' worth of FBARs in the process, not purposely or with any intent, but purely due to a lack of knowledge. It is because of this, there is a method of filing known as the Streamlined Filing Procedure – This is where your FBARs from the past 5 years, including the current year (6 FBARs total) are filed all together, this issued to avoid penalties or fees for late filing or not filing at all.

Fbar Deadlines

The deadline for filing an FBAR is the following April the 15th, once the calendar year is finished, for example, the FBAR detailing accounts in 2016 would be due April 15th, 2017. If you do however miss this deadline, there is an automatic extension of 6 months, October 15th, which is automatically applied.

Common errors when filing FBARS

One common error when determining whether or not you are required to file is thinking that you are exempt from filing as none of your multiple accounts have had a value of above $10,000 individually. This is wrong, the $10,000 threshold is a threshold for the total of all foreign accounts you are linked with – So if you had 3 accounts that all have $9,999 each, you are still required to file.

Another common error is thinking you are not required to file because you have moved to another country, this is also incorrect, and you must still file an FBAR regardless.

Other mistakes involve an improper understanding of what accounts must and must not be disclosed on the FBAR or even using the wrong conversion rates or not using conversion rates at all and thus overestimating or underestimating your total values.

ANY QUESTIONS

We are very happy to help with any tax questions on moving to the UK and we can run through how to file your UK self-assessment tax return. Our friendly team of qualified tax advisers and accountants have specialized tax preparation experience to help international clients, non-domiciled and dual resident individuals in London, across the UK, and will walk you through what the next steps are – contact us today.

ACCOUNTING AND TAX FOR CONTRACTORS OVERSEAS

A quick and easy guide to accounting and tax for over seas contractors

Modern-day technology and travel, have made it easier than ever before to work anywhere in the world, you will still need to organize your finances and abide by the tax laws.

It is recommended that you keep yourself informed about local tax laws when working overseas.

RESIDENCY

In the UK if you are deemed as a non-resident, you will only pay tax on your UK income and will not pay tax on their foreign income. Residents of the UK usually pay tax on all their income, from the UK and overseas.

UK residency is dependent on how many days one has spent in the UK during the tax year from 6 April to 5 April.

You are a resident if:

• You have spent 183 days in the UK during the tax year
• The only home you have is in the UK and you owned, lived in, or rented it for 91 days at least and spent at least 30 days there in total.

If you leave or move to the UK, that tax year you can claim 'split year treatment' where the year is split in two, resident and non-resident'. Therefore, you will only pay tax on foreign income for the time you were living in the UK.

Becoming a non-resident for tax reasons:

If you are making arrangements to move abroad and work overseas permanently, you will be considered a non-resident from the day you leave. You will need to be aware that to remain a non-resident you will have to keep your visits within the 183 days limit during a tax year.

TAXATION IN THE COUNTRY OF WORK

Tax legislation and procedures differ from country to country You may be at risk of your income being taxed twice, for example, if you are a cross-border commuter, posted abroad for a period of time, you live and are seeking employment overseas, or if you have retired in one country but receive your pension from another.

However, most countries have double taxation agreements where the amount of tax you paid in the country of employment can be offset against the tax you owe in your country of residence, or income earned from your country of work may only be taxed in that country and not liable to tax in your country of residence.

Tax rates in your country of residence and country of work will most probably differ and you will need to keep this in mind – if the tax rate in your country of work is higher then that will be the rate of tax you will pay on your earnings.

To be able to claim double taxation relief you will need to prove the country where you are resident and the existing taxes you have paid on your income.

THE EU

Visiting Europe from January 1, 2021 for business travel, including for meetings, conferences, providing services, or touring, you may need to check the entry requirements, insurance, and if you need to notify HMRC that you will be working in the EU.

WHAT EXPENSES CAN YOU CLAIM WHEN CONTRACTING ABROAD?

Claiming expenses are the same if you were contracting in the UK, therefore anything that is 'wholly and exclusively' purchased for business purposes are eligible to be claimed for.

It is recommended that you record all your expenses with evidence to claim those expenses.

Newly elected President Joe Biden’s planned tax changes will affect millions of Americans. President Biden will be reverting from President Donald Trump’s 2017 tax cuts signed to raise $2 trillion and $3 trillion in tax revenue, according to estimates from the Tax Policy Centre and the American Enterprise Institute, over the period of a decade.

The increase in tax revenue is designed to fund President Biden’s spending scheme on education, federal healthcare plan which would cost $750 billion over a decade, and climate change action. This is projected to reduce GDP by 1.62% in the long term.

With all the proposals, President Biden’s plan is reliant on the Senate to pass those changes.

BUSINESS TAX CHANGES

For corporations, Democrat President Biden announced his plan would be to raise the rate from 21% to 28%, as well as levying a new minimum tax on corporations with book profits at or exceeding $100 million.

According to President Biden’s campaign, this is aimed at those companies who report net income of $100 million or more in the U.S. but pay little federal income taxes. Using book income rather than taxable income as a basis for income tax raises the tax rate on firms. The minimum tax is assembled as an alternative minimum tax. This means that businesses will either pay their regular income tax or the 15% minimum tax, whilst allowing for their not operating loss and foreign tax credits.

These proposed corporation taxes are predicted to account for relatively 51% of the revenue gains from the overall tax plans.

CAPITAL GAINS TAX CHANGES

President Biden plans to change the taxation of capital gains, replacing the tax rate of 23.8% to 39.6% to match the income tax rates, on long term capital gains for those with incomes exceeding $1 million.

Now, if a person dies and someone inherits their assets, the basis (price at which an asset is purchased) is raised to its market value. This is a step-up basis and means any capital gains occurred under the heir will not be taxed and the basis will be revalued if there is a point of sale. This ‘step-up basis’ eases the tax burden to those inheriting appreciated assets, including art, securities and property.

However, President Biden suggests abolishing the step-up basis of capital gains, as not paying tax on capital gains after the death of an ancestor leads to a loss of around $40 billion per annum.

The aim of both propositions is to further raise taxes for those on high incomes.

INDIVIDUALS AND HOUSEHOLDS

According to President Biden’s campaign, he is promising that households making less than $400,000 will not be made to pay higher taxes.

President Biden has said that he would make changes to those on incomes above $400,000. These potential changes include imposing the 12.4% Social Security payroll tax – split between employees and employers, not to mention the highest federal income tax band would be raised from the current 37% to 39.6%.

TAX CUTS

As an alternative to implementing tax deductions, President Biden is willing to use the policy of tax credits.

President Biden has stated that he will temporarily increase the child tax credit by $1,000, from $2,000 to $3,000. Also, he would extend another $600 for children under the age of six.

This use of tax credits would also apply to retirement contributions. He proposes to initiate matching tax credits for retirement accounts such as 401(k)s and IRAs. This tax credit would be deposited into the taxpayer’s retirement account.

PLACING PRESIDENT BIDEN’S TAX PLANS UNDER HISTORICAL CONTEXT

President Joe Biden’s projected tax plans would not be the largest tax increase on record but will be large by historical standards over a longer period. President Biden’s tax plan would raise federal tax revenue by approximately 1.41% of GDP from 2021 to 2024, meaning it would be the fifth-largest tax increase since the 1940s. Despite not being the largest tax increase on record, will raise revenue significantly to revive the U.S. economy from the coronavirus pandemic induced recession. It will be the biggest tax increase since the late 1960s.

President Joe Biden’s campaign plans are a proposal. The Democrats will have to repossess their control over the Senate for the plans to be considered.

We have put together a gallery of pictures celebrating Kamala Harris’s life so far.

How Important is the Expatriate Vote?

There are currently at least 2.9 million U.S. citizens living outside the U.S. that are eligible to vote in the 2020 federal election. This is more registered voters than are present in Colorado, Alabama, South Carolina or Kentucky to mention only a few.

Data collected by the Federal Voting Assistance Program (FVAP) has found that stateside U.S. citizens are over 13x more likely to vote than those living abroad. However, despite the comparably low voting activity of Americans overseas, research has found that expats are just as interested in U.S. politics as those living within the US.

Following on from this Bambridge Accountants surveyed a sample of U.S. Expats to assess whether there will be a higher portion of U.S. expatriates voters this year. The survey found that 45% of eligible voters, who had not voted in the 2012 or 2016 election, will 'definitely' be voting this year. This, combined with the growing U.S. political activism seen online brings weight to believe that expatriates will vote in record numbers this year.

This would not have been the first time that U.S. expatriate has had a decisive vote in the U.S. election. In the 2000 presidential election, the overseas ballots put George W. Bush narrowly ahead when the Florida recount was stopped by the Supreme Court.

The graphs show the approximate figures of eligible U.S. expatriate voters VS the amount that actually vote. As we can see, the number of active voters increased between 2012 and 2016 by 60%, while the eligible population only grew by 6%. These figures show how a larger proportion of expats are utilizing their right to vote. This trend would suggest a higher proportion of overseas voters can be expected in towards the 2020 presidential election. Julia Bryan, the Global Chair of Democrats Abroad, supports the foreseeable increase in votes telling VICE 'We are very on track to double the abroad vote'.

What are the trends in Expat voting?

Both Democrats Abroad and Republicans Overseas has reported a rise in demand this year. When comparing website traffic in 2016 with the traffic in 2020, democrats abroad cited a 260% rise.

Historically, Americans abroad have voted for the Democrats. There are indications that this may not be too dissimilar this year, with the UK Chair of Democrats Abroad, Inge Kjemtrup stating that there has been an 'unbelievably strong determination to get rid of Trump'. In a survey of U.S. expat opinions, 84% of expats said they did not agree with how the U.S. Government have handled Coronavirus. This widely shared opinion is likely to have lost Trump a large portion of votes during the election

However, this is not to say there is not a large following for the Republicans Overseas. Mr Senson, an American living in London, told The Independent of how he had been delightfully "surprised" over how President Trump has governed and stated he will be voting for the Republicans this year.

Which party is the most U.S. Expat friendly?

The Democratic party has proposed a much more radical tax plan than previous years. Biden has pledged to raise taxes and spend the additional revenue on social programs. These tax rises will not only affect corporates but also individuals.

Plans include raising the top rate income tax rate from 37% to 39.6%. Capital Gains Tax is also set to rise from 20% to match ordinary income tax rates.

Americans overseas will generally not be affected since many expats pay higher tax rates in their country of residency and so can claim Foreign Tax Credit (FTC) or the Foreign Earned Income Exclusion (FEIE).

However, Bidens policy will not include a deduction for Expats with a foreign-registered corporation that is a subsidiary of a U.S. firm. This means that the expat will no longer be able to deduct half the tax on profits, essentially rising the GILTI tax from 10.5% to 21%.

The Republicans have not yet announced their tax plans in detail. Therefore, no changes to income tax, corporation tax or GILTI are likely to be announced any time soon. Trump has however announced he would like to reduce taxes for low and middle-income earners.