Ep 42: What Is English For "Gift And Estate Taxes"?
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There is a huge difference between the gift and estate tax. This is highly magnified based on your immigration status (U.S. residents and non-resident aliens (NRAs)).
We also explain the annual exclusion for gifts, the unified tax credit, and the importance of tax planning to navigate these complex tax laws.
The conversation highlights the need for careful planning to avoid significant tax liabilities, especially for non-resident aliens with U.S. assets.
Some Key Takeaways
A gift tax is applicable during the lifetime of the giver.
The estate tax is assessed after a person's death.
The annual exclusion allows gifting up to $19,000 without tax in 2025.
Non-resident aliens have a much lower exemption of $60,000, while U.S. tax residents have $13.99 million - set to sunset in 2025.
Planning is crucial to manage tax liabilities effectively.
Understanding domicile is key for tax implications.
Future episodes will delve deeper into the tax and financial planning strategies that will help with the above.
Episode Links & Resources
Are you Tax-compliant With Your Overseas Assets? - Free Guide - Scroll to the bottom of the page.
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Speaker 1 (00:06):
Welcome to the International Money Cafe podcast, the show where we filter out the noise on cross-border taxes, finances, and life in the us. I'm your host, Jen Hams, certified financial planner, founder and owner of Elgon Financial Advisors,
Speaker 2 (00:21):
And I'm your host, man Nadik, enrolled agent, owner and founder of AM and Tax and Business Services. Join us on this journey as we explore the unique challenges faced by inbound outbound families and businesses on taxes, compliance and financial planning. Let's get to the show.
Speaker 1 (00:43):
We are back with another shorty episode where in 10 minutes or less we take a terminology or a time used in the cross-border space and just give you a very high level definition. In today's short, we are going to talk about, or rather list out the 10 mistakes we see folks making while they're filing taxes. And this of course applies to immigrants, foreign nationals and work visa or US experts and green card holders living overseas. Okay, mistake number one, not filing taxes, that's all I'm gonna say. <laugh>
Speaker 2 (01:23):
<laugh>. Mistake number two, ignoring your foreign income and thinking that does not affect us taxation. So remember when you live in the US or if you are a tax resident of the us, you have to file taxes on your worldwide income. And that brings me to the third one, which I'll knock it out of the way. Jane is sure is kind of connected, ignoring your worldwide financial assets. So remember FATCA F Bar, the FATCA threshold is higher, a hundred thousand dollars if you are married, filing jointly and you live in the US or $50,000 if you live in the US and file single F bar is $10,000 of foreign financial assets. So quick definition also of a pfic, which is a foreign mutual fund. Passive foreign investment corporations, please don't ignore that. That's also another big mistake people make.
Speaker 1 (02:31):
Okay? Number four, doing backdoor work the wrong way and then filing it wrong. The mistake we see here, I know it's where you completely ignore the Prorata rule and we actually have a whole episode on this and then you end up not filing form 86 or six. There's a lot of complexities, it's an easy thing to do and it's an easy thing to make a mistake on. So don't do the backdoor Roth wrong. And then number five, just moving on because I see this a lot, is not reporting foreign gifts. So remember if you get, if you get a foreign gift from overseas from people who were US tax non-resident, there is no taxes on it, but you need to file form 35 20 if you receive more than a hundred K or if you receive, I think it's about 19 K this year from a corporation. That's all I'm gonna say about it. Moving on,
Speaker 2 (03:36):
Yes. Number six, and this is kind of a little controversial one because anyway, I'll come to that. You claim your foreign based parents on your taxes even if they don't qualify. So if your parents are residents of Canada or Mexico, they might qualify, but otherwise they would have to be US residents for you to be able to claim them as your depend and they have to, you know, pass all of the dependency tests. So know whom you can claim as your dependents is. That's what I would like to say here. Yes, Jane <laugh>
Speaker 1 (04:22):
And pretty interesting. I think we might need to talk a little bit more about that in another episode anyway.
Speaker 2 (04:28):
Yes.
Speaker 1 (04:28):
Number seven, using the wrong status. What I mean by this is what we see a lot of is, for example, a student on F1 Visa who's in the country for less than five years should be filing taxes as a US non-resident, but a lot of times we see them filing as a resident. We've also seen a few cases where somebody should have been filing as a resident and they end up filing as a non-resident. So the bottom line on this is know what your tax resident is, which has nothing to do with your immigration status. Nce, what's number eight?
Speaker 2 (05:10):
Yeah. And so going on with that same theme here, know the connection between your immigration status and your tax filing, right? So just like Jane said just now, the F1 visa, if you're a student, you know, comes with special rules, there's substantial presence test and you're not considered to be a tax resident of the US for a limited number of years. Five. And you do not have to file a regular 10 40. You file a 10 40 dash NR and there are similar sort of advantages or you may look at it as a disadvantage, but whatever it is, these are the rules. The J one visa or if you are on a G four visa, these are connected to what your immigration status is. So make sure that you are either working with somebody who's aware of how the immigration status affects your tax return or when you are working with somebody who does these, you know, make sure that they know what your immigration status is. So it's not a DIY or a regular big box firm that can help you.
Speaker 1 (06:31):
Alright, I'm gonna go back a little bit to number seven. One more mistake we see about the wrong status is where somebody should be filing married, filing jointly married, but filing single or single filing or head of household. So those are all the different status you can use besides the residency versus the non residency. Pick the correct one, okay?
Speaker 2 (07:01):
Mm-hmm <affirmative>
Speaker 1 (07:01):
Number nine. Failing to pay estimated taxes throughout the year. I'm not gonna go into too many details, I'll just leave it at that for now. We are down to number 10. <laugh>.
Speaker 2 (07:12):
I know. Drum roll please. <laugh>. So number 10 is something that we may probably have to flesh out in a longer episode, but this is a mistake that we see a lot. So you are a green card holder and you live overseas and somehow you have let your green card expire so you have not renewed your green card. There is a difference between an expired green card and a surrendered green card. A surrendered green card is when you officially surrender your green card and you are no longer considered a permanent resident of the us. There is a process to that and it needs to be done finally by going to a US consulate or an embassy and working with an off officer there. And an expired green card is basically just not renewing the green card, you know, so by letting a green card expired though you are still subject to all of the tax rules and compliance that would be if you were still holding onto it. So that's a huge thing that I see a lot. Sometimes this kind of works out to people's advantage because they just suddenly find out that, oh, they can file jointly, you know, speaking about your filing status. So anyway, we'll flesh it out more folks because I think we need a a whole episode to dig into that. So yes.
Speaker 1 (09:02):
Yeah. Okay. So in summary, the top 10 mistakes are, one, not filing taxes, ignoring foreign income, ignoring worldwide taxation, FATCA F by threshold, doing a backdoor Roth the wrong way, not reporting foreign gifts. Number six, claiming your foreign based parents. Number seven, using the wrong status. Number eight, ignoring the connection between immigration status and taxes. Number nine, not paying estimated taxes. And finally being overseas on an expired green card. And assuming you're no longer expected to file taxes, I think we've done it. Anything else you wanna add or are we good to close it? Mana,
Speaker 2 (09:46):
We are good to go actually. So thanks for listening to another shorty episode and do let us know if you have something that you want us to talk about. We would love to hear back from you. Our website is VI am cafe.com, T-H-E-I-M-C-A-F e.com. Thanks. Bye bye.
Speaker 3 (10:12):
Thank you for listening to the International Money Cafe podcast. The content is for informational and educational purposes only, and should not be used as a substitute for professional advice. Seek the advice of your qualified service provider with any questions you may have regarding your cross order finances and tax needs.
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The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.