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Main Cross-Border Tax Planning Issues for U.S. Persons

As a U.S. citizen living and working in a foreign country or a U.S. citizen with worldwide income or assets, you are likely to be looking into the common issues regarding cross-border tax planning and reporting. As any expert in cross-border tax, be it a San Diego or Calgary lawyer, will tell you (and you may already know), U.S. taxes its citizens on their worldwide or global income.

If you are a company about to start doing business outside the U.S. in addition to the business in the U.S., you should account for cross-border tax planning. Here are some of the main issues you should be aware of.

U.S. persons and U.S. international taxation

The U.S. taxation system is Citizen-Based Taxation (CBT). Under this system, all persons considered U.S. persons file taxes in the U.S., regardless of whether they actually live in the United States or not. By contrast, most other countries in the world tax based on residency. For example, if a Canadian citizen becomes a tax resident of another country, Canada will not impose taxes on him.  Most countries, however, will impose taxes on income earned in that country, even if the person is neither its citizen nor resident.

It is important to note that although the U.S. taxation system is called Citizen-Based Taxation, it applies not only to U.S. citizens but rather U.S. persons.

The following categories are considered U.S. persons:

  1. S. citizens
  2. Legal Permanent Residents
  3. Foreign Nationals that meet the Substantial Presence Test
  4. Former Legal Permanent Residents who didn’t expatriate properly.

If you are a U.S. person with foreign income or assets

It is pretty common for U.S. persons with worldwide income or assets not to be aware of all cross-border taxation requirements. Here are some of the most common scenarios:

  • The individual didn’t know his worldwide income was subject to U.S. tax law

The individual believed he only needed to report US income in the US and his foreign income in the foreign country.

  • The individual didn’t know that he is obligated to disclose foreign assets he had before they became a U.S. person
  • The individual knew of the worldwide income tax system, but failed to understand the scope

All of the abovementioned issues commonly lead to the individual’s failure to file his tax return properly, which may be interpreted as tax evasion and is severely punishable by the U.S. law. The safest and most prudent thing to do regarding tax planning is to hire a lawyer specializing in cross-border tax law, in addition to a tax advisor. Cross-border tax is a complex area of law, and services of an experienced tax attorney may prove indispensable.

Worldwide income reporting and disclosure requirements

As previously said, all U.S. persons are taxed on their worldwide income. Regardless of what country they earn their income in, if they are a U.S. person, they pay taxes in the United States.

Even if they don’t meet the threshold to file a tax return, they are still subject to various reporting and disclosure requirements. There is a number of laws applicable in this case, including FBAR and FATCA. To find out exactly what requirements you have to meet, turn to a lawyer with knowledge in cross-border tax law who can tailor the approach to your particular situation.

Generally speaking, if you are a U.S. person, you have to disclose your foreign assets, accounts and investments for the current tax year. Furthermore, even you had already reported or disclosed the said foreign assets or accounts in the foreign country you used to live in, as a U.S. citizen, you still have to disclose or report them.

Foreign tax credits and amnesty opportunities

As a U.S. person with a worldwide income, you may qualify for various tax credits you can use against your U.S. taxes, in addition to other tax amnesty opportunities. This will depend on the amount of time you were out of compliance, what the purpose of non-compliance was, whether you were willful or non-willful, and lastly – whether you had already filed taxes in a foreign country.

Contact a cross-border lawyer you can trust

To know exactly what requirements you have to meet, you should seek assistance from a lawyer who is not only knowledgeable in cross-border tax law but also has experience in handling cases such as yours. Brunoro Law has a vast experience and an impressive track record in managing international, cross-border and corporate tax cases.

Do not hesitate to contact us and schedule your free-of-charge no-obligation consultation with Brunoro Law’s principal attorney Paula Brunoro-Borokhov.