tax law Archives | Page 15 of 30

21Dec 2020 by Anthony Diosdi

Adding Shares of a DISC to a Roth IRA in Excess of the Statutory Limits- Clever or Unseemly?

Tax Law

By Anthony Diosdi IntroductionCongress designed domestic international sales corporations (“DISC”) to incentivize companies to export their goods by deferring and lowering their taxes on export income. Here is how the tax incentive work; The exporter avoids corporate income tax by paying the DISC “commissions” of up to 4 percent or 50 percent of net income from qualified exports. The DISC pays no tax on its commission income (up to $10,000,000), and may hold onto the money indefinitely, though the DISC shareholders must pay annual interest on the shares of the deferred tax liability. See IRC Section 995(f). Once the DISC has assets at its disposal, it can invest them, including through low-interest loans to the export company. See 26 C.F.R. Section 1.993-4. Money and other assets in the DISC may…

10Dec 2020 by Anthony Diosdi

Claiming a Tax Treaty Benefit in a Foreign Country or Want to avoid Paying VAT? Make Sure You Obtain a Form 6166

Tax Law

By Anthony Diosdi The United States has income tax treaties with approximately 58 countries. These treaties allow for various forms of tax relief. In order for a U.S. corporation or U.S. individual to obtain a tax treaty benefit in a foreign country that has a tax treaty with the United States, many U.S. treaty partners require that the Internal Revenue Service (“IRS”) certify that the entity or individual claiming treaty benefits is a resident of the United States for federal tax purposes. The IRS provides this residency certification on Form 6166, a Letter of U.S. Residency Certification. A Form 6166 may also be used as a proof of U.S. residency for purposes of obtaining an exemption from a value added tax (“VAT”) imposed by a foreign country.Below, please find two…

10Dec 2020 by Anthony Diosdi

How a Non-Resident Can Use a Tax Treaty to Eliminate the U.S. Tax Consequence of Withdrawing Money from an IRA or 401(k) Plan

Tax Law

By Anthony Diosdi We often receive inquiries from non-U.S. citizens that are concerned with the U.S. tax implications of withdrawing money from an Individual Retirement Accounts (“IRA”) or 401(k) plan. Often these individuals are in the U.S. for a temporary work assignment and they are concerned with the U.S. withholding tax of 20% or 30%. They are also concerned about the 10% early withdrawal penalty. This article discusses how non-U.S. citizens may use a tax treaty to eliminate the U.S. tax associated with the withdrawal of funds from an IRA or 401(k) plan.Taxation of Distributions from IRAs and 401(k) Plans Under U.S. Federal Tax LawUnder the Internal Revenue, any distribution from a qualified plan such as an IRA or 401(k) plan that does not qualify as an eligible rollover-distribution is…

08Dec 2020 by Anthony Diosdi

Can You Utilize an LLC to Hold Stock Options in a Self-Directed IRA?

Tax Law

By Anthony Diosdi The growth of 401(k) plans and other defined contribution plans (as opposed to traditional defined pension plans) has generated additional opportunities for employees and retirees to use IRAs. To postpone taxation of the account balance in such a plan, the individual must rollover some or all of the account balance to an IRA or other qualified plan. This has resulted in the growth of “self-directed” IRAs. Since 1974, the IRS has permitted individuals to totally “self-directed” investments made within their IRAs. Self-directed IRAs are held by a trustee or custodian. They permit investment in a broader range of investments than is permitted by traditional IRAs. Although a self-directed IRA allows individuals to invest in numerous illiquid assets, investments in some assets are prohibited. These include but may…

04Dec 2020 by Anthony Diosdi

So Your Candidate Did Not Win the Election and You Want to Expatriate- Here is What You Need to Know About Expatriation, the Exit Tax, and the New Federal Inheritance Tax

Tax Law

By Anthony Diosdi IntroductionSeems like whenever there is an election a number of people threaten to leave the United States and move to another country if their candidate doesn’t win. I’m not sure how many of these individuals make good on their threats. This article is designed to provide an overview of the U.S. tax consequences associated with renouncing one’s U.S. citizenship and discuss potential strategies to mitigate the taxes associated with expatriating. Anyone considering abandoning their U.S. citizenship or ending a long-term U.S. residency must understand that they may be assessed an “expatriation tax.” An “expatriation tax” consists of two components: the “exit tax” and the “inheritance tax.” Both may be triggered upon abandonment of citizenship or abandonment of a green card. We will discuss both these taxes in…

01Dec 2020 by Anthony Diosdi

Demystifying the All New 2020 Tax Year IRS Form 5471 Schedule P Tracking “Previously Taxed Earnings and Profits of U.S. Shareholder of Certain Foreign Corporations”

Tax Law

By Anthony Diosdi IntroductionSchedule P of Form 5471 is used to report PTEP of the U.S. shareholder of a controlled foreign currency (“CFC”) in the CFC’s functional currency. The term PTEP refers to earnings and profits (“E&P”) of a foreign corporation. Schedule P like Schedule J and Schedule E has given tax practitioners fits the last two tax seasons. Much of this confusion is the result of the Section 959 ordering and basketing rules. Things are not likely to improve next tax season because international tax practitioners will also need to understand the new extraordinary disposition and extraordinary reduction rules to properly complete Schedule P. On August 24, 2020, the IRS issued a draft for Schedule P (without any instructions) for the 2020 tax year. Although the 2020 Schedule P…

17Nov 2020 by Anthony Diosdi

Demystifying the All New 2020 Tax Year IRS Form 5471 Schedule E Reporting and Tracking Foreign Tax Credits

Tax Law

By Anthony Diosdi IntroductionSchedule E of Form 5471 is used to report taxes paid or accrued by a foreign corporation for which a foreign tax credit is allowed and taxes for which a credit may not be taken. Like Schedule J, Schedule E (mostly because of Schedule E-1) has given tax practitioners fits the last two tax seasons. Much of this confusion is the result of the Section 959 ordering and basketing rules. Things are not likely to improve next tax season. On August 25, 2020, the IRS issued a draft for Schedule E (without any instructions) for the 2020 tax year. Although the 2020 Schedule E is only in “draft” format, we do not anticipate many if any changes to the form before next tax season.The IRS has…

16Nov 2020 by Anthony Diosdi

Will Taxes Increase in 2021?

Tax Law

Even with votes still being recounted, it seems likely that the Biden administration will take over the White House in January. Many Americans wonder what this will mean for their taxes in 2021. First, the good news is that tax liability you might face this coming spring is based on your 2020 financial picture and 2020 tax laws, so even if the laws significantly changed, you would not see major changes in your liability until tax season 2022. However, if potential changes in tax laws under the new administration might impact you, it is important to plan ahead to limit your future liability as much as possible. Potential Changes Whether or not new complicated tax legislation will pass through Congress and the White House next year remains to be seen.…

11Nov 2020 by Anthony Diosdi

Demystifying the All New 2020 Tax Year IRS Form 5471 Schedule J

Tax Law

By Anthony Diosdi Schedule J of Form 5471 tracks the earnings and profits (“E&P”) of a controlled foreign corporation (“CFC”). Schedule J has given tax practitioners fits the last two tax seasons. The confusion started when the Internal Revenue Service (“IRS”) and the Department of Treasury announced they will withdraw the proposed regulations for Internal Revenue Code Section 959 and the following new columns were added to Schedule J:1) Post-2017 E&P Not Previously Taxed (post-2017 Section 959(c)(3) balance.2) Hovering Deficit and Deduction for Suspended Taxes.3) PTI from Section 965(a) Inclusion (Section 959(c)(1)(A)).4) PTI from Section 965(b)(4)(A) (Section 959(c)(1)(A)).5) PTI from Section 951A Inclusion (Section 959(c)(1)(A)).6) PTI from Section 965(a) Inclusion (Section 959(c)(2)).7) PTI from Section 965(b)(4)(A) (Section 959(c)(2)), and8) PTI from Section 965(b)(4)(A) (Section 959(c)(2)), and9) PTI from Section 951A…

29Oct 2020 by Anthony Diosdi

Demystifying the 962 Election

Tax Law

By Anthony Diosdi IntroductionU.S. shareholders of a controlled foreign corporation (“CFC”) must include any subpart F income or global low-taxed income (“GILTI”) as ordinary income on their taxable income. The current highest federal tax rate applicable to individual CFC shareholders is 37 percent. Individuals receiving GILTI inclusions may also be subject to an additional Medicare tax of 3.8 percent. To make matters worse, individual CFC shareholders cannot offset their federal income tax liability with foreign tax credits paid by their CFCs. Under these circumstances, it is not too difficult to imagine scenarios where a CFC shareholder pays more in federal, state, and foreign taxes than the actual distributions they receive from the CFC. On the other hand, for federal tax purposes, domestic C corporations that are shareholders of CFCs are…