Expat US Tax Blogs

How do I value my foreign assets for Form 8938?

You must determine the reportable value of each specified foreign financial asset before completing Form 8938.

Valuation guidelines:

Use the maximum fair market value of each asset during the tax year.
Convert foreign currency values to US dollars using the applicable IRS exchange rate.
Use a reasonable estimate if the exact value cannot be determined.
Keep records that support how you calculated each asset’s value.

How do I file Form 8938?

You file it by attaching the completed form to your annual US federal income tax return. It isn’t filed separately like the FBAR. The basic filing steps are set out below, although valuation and overlapping reporting rules can make some cases more complex.

Step 1: Confirm that you meet the filing requirement. Determine whether the total value of your specified foreign financial assets exceeds the IRS reporting threshold based on your filing status and residency.

Step 2: Identify your reportable assets. Gather information for each specified foreign financial asset that must be reported, including financial accounts and qualifying foreign investments.

Step 3: Determine each asset’s value. Calculate the reportable value of every asset using the IRS valuation rules and convert foreign currency amounts to US dollars where required.

Step 4: Complete Form 8938. Provide the required account, institution, issuer, or counterparty details and report any applicable income, gains, losses, deductions, or credits attributable to the assets.

Step 5: Attach Form 8938 to your tax return. Submit Form 8938 together with your annual US federal income tax return by the applicable filing deadline, including any approved extension.

Form 8938 and FBAR: What is the difference?

Both forms can apply to foreign financial accounts, but Form 8938 can also cover certain foreign financial assets held outside an account. They have different filing rules and thresholds.

Form 8938 vs. FBAR

Feature	Form 8938	FBAR (FinCEN Form 114)
Filed with	Internal Revenue Service (IRS)	Financial Crimes Enforcement Network (FinCEN)
Filing method	Attached to your federal income tax return	Filed electronically through the BSA E-Filing System
What it reports	Specified foreign financial assets	Foreign financial accounts
Filing threshold	Based on filing status and residency	Aggregate foreign account balance exceeds US$10,000 at any time during the year
Certain financial assets held outside an account	Yes	No
Signature authority without ownership	Generally no	Potentially yes
Due date	Same as your federal income tax return (including extensions)	April 15, with an automatic extension to October 15

Some taxpayers must file both forms because they serve different reporting purposes. Filing one doesn’t satisfy the requirements of the other.

What are the penalties?

The IRS may impose penalties if you don’t file when required, with larger penalties for continued noncompliance.

Potential penalties:

US$10,000 initial failure-to-file penalty.
Additional penalties of up to US$50,000 for continued noncompliance after an IRS notice.
Accuracy-related penalties of 40% of the underpayment may apply when the underpayment is attributable to a transaction involving an undisclosed specified foreign financial asset.
A 75% penalty may apply if the underpayment results from fraud.

However, the failure-to-file penalty may not apply if you can show that the failure was due to reasonable cause and not willful neglect. The IRS considers reasonable cause based on the facts and circumstances of each case.

What are the common situations where filing may be required?

The following examples illustrate situations where reporting may be required.

Situations that may require reporting

Scenario	Why it matters
An American working overseas has a local checking account and an investment account with a combined value above the filing threshold.	Both accounts may count as specified foreign financial assets, and their combined value could trigger a filing obligation.
US citizen holding foreign employer shares directly, outside a financial account	Foreign-issued securities held outside a US financial account can be reportable.
A Green Card holder owns an interest in a foreign family business.	Certain ownership interests in foreign entities may need to be disclosed.
An expat contributes to a foreign retirement plan while living and working abroad.	Certain foreign pensions or retirement arrangements can qualify as specified foreign financial assets.
A married couple living overseas maintains several foreign savings and investment accounts.	The combined value of their specified foreign financial assets determines whether they must file.
A digital nomad keeps savings across multiple foreign banks in different countries.	Foreign accounts may need to be aggregated. Higher overseas thresholds apply only if the foreign tax home and presence requirements are met.

Frequently Asked Questions

Do I need to file Form 8938 if I only have one foreign bank account?

Not necessarily. The number of accounts doesn’t determine whether you need to file. Instead, the IRS looks at the total value of your specified foreign financial assets and compares it with the applicable filing threshold.

Does filing Form 8938 mean I’ll owe additional US tax?

No. Form 8938 is an information return used to disclose specified foreign financial assets. Filing it doesn’t automatically increase your US tax liability, although income generated by those assets may still be taxable.

Can I file Form 8938 electronically?

Yes. If you e-file your federal income tax return, Form 8938 is submitted electronically with it. If you file a paper return, attach the completed form before mailing your return to the IRS.

Do I need to file Form 8938 if my foreign assets fall below the filing threshold?

No. If the total value of your specified foreign financial assets doesn’t exceed the applicable IRS filing threshold, you generally aren’t required to file Form 8938.

Do jointly owned foreign assets count toward the filing threshold?

Yes. Jointly owned specified foreign financial assets may count toward the filing threshold. How they’re reported depends on your filing status and the ownership rules that apply to the asset.

What happens if I discover I should have filed Form 8938 in a previous year?

Don’t ignore it. The appropriate solution depends on why the form wasn’t filed and whether any income was omitted from your tax return. Reviewing your circumstances before submitting a late filing can help you determine the best way to become compliant.

Have a different question? Get in touch with our tax specialists today.

August 22 2024

Child Tax Credit 2025

Updated on November 25, 2025

Written by Ankurita Lala

Ankurita Lala, an IRS Enrolled Agent with 7 years of expat tax experience, specializes in helping individuals and entrepreneurs navigate the complexities of foreign business ownership. *Schedule a consultation with Ankurita today.

Book your private consultation with Ankurita

*30-minutes US$247.

Child Tax Credit 2025: what parents need to know

Trump’s Big Beautiful Bill

For the 2025 tax year, the Child Tax Credit (CTC) was US$2,000 per child under age 17, with up to US$1,700 refundable via the Additional Child Tax Credit (ACTC). But there’s a boost to US$2,200 per child under the “Big Beautiful Bill”.

How the Child Tax Credit works for US expat families in 2025

US expat parents can still claim the CTC, even if they live overseas. The IRS treats citizens and resident aliens the same, regardless of where they live.

Here’s the breakdown for 2025:

Base credit: US$2,200 per qualifying child under age 17.
Refundable portion (ACTC): Up to US$1,700 if the credit exceeds your tax liability. This is the part you can actually get back in cash.
Eligibility: Children must have a valid Social Security number, live with you for more than half the year, and be claimed as dependents.

Expats should also watch out for how claiming the Foreign Earned Income Exclusion (FEIE) can affect their refundable credit eligibility (more on that in a moment).

Income limits, phase-outs, and filing thresholds for expat taxpayers

What are the income limits for full CTC?

Full credit phases out starting at US$200,000 for single filers.
For married filing jointly, it starts at US$400,000.
Above those levels, the credit drops by US$50 for every US$1,000 of extra income.

How does the refundable portion work?

To get the US$1,700 ACTC, you need at least US$2,500 of earned income. Earned income includes wages, salaries, and self-employment, not passive income like interest or dividends.

The refundable portion is calculated at 15% of your income over US$2,500, up to US$1,700 per child.

What if you use the FEIE?

Claiming the FEIE excludes earned income from US taxation, possibly moving your income below the US$2,500 threshold needed for the refundable credit. That means you’d lose your ACTC, even if you’d otherwise qualify.

Example scenario:

You and your spouse file jointly, live in Germany, and earn US$60,000 each from overseas jobs. You have two kids. If you don’t use the FEIE, you could claim US$4,400 in CTC, with up to US$3,400 refundable (2 x US$1,700).

But if you exclude all income using the FEIE, you won’t qualify for any of the refundable credit even though you still get the non-refundable portion to zero out your tax.

What makes the Additional Child Tax Credit different from the standard Child Tax Credit?

The regular Child Tax Credit (CTC) gives you up to US$2,200 per qualifying child under 17. That credit lowers your tax bill but doesn’t pay you cash if you don’t owe taxes.

The Additional Child Tax Credit (ACTC) is different; it’s refundable, meaning you can get up to US$1,700 per child back even if your tax bill drops to zero. That refund is based on your earned income and can be used by many US expats who often have low or no US tax liability.

Calculate how much Child Tax Credit refund you can claim with our calculator.

Calculate Now

Check if you're eligible

How US expats can claim the ACTC: step-by-step guidance

Step 1: Gather your forms

Form 1040: Your US tax return
Schedule 8812: Used to claim both the regular CTC and the refundable ACTC

Step 2: Prepare key documents

Proof of earned income (pay stubs, self-employment records)
Proof of residency/family relationship – documents showing the child lived with you more than half the year
Valid Social Security Numbers (SSNs) for each child. ITINs won’t work

Step 3: Meet income requirements

You need at least US$2,500 of earned income (wages, self-employment), passive income doesn’t count.

Step 4: File early

File your return as early as possible. US expats often get delayed IRS processing, and early filing with direct deposit helps you receive refunds faster.

Common pitfalls for expat families and how to avoid them

Using the FEIE without thinking about ACTC eligibility

The Foreign Earned Income Exclusion (FEIE) lets you exclude up to about US$130,000 of foreign-earned income. That sounds amazing, but it has a catch.

If you exclude all your income, your taxable earned income drops to zero—and you won’t meet the US$2,500 earned income threshold needed to claim the refundable ACTC. You’re still eligible for the non‑refundable credit, but you lose out on getting cash back. If that refund matters, consider using the Foreign Tax Credit (FTC) instead, as it doesn’t affect your earned income calculation.

Children who don’t have valid Social Security numbers

It’s easy to let this slip while abroad, but every child you’re claiming must have a valid SSN issued before you file. Individual Taxpayer Identification Numbers (ITINs) won’t cut it here. Make sure your kids have SSNs early, it’s worth starting the process several months before you file.

Filing late and delaying your refund

Expat parents get an automatic extension to June 15, but there’s a trade-off. The IRS holds refunds involving the ACTC until around mid-February to check for fraud. If you file late, you push that refund even further out, and sometimes face extra verification steps.

Assuming you can skip Form 1040 if you owe no tax

A lot of expats figure that if they exclude foreign income and owe nothing, they don’t need to file a return. That’s not true. You must file Form 1040 and attach Schedule 8812 to claim either CTC or ACTC. Without that, the IRS won’t send your refund even if you’re entitled to it.

Mixing up earned and passive income

Only earned income (like wages and self-employment) counts toward the refundable ACTC. Passive income, such as interest, dividends, and capital gains, doesn’t count. So if your money comes mostly from investments or rental property, you might qualify for the non-refundable CTC but not the ACTC refund.

Overlooking income thresholds and phase-outs

The CTC starts to phase out when your income hits US$200,000 (single) or US$400,000 (joint). Above those levels, you lose US$50 in credit for every US$1,000 over the threshold.

FAQs

Can US expats claim the Child Tax Credit if their kids live abroad?

Yes. As long as your child has a valid Social Security number and meets IRS residency and relationship rules, you can claim the credit even if you live overseas.
Does claiming the Foreign Earned Income Exclusion disqualify you from the refundable Child Tax Credit?
Can I get the Child Tax Credit if my child has an ITIN?
Do US expats get the same Child Tax Credit as people in the US?
What happens if I file late as an expat claiming the Child Tax Credit?

Have a different question? Get in touch with our tax specialists today.

August 15 2024

Form 1120-F

Form 1120-F is the US income tax return that certain foreign corporations must file to report US-connected income and calculate any US tax owed. Most Americans living abroad will never file it personally, but it may apply if they own a foreign corporation with US tax obligations.

Does this form actually apply to me?

In many cases, the answer is no. However, Form 1120-F may apply if you own a foreign corporation that does business in the United States (directly or through a partnership), earns certain US-source income, or claims benefits under a US tax treaty.

Published June 16, 2026

Written by Aya Takriti, EA

Aya Takriti, an IRS Enrolled Agent with 12 years of expat tax experience, specializes in US tax preparation, tax planning and tax advice for US citizens and Green Card holders living and working in the Middle East. *Schedule a consultation with Aya today.

*30-minutes US$247.

What is Form 1120-F?

Form 1120-F is the income tax return foreign corporations use to report certain US-connected income and calculate any US tax liability. The form allows a foreign corporation to:

Report effectively connected income (ECI)
Report certain types of US-source income
Report gains, losses, deductions, and credits
Claim deductions related to US business activities
Calculate branch profits tax and certain taxes under section 884, where applicable
Request refunds of the US withholding tax
Claim tax treaty benefits, including disclosing treaty-based return positions when required (such as by attaching Form 8833)

Who needs to file Form 1120-F?

A foreign corporation generally must file Form 1120-F if it is engaged in a US trade or business, even if it has no effectively connected income (ECI) or no US tax due. It may also need to file to claim tax treaty benefits or request a refund of US tax that was withheld.

If the corporation is not engaged in a US trade or business and the correct amount of tax has already been withheld, it may not need to file Form 1120-F.

Many business owners assume they only need to file if they maintain a physical office in the United States. While that can certainly trigger a filing requirement, it is far from the only situation where Form 1120-F may apply.

Common Form 1120-F filing triggers

Situation	Is Form 1120-F generally required?
Foreign corporation operates a US office or branch	Yes
Foreign corporation earns effectively connected income (ECI)	Yes
Foreign corporation claims a refund of US withholding tax	Yes
Foreign corporation claims treaty benefits requiring disclosure	Usually
Foreign corporation receives partnership income connected to US business activity	Often
Foreign corporation has no US trade or business, no ECI, and any US withholding that was correctly reported is more precise.	Usually No

Key takeaway: In simple terms, Form 1120-F usually becomes relevant when a foreign corporation has enough connection to the United States that the IRS may have the right to tax some of its income.

Example: Australian company selling to US customers

An Australian company may have US customers without needing to file Form 1120-F. The key question is whether the company has sufficient US business activity, not simply whether it earns revenue from US customers.

However, factors such as having US employees, agents, offices, warehouses, inventory, or partnerships, or claiming tax treaty benefits, could affect whether Form 1120-F is required.

Get Expert Help with Form 1120-F

When is Form 1120-F due?

The filing deadline depends largely on whether the foreign corporation maintains an office or place of business in the United States.

Form 1120-F due dates for calendar-year foreign corporations

Foreign corporation type	Original due date	Extended due date
Corporation with a US office or place of business	April 15, 2026	October 15, 2026
Corporation without a US office or place of business	June 15, 2026	December 15, 2026

These deadlines apply to calendar-year foreign corporations. If your corporation uses a fiscal tax year, the due date is generally based on the end of that tax year. To request an extension, foreign corporations generally file Form 7004.

Step-by-step: How do you file Form 1120-F?

A practical filing process often looks like this:

Step 1: Gather supporting documents

This may include Forms 1042-S, partnership withholding statements, records of US-source income, and any documents supporting treaty claims.

Step 2: Determine the income that must be reported

Review the corporation’s US-connected income, withholding tax records, and any applicable tax treaty positions.

Step 3: Complete Form 1120-F

Report the corporation’s income, deductions, credits, and other required information. Depending on the corporation’s activities, you may also need to attach additional forms or schedules, such as Form 8833 for treaty-based return positions, Schedule I for interest expense allocation, Schedule P for partnership interests, or Schedule M-3 in certain cases.

Step 4: Review the return for accuracy

Confirm that all supporting information has been included and that any treaty-based positions have been properly disclosed.

Step 5: File the return and pay any tax due

Submit Form 1120-F by the applicable deadline and pay any tax owed. Many foreign corporations may be required to file electronically, so check the latest IRS requirements before filing. If you file by mail, use the address listed in the current IRS instructions, as mailing addresses can change.

What happens if Form 1120-F is filed late?

Filing Form 1120-F late may result in penalties and interest. Generally, the IRS may charge a failure-to-file penalty of 5% of the unpaid tax for each month the return is late, up to a maximum of 25%.

A late filing can also affect your tax benefits. If a foreign corporation does not file Form 1120-F on time, it may lose the ability to claim certain deductions and credits. Because of this, some corporations file a protective Form 1120-F to preserve those tax benefits while their filing position is being determined.

How does Form 1120-F differ from Form 1120?

While the forms serve a similar purpose, they apply to different types of corporations and have different tax reporting requirements.

Form 1120 vs Form 1120-F

Feature	Form 1120	Form 1120-F
Used by	US corporations	Foreign corporations
Purpose	Report on worldwide corporate income	Report certain US-connected income
Filing entity	Domestic corporation	Foreign corporation
Common users	US companies	Foreign companies with US tax obligations

Frequently Asked Questions

Can a US citizen file Form 1120-F?

Generally, no. Form 1120-F is a corporate tax return filed by foreign corporations, not individuals. US citizens typically file Form 1040 instead.

However, if a US citizen owns a foreign corporation, the corporation itself may need to file Form 1120-F if it has a US filing obligation. The US citizen may also have separate reporting requirements, such as filing Form 5471.

Does having US customers mean a foreign corporation must file Form 1120-F?

Not necessarily. The filing requirement usually depends on the corporation’s US business activities rather than the location of its customers.

Can Form 1120-F be filed electronically?

Yes, many foreign corporations can file Form 1120-F electronically, and some may be required to do so under IRS rules. Electronic filing requirements depend on factors such as the type of return, the number of returns filed, and current IRS requirements, so check the latest guidance before filing.

What is effectively connected income (ECI)?

ECI is income connected to a US trade or business. It is one of the most common reasons a foreign corporation may need to file Form 1120-F. Unlike certain other types of US-source income that are often taxed through withholding on the gross amount, ECI is generally taxed on net income after allowable deductions.

What is a protective Form 1120-F return?

A protective Form 1120-F return may be filed when a foreign corporation is uncertain whether it has a US filing obligation. Filing a protective return can help preserve the corporation’s ability to claim certain deductions and credits if the IRS later determines that it was engaged in a US trade or business and had effectively connected income (ECI).

Is Form 1120-F the same as Form 5471?

No. Form 1120-F is a corporate tax return filed by certain foreign corporations. Form 5471 is an information return often filed by US persons who own interests in foreign corporations.

Have a different question? Get in touch with our tax specialists today.

July 10 2024

MAGI vs AGI, What is the difference?

Published on July 10, 2024

Grace Lorraine Angeles, EA, CPA

Grace Lorraine, an IRS Enrolled Agent and CPA with 15 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working abroad. *Schedule a consultation with Grace today.

Book your private consultation with Grace

*30-minutes US$247.

What are the key differences between MAGI and AGI?

The main distinction between Modified Adjusted Gross Income (MAGI) and Adjusted Gross Income (AGI) is in the additional adjustments added back to AGI to derive MAGI. Both figures are important for US taxpayers, particularly when qualifying for various tax-related benefits.

What does adjusted gross income (AGI) mean?

Adjusted Gross Income (AGI) is the total of your gross income after subtracting specific allowable deductions. AGI is crucial as it determines your taxable income and your eligibility for various tax credits and deductions.

To determine AGI, you start with your gross income, which includes earnings such as wages, dividends, capital gains, business income, and other types of earnings. You then subtract certain allowable deductions to get your AGI. These deductions can help lower your taxable income, potentially reducing the amount of taxes you owe.

Which adjustments are subtracted from gross income to calculate AGI?

Here are some common adjustments that can be subtracted from your gross income to calculate your AGI:

Student loan interest: Deduct up to $2,500 of interest paid on qualified student loans.
Retirement contributions: Contributions to traditional IRAs, 401(k)s, and other retirement accounts can be deducted.
Tuition and fees: Subtract qualified education expenses up to a certain limit.
Health savings account (HSA) contributions: Contributions to an HSA can lower your gross income.
Self-employment taxes: Deduct a portion of your self-employment tax.
Alimony payments: Deduct alimony payments for divorces finalized before 2019.
Moving expenses: Deduct moving expenses if you are active-duty military personnel.

These adjustments are intended to account for significant expenses that reduce your disposable income. Subtracting these from your gross income provides a clearer picture of your financial situation for tax purposes.

How do you calculate AGI?

Assume your total gross income is $85,000, which includes wages, salary, and other income sources.

Adjustments to income:

Student loan interest: $1,500
Traditional IRA contribution: $3,000
Health savings account (HSA) contribution: $2,000

AGI = Gross income – (Student loan interest + IRA contribution + HSA contribution)
AGI = $85,000 – ($1,500 + $3,000 + $2,000)
AGI = $85,000 – $6,500
AGI = $78,500

What does modified adjusted gross income (MAGI) mean?

Modified Adjusted Gross Income (MAGI) starts with AGI and includes certain deductions that were initially excluded. These additions often encompass foreign income, tax-exempt interest, and student loan interest deductions.

To calculate MAGI, you begin with your AGI and then add back specific items that were previously deducted. This provides a fuller picture of your income for certain tax purposes.

What items are typically added back to AGI to determine MAGI?

Common adjustments added back to AGI to calculate MAGI include:

Foreign earned income: Add back any excluded foreign earned income.
Tax-exempt interest: Include interest from tax-exempt bonds.
Student loan interest deduction: Add back this deduction.
IRA contributions: Include deductions for contributions to traditional IRAs.
Rental losses: Depending on circumstances, rental losses may be added back.

These additions help ensure that MAGI reflects a more complete view of your income, which is crucial for determining eligibility for certain tax benefits.

How do you calculate MAGI?

Starting with the previously calculated AGI of $78,500:

Add the following items:

Foreign earned income exclusion: $5,000
Tax-exempt interest: $1,000
Student loan interest deduction: $1,500 (added back)
IRA contribution deduction: $3,000 (added back)

MAGI = AGI + (Foreign earned income + Tax-exempt interest + Student loan interest + IRA contribution)
MAGI = $78,500 + ($5,000 + $1,000 + $1,500 + $3,000)
MAGI = $78,500 + $10,500
MAGI = $89,000

Still confused about MAGI and AGI?
Our experts can clarify it for you.

How does AGI determine eligibility for tax credits and deductions?

AGI, or Adjusted Gross Income, determines your eligibility for many tax credits and deductions. Knowing your AGI is essential because it affects whether you qualify for specific tax benefits. You can increase your potential tax savings by reducing your AGI through allowable adjustments.

Here are some examples:

Earned Income Tax Credit (EITC): This credit is aimed at low- and moderate-income workers and is based on your AGI.
Child Tax Credit: If your AGI exceeds certain thresholds, the amount of this credit can be reduced.
American Opportunity and Lifetime Learning Credits: These education-related credits also depend on your AGI.
Medical and Dental Expense Deductions: These expenses can only be deducted if they surpass a certain percentage of your AGI.

How does MAGI affect eligibility for specific tax benefits and programs?

Modified Adjusted Gross Income (MAGI) is used to determine eligibility for various tax benefits and government programs.

Some examples include:

Roth IRA Contributions: Your eligibility to contribute to a Roth IRA is based on your MAGI. If your MAGI exceeds certain limits, you may not be able to contribute.
Premium Tax Credits: These credits help lower the cost of health insurance purchased through the Health Insurance Marketplace and are based on your MAGI.
Education Credits: Credits such as the American Opportunity Credit and the Lifetime Learning Credit have MAGI limits.
Medicare Part B and D Premiums: Higher-income individuals with a higher MAGI may have to pay higher premiums for Medicare Part B and Part D.

Why is it important to understand the difference between AGI and MAGI?

Understanding the difference between AGI and MAGI is crucial because they are used in different aspects of the tax system.

AGI is the starting point for determining your taxable income and your eligibility for various deductions and credits. On the other hand, MAGI is used to determine eligibility for specific tax benefits and government programs that AGI alone does not cover.

For example:

AGI: Affects your eligibility for deductions like student loan interest, IRA contributions, and medical expenses.
MAGI: Determines if you can contribute to a Roth IRA, qualify for premium tax credits for health insurance, and more.

Getting assistance from a tax professional is highly recommended. They can help you identify all possible deductions and credits you qualify for, maximizing your tax savings. Errors in calculating AGI or MAGI can lead to incorrect tax filings, penalties, and missed tax-saving opportunities; a professional can help you avoid these issues.

Have a different question? Get in touch with our tax specialists today.

July 4 2024

Is the Sharesies a tax trap for US citizens in New Zealand?

Published on July 04, 2024

Jonathan Rose, EA

Jonathan Rose, an IRS Enrolled Agent with 15 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia.

Jonathan also talked about family tax benefits in Australia. Schedule a consultation with Jonathan today*.

Book your private consultation with Jonathan

*30-minutes US$347.

Is Sharesies a tax trap for US citizens living in New Zealand?

Yes, investing in Sharesies can be a tax trap for US citizens living in New Zealand because many of its investment options fall under the category of Passive Foreign Investment Companies (PFICs). This classification leads to complex US tax reporting requirements, resulting in higher taxes and potential penalties if not managed correctly.

Why does the US tax code complicate foreign investments?

The US tax code is designed to discourage citizens from investing outside the United States. Foreign investments, particularly in stock market funds, come with significant US tax compliance obligations.

Any gains from these investments are heavily taxed, even if the investments haven’t been sold and no profits have been realized.

What is Sharesies?

Sharesies is an investment platform that has become very popular in New Zealand due to its easy-to-use interface and wide range of investment options. It allows users to invest in various assets, including stocks, ETFs, and managed funds, with the flexibility to start with minimal amounts of money.

What types of investments are available through Sharesies?

Sharesies offers a diverse range of investment options, such as:

Individual Stocks: Buying shares in companies listed on various stock exchanges.
ETFs (Exchange-Traded Funds): Funds that track specific indexes and are traded on stock exchanges.
Managed Funds: Professionally managed funds that pool money from multiple investors to invest in a diversified portfolio.

Are investments in Sharesies considered PFICs?

A Passive Foreign Investment Company (PFIC) is defined by the IRS as a foreign corporation that meets one of the following criteria:

At least 75% of its gross income is passive income, which includes dividends, interest, rents, royalties, and capital gains.
At least 50% of its assets produce or are held to produce passive income.

How do Sharesies investments qualify as PFICs?

Many investment options available through Sharesies, such as stocks, ETFs, and managed funds, are classified as PFICs because they generate passive income and are managed by foreign entities, meeting the IRS criteria.

Curious if a Sharesies investment is right for you? Don’t hesitate to contact us.

Are all foreign companies classified as PFICs?

No, not all foreign companies are classified as PFICs. Companies that earn their income through active business operations are not considered PFICs.

Why is it important for US taxpayers to identify PFIC investments?

PFICs are subject to stringent US tax rules designed to prevent tax deferral and ensure transparency. Holding PFICs can result in:

Higher taxes due to interest charges on deferred tax.
Complicated reporting requirements, necessitating the filing of additional forms and maintaining detailed records.
Significant penalties if reporting requirements are not met.

How does the IRS tax PFIC investments?

PFICs are taxed on their unrealized gains each year, meaning you are taxed on the increase in value of the investment, even if you haven’t sold it. For example, if your PFIC investment increases from US$2,000 to US$3,500 over a year, you may owe taxes on the US$1,500 gain, despite not having sold the investment.

What are the reporting requirements for PFICs?

Each PFIC investment requires its own Form 8621 to be filed annually. Completing Form 8621 can take around 20-32 hours per PFIC, making the process complex and costly, especially if you hold multiple PFIC investments.

When must you report PFIC investments?

You must report PFIC investments if your combined PFIC holdings exceed US$25,000. For instance, if you have US$20,000 in one PFIC investment and US$6,000 in another, you have exceeded the reporting threshold and must file Form 8621 for each PFIC.

Why is PFIC reporting such a big deal?

Investors often spread their money across multiple funds, leading to numerous low-value PFIC investments. Each investment requires separate reporting, so having multiple PFICs, even if they are of low value individually, can result in a significant reporting burden.

For example, having 20 PFIC investments, each worth US$120, would require filing 20 forms, greatly increasing the complexity and cost of compliance.

Have a different question? Get in touch with our tax specialists today.

June 13 2024

What’s causing fewer people to receive tax refunds this year?

Published on January 03, 2024

Jonathan Rose, EA

Jonathan also talked about family tax benefits in Australia. Schedule a consultation with Jonathan today*.

Book your private consultation with Jonathan

*30-minutes US$347.

Several factors contribute to fewer people receiving tax refunds this year. These include tax bracket adjustments, tax law changes, and broader economic shifts such as inflation rates and changes in the labor market.

How have tax refund trends changed over recent years?

Year	Number of Refunds Issued (Millions)	Total Refunds Amount (Billions)	Average Refund	Source
2021	48.5	144.6	US$2,815	IRS 2021
2022	49.2	173.3	US$3,536	IRS 2022
2023	43.3	130.7	US$3,028	IRS 2023
2024	40.5	116.6	US$2,878	IRS 2024

What legislative changes might be influencing tax refunds?

Several legislative changes could be influencing the decline in tax refund sizes:

Adjustment of Tax Brackets and Rates: The Tax Cuts and Jobs Act (TCJA) of 2017 adjusted tax brackets and rates, which continues to influence tax filings.
Increase in the Standard Deduction: The TCJA nearly doubled the standard deduction, meaning fewer taxpayers itemize deductions, which affects the size of their tax refunds.
Cap on State and Local Tax (SALT) Deductions: The $10,000 cap on deductions for state and local taxes came into effect with the TCJA.
Changes to Child Tax Credit and Earned Income Tax Credit: During the pandemic, credits like the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) were temporarily expanded. As these expansions phase out or revert to pre-pandemic levels, the size of refunds may decrease.
COVID-19 Related Legislation: Various COVID-19 relief measures, including stimulus payments and adjustments to unemployment benefits taxation, temporarily affected tax refunds. As these measures expire, taxpayers may notice differences in their refunds.

We’ll handle your US tax returns seamlessly. Connect with our experts today.

How are reduced refunds affecting household budgeting and financial planning?

Reduced refunds are significantly impacting household budgeting and financial planning. Households may need to revise their financial strategies, which could involve adjusting monthly budgets to accommodate lower-than-expected funds, delaying large purchases, or revising savings goals.

What do experts say about future tax seasons?

Experts from economics and tax planning fields predict that tax policies may continue to evolve in response to the economic impacts of the pandemic. This could involve more changes in tax laws to stimulate economic growth or address deficits. Additionally, increasing globalization may cause international economic trends to have a greater impact on domestic tax policies.

Should I hire a tax professional to help me with my refunds?

Yes, hiring a tax professional can be very beneficial. A skilled tax advisor can help identify deductions and credits that expats might not be aware of, which can significantly reduce taxable income and potentially increase the size of your refund.

Additionally, if there are errors in previous years’ tax returns or unfiled taxes, a tax professional can help address these issues, assist in filing amended returns, and negotiate with the IRS to resolve any potential disputes or penalties.

Always get professional advice from a US international tax specialist.

Have a different question? Get in touch with our tax specialists today.

June 7 2024

How to claim US tax refunds from selling DVC in the UK?

Published on June 07, 2024

Aya Takriti, EA

*30-minutes US$247.

Yes, you can claim it back from the IRS. British sellers of Disney Vacation Club (DVC) memberships are subject to IRS tax under FIRPTA regulations when they sell property in the US.

You can potentially get this tax back or reduce the amount owed by applying for a withholding certificate using IRS Form 8288-B before the sale or by filing a US tax return to claim a refund for overpayment.

What is Disney Vacation Club (DVC) and why is it popular among British investors?

Disney Vacation Club (DVC) is a timeshare program operated by Disney, offering ownership interests in resorts and properties. It promises magical vacations year after year, making it attractive to British investors.

The appeal lies in owning a part of the Disney experience and the potential for rental income and property value appreciation. When British nationals sell their DVC property, they encounter US tax regulations, specifically FIRPTA.

What is FIRPTA?

FIRPTA is a US tax law that taxes foreign persons selling US real property interests. Its goal is to ensure foreign investors pay US taxes on gains from selling US real estate, similar to US citizens and residents.

For foreign sellers, including British nationals, FIRPTA means that any gain from the sale of US real property is subject to US income tax. Typically, the buyer withholds 15% of the property’s sale price and pays it to the IRS as tax for the seller.

This withholding acts as an advance on the seller’s potential tax liability from the sale. However, the actual tax due may differ, requiring the seller to file a US tax return to reconcile the difference.

Why does the IRS withhold 15% tax from non-US sellers on real estate transactions?

The IRS withholds a 15% tax from non-US sellers to ensure that taxes owed on the sale of US property by foreign individuals are collected. This withholding secures tax payment, given the challenge of collecting taxes from individuals who may not have other US tax obligations and may not reside in the US.

The withheld amount is provisional. Sellers can file a US tax return the following year to report the sale, calculate the actual tax due, and apply for a refund if the withheld amount exceeds their tax liability.

How do I reclaim withheld tax as a non-US citizen?

To reclaim tax withheld from the sale of US property as a non-US citizen, you must file IRS Form 8288-B and your Property Sale Contract with the IRS. You will also need an Individual Taxpayer Identification Number (ITIN) to complete Form 8288-B.

Steps to reclaim withheld tax:

Obtain an ITIN: Apply using Form W-7 if you do not have one.
Complete Form 8288-B: Fill out this form to apply for a withholding certificate.
Submit Property Sale Contract: Include the contract with your Form 8288-B submission.
File a US Tax Return: After the sale, file a US tax return to reconcile the actual tax liability and claim any refund if the withheld amount exceeds the tax due.

Speak with an expert to help reclaim the tax withheld from your DVC today.

Why do British sellers need an ITIN when selling US property?

British sellers need an Individual Taxpayer Identification Number (ITIN) to comply with IRS requirements for reporting and paying taxes on US property sales. An ITIN is essential for non-US citizens who need to file a US tax return but are not eligible for a Social Security Number (SSN).

How do you apply for an ITIN?

To apply for an ITIN, you need to complete Form W-7 (Application for IRS Individual Taxpayer Identification Number). This form should be submitted along with your tax return (Form 1040-NR) and proof of identity documents.

Complete the ITIN application form.

What is Form 8288-B and how does it help?

Form 8288-B (Application for Withholding Certificate for Dispositions by Foreign Persons of US Real Property Interests) allows sellers to request a reduced withholding rate based on the estimated tax liability of the sale, instead of the standard 15% rate. This can reduce the amount of tax withheld at the time of sale.

Can the IRS refund the tax to a UK bank account?

No, the IRS cannot send funds directly to UK bank accounts. If you don’t have a US bank account, the IRS will mail a cheque to your UK address. However, many UK banks no longer process US government cheques. It’s advisable to contact your bank to confirm your options.

If you can’t find a UK bank to process your cheque, consider opening an account with Wise. Within your Wise account, you can open a US dollar savings account with a US Routing Number and US Account Number.

Open a Wise account here: Wise

Why should British sellers consider professional tax advice when selling DVC memberships?

FIRPTA regulations are complex and may have various exceptions and conditions. A tax professional can help you understand these rules and optimize your tax position.

Tax advisors can identify strategies to minimize FIRPTA withholding and potentially increase net proceeds from the sale. They can assist in preparing and filing Form 8288-B, advise on the timing of the application, and ensure all necessary documentation is accurate.

Additionally, incorrect reporting or failure to comply with FIRPTA requirements can result in penalties. A tax advisor can help ensure compliance and avoid costly mistakes.

Have a different question? Get in touch with our tax specialists today.

May 31 2024

FinCEN Form 114

What is Form 114?

FinCEN Form 114, officially called the Report of Foreign Bank and Financial Accounts (FBAR), is an annual report that many US citizens and other US persons must file if the combined value of their foreign financial accounts exceeds US$10,000 at any point during the calendar year. Although many people think Form 114 is an IRS tax form, it is actually filed electronically with the Financial Crimes Enforcement Network (FinCEN), not with your federal tax return.

Last Updated June 30, 2026

Written by Grace Lorraine Angeles

Book your private consultation with Grace

*30-minutes US$247.

What is Form 114 used for?

Form 114 is used to report certain foreign financial accounts when their combined value exceeds the reporting threshold.

The information reported on Form 114 helps the US government identify offshore financial activity that may be linked to tax evasion, money laundering, or other financial crimes. For most Americans living overseas, however, Form 114 is simply another annual reporting requirement that comes with maintaining foreign financial accounts.

Quick tip: Remember that filing Form 114 doesn’t mean you’ll owe additional tax. It is a disclosure requirement, not a tax form.

Do I need to file Form 114?

You generally need to file Form 114 if all of the following apply:

You are a US person, such as a US citizen, Green Card holder, resident alien, or certain US entity.
You have a financial interest in, or signature authority over, one or more foreign financial accounts.
The aggregate maximum value of your reportable foreign financial accounts exceeded US$10,000 during the calendar year.

Many Americans are surprised by the third requirement because the threshold applies to all foreign accounts combined, not to each account separately.

For example, suppose you live in Australia and have:

How the US$10,000 filing threshold works

Foreign account	Highest balance during the year
Checking account	US$4,200
Savings account	US$3,600
Investment account	US$3,100

Although none of these accounts individually exceeded US$10,000, their aggregate maximum values total US$10,900. Because the total exceeded US$10,000 during the year, you would generally have an FBAR filing requirement.

FBAR filing questions? Contact us now for expert tax assistance.

Which foreign accounts count toward the US$10,000 threshold?

The reporting threshold includes many types of foreign financial accounts, not just everyday bank accounts.

Common examples include:

Foreign checking accounts
Foreign savings accounts
Brokerage and investment accounts
Certain foreign retirement or pension accounts
Mutual funds held outside the United States
Some life insurance policies with a cash value

On the other hand, assets that are not financial accounts generally do not count toward the FBAR threshold.

Examples of what counts, and does not count, toward Form 114

Account or asset	Usually reportable?
Foreign bank account	Yes
Foreign brokerage account	Yes
Foreign mutual fund	Usually
Foreign pension account	Often
Directly owned foreign real estate	No
Personal vehicles	No

Whether a particular account must be reported can depend on its legal structure. If you have an unusual investment or employer-sponsored account overseas, it is worth reviewing the reporting rules before filing.

Does joint ownership or signature authority matter?

Yes. You may still need to file Form 114 even if you are not the only owner of the account.

For example, you may have:

a joint bank account with your spouse,
signature authority over your employer’s foreign bank account, or
signature authority or another power to control a parent’s foreign financial account by communicating directly with the financial institution.

Depending on the circumstances, these accounts may still need to be reported on your FBAR.

How do I file Form 114?

You file Form 114 electronically through FinCEN’s BSA E-Filing System. It is not attached to your US tax return, and it is not mailed to the IRS.

Before you start, gather the details for each foreign financial account you need to report. This usually includes the name of the bank or financial institution, the account number, the type of account, the country where the account is held, and the highest value of the account during the calendar year.

Once you have those details ready, the filing process is fairly straightforward.

Step 1: Determine whether you need to file. First, check the highest value of each foreign financial account during the year. If the combined total of all your foreign accounts exceeded US$10,000 at any point during 2025, you generally need to file Form 114 in 2026.

Step 2: Convert the account values into US dollars. If your accounts are held in a foreign currency, convert each account’s highest value during the calendar year into US dollars.

Use the US Treasury year-end exchange rate for December 31 of the reporting year, and round the converted amount up to the next whole US dollar before reporting it on your FBAR.

Step 3: Complete Form 114 through the BSA E-Filing System. You’ll enter your personal details and the account information for each reportable foreign account. Make sure the account numbers, financial institution names, and maximum values are accurate before submitting.

Step 4: Submit the form electronically. Form 114 must be filed online. Once submitted, keep a copy of the filing confirmation with your records. You should generally keep FBAR records for five years from the due date.

FBAR filing deadline: For the 2025 reporting year, Form 114 is generally due on April 15, 2026. If you do not file by then, you automatically receive an extension until October 15, 2026. You do not need to submit a separate extension request.

What should I do if I miss the Form 114 deadline?

If you miss the Form 114 deadline, you should generally file the report as soon as you realize the mistake. What you do next depends on whether you missed just one year or multiple years.

If you’ve missed multiple years of Form 114 filings. Many Americans abroad don’t realize they have an FBAR filing requirement until years later. If you’ve missed more than one year, it’s generally best to review your situation before filing. The appropriate way to catch up depends on your individual circumstances and whether your US tax returns have also been filed.
If you’re filing the current year’s Form 114. You don’t need to request an extension if you file after the April 15 deadline but before October 15. Form 114 automatically receives an extension until October 15, giving you additional time to file without submitting a separate extension request.
If you file after October 15, your FBAR is considered late, and you should include the required reason for filing late.

Is Form 114 the same as Form 8938?

No. Although both forms relate to foreign financial assets, they serve different purposes and have different filing requirements.

Form 114 vs. Form 8938 comparison

Feature	Form 114 (FBAR)	Form 8938
Filed with	FinCEN	IRS
Submitted with tax return	No	Yes
Filing threshold	More than US$10,000 combined foreign account value	Higher thresholds that vary based on filing status and where you live
Reports	Foreign financial accounts	Specified foreign financial assets

Even if you file Form 8938 with your federal tax return, you may still need to submit Form 114 separately if you meet the FBAR reporting requirements.

For Americans living abroad: Form 8938 generally applies if your specified foreign financial assets exceed US$200,000 on the last day of the tax year (or US$300,000 at any time during the year) for single filers, or US$400,000 on the last day (or US$600,000 at any time) for married couples filing jointly.

Frequently Asked Questions

Do I have to pay tax when I file Form 114?

No. Form 114 is an informational report. Filing it does not create additional tax or increase the amount of tax you owe.

Can I file Form 114 myself?

Yes. Individuals can file Form 114 electronically through FinCEN’s BSA E-Filing System without using a tax professional. Before filing, make sure you have the required information for each reportable foreign account.

What exchange rate should I use for Form 114?

Foreign account balances must be reported in US dollars. FinCEN instructs taxpayers to use the Treasury year-end exchange rate for the last day of the calendar year being reported.

These are commonly found through the Treasury Reporting Rates of Exchange. If no Treasury rate is available, use another verifiable exchange rate and keep the source with your records.

Do I need to report an account if I closed it during the year?

Possibly. If the account was open at any point during the year and contributed to your FBAR filing requirement, it generally must still be reported even if it was closed before year-end.

Does owning foreign property mean I have to file Form 114?

Not by itself. Directly owned foreign real estate is not reported on Form 114. However, a foreign bank account used to buy or maintain that property may still be reportable if you meet the filing requirements.

Have a different question? Get in touch with our tax specialists today.

May 22 2024

Substituted 3520-A

Published on May 22, 2024

Aya Takriti, EA

*30-minutes US$247.

What is a Substituted Form 3520-A?

A Substituted Form 3520-A provides an alternative filing option for US taxpayers with foreign trusts, aligning the filing deadline with the individual tax return due date. This adjustment means the substituted form can be filed by April 15, automatically extended to June 15 for US expatriates, with a further extension available to October 15 upon request.

This change simplifies the compliance process by synchronizing deadlines and helps avoid the substantial penalties associated with late submissions of the standard Form 3520-A.

What does Form 3520-A entail?

Form 3520-A is required for US persons who are treated as owners of any part of a foreign trust. The form provides the IRS with details about the trust, its US beneficiaries, and the trust’s financial activities.

It’s an essential compliance document for managing foreign trusts, including pension plans from countries like the UK, ensuring that all relevant activities are transparently reported to US tax authorities.

How should US owners of foreign trusts, like UK pensions, manage their Form 3520-A filing obligations?

The form is due by March 15 annually, but an extension until September 15 can be requested using Form 7004. Consider filing a Substituted Form 3520-A alongside your Form 1040 to ease the process.

This adjustment allows for a unified April 15 deadline, extendable to October 15, simplifying management and ensuring compliance. Given the complexity and potential penalties for errors, consulting a tax professional specialized in foreign trusts is advisable.

How do I obtain an EIN for my UK pension?

Securing an Employer Identification Number (EIN) for your UK pension involves several steps:

Prepare: Gather your annual pension statement, which provides essential details about your pension.
Call the IRS: Contact their international phone line at +1 267 941 1099 between 6 AM and 11 PM EST.
Provide Trust Information: You must name your trust uniquely; for instance, using your pension provider’s name and initials.
Verification: Answer verification questions about your trust during the call.
Registration: Follow the IRS representative’s instructions to register and receive your EIN immediately during the call.
Duration: Expect the call to take around 30 minutes.

Can I complete Form 3520-A on my own?

While it’s possible to fill out Form 3520-A independently, it involves details that must adhere to IRS regulations for foreign trusts. Here’s how to approach it if you decide to DIY:

Download the Form: Access the latest version of Form 3520-A from the IRS website to ensure compliance with current tax laws.
Collect Necessary Details: You’ll need comprehensive information about the trust, such as its name, address, and tax identification number, along with the trust’s financial statements including income and distributions.
Complete the Trustee’s Section: Ensure the sections regarding the trust’s financial activities are accurately filled out, whether by you or the trustee.
Fill Out Your Information: As the US owner, input your personal details and your relationship with the trust correctly on the form.
Attach Supporting Documents: Include all required statements that detail the trust’s financial activities, distributions, and beneficiaries.
Review and Sign: Double-check your entries for any errors, and sign, and date the form.
Submission: Follow the IRS instructions for submission deadlines and addresses.

You don’t have to fill Form 3520-A alone.
Our tax experts are here to guide you.

Is it possible to extend the deadline for filing Form 3520-A?

Yes, an extension is possible. You can apply for a six-month extension by filing Form 7004 by the 15th day of the 3rd month after the end of the trust’s tax year, using the trust’s EIN.

What are the consequences of errors on Form 3520-A?

Mistakes on Form 3520-A can lead to:

Penalties: Errors may trigger penalties from the IRS, potentially significant depending on the mistake.
Audits: Inaccuracies can also prompt IRS audits, leading to more extensive scrutiny of your tax affairs.
Corrective Measures: If you spot an error post-submission, promptly file an amended form with a detailed explanation of the error and its rectification.

Should I consult a professional for help with Form 3520-A?

Definitely. Due to the complexities involved with foreign trusts, it’s advisable to seek guidance from a tax professional who specializes in international tax law. They can ensure your filings are accurate, compliant, and strategically sound to mitigate any potential liabilities. Their expertise is crucial in navigating the intricate requirements of IRS forms and international tax obligations effectively.

Have a different question? Get in touch with our tax specialists today.

May 20 2024

Why does the tax treaty between the US and Canada exist?

Published on May 20, 2024

Aya Takriti, EA

*30-minutes US$247.

Why was the tax treaty between the US and Canada established?

The US-Canada tax treaty was created to prevent double taxation for individuals and businesses that operate in both countries. This agreement ensures that income earned in one country by residents of the other is not taxed by both jurisdictions, lessening the tax burden for cross-border workers and enterprises.

You can explore the detailed provisions of this treaty on the official IRS website: Canada Tax Treaty Documents.

How can I claim benefits under the US/Canada income tax treaty?

Understand Applicable Provisions: Start by understanding which treaty provisions apply to your specific situation, including rules related to dual residency, earned income, pensions, and investments.
Filing the Correct Forms: To claim treaty benefits on your US tax return, file IRS Form 8833, Treaty-Based Return Position Disclosure, alongside your regular tax filing to detail the treaty benefits you are applying.
Maintain Documentation: Keep thorough records and necessary documents from Canada, such as proof of tax residency or income statements.
Seek Professional Advice: The complexities of the US-Canada Tax Treaty mean it is wise to consult with a tax professional who specializes in international tax laws to ensure accurate application of the treaty to your taxes.

Do US dual citizens living in Canada have to pay taxes to both countries?

As a dual citizen in Canada, your global income is taxable by the US, but the tax treaty allows you to mitigate double taxation. Both the US and Canada offer credits for taxes paid to the other country, which can be applied to reduce your tax obligations.

What are the mechanisms to prevent double taxation under the treaty?

The treaty provides several mechanisms to alleviate double taxation:

Foreign Tax Credits (FTC): This allows taxes paid in one country to be credited against the tax liability in the other country, effectively reducing double taxation on the same income.
Foreign-Earned Income Exclusion (FEIE): For 2023, US citizens and resident aliens can exclude up to $120,000 of foreign-earned income from their US taxable income, helping reduce the US tax burden for those earning income in Canada.
Foreign Housing Exclusion (FHE): US expats can exclude or deduct certain foreign housing expenses from their taxable income, with the amount varying based on location and actual expenses.

What if there is a dispute over tax residency?

In cases where tax residency isn’t clear, “tie-breaker” rules outlined in the treaty are used to determine a taxpayer’s residency status for tax purposes. These rules help resolve scenarios where a person might otherwise be considered a resident of both countries, ensuring that taxation is fair and adheres to the established treaty framework.

Navigate cross-border taxes between the US and Canada with the guidance of a tax expert today.

How does the treaty address tax residency conflicts?

The US-Canada tax treaty provides a series of “tie-breaker” rules to determine tax residency when an individual qualifies as a resident in both countries:

Permanent Home: Priority is given to where the individual has a permanent home.
Center of Vital Interests: If a permanent home exists in both countries, the tie is broken based on where the person’s economic and personal ties are stronger.
Habitual Abode: If it’s still unclear, the decision is based on where the individual spends more time.
Nationality: If the above criteria do not resolve the issue, the person’s nationality is considered.
Mutual Agreement Procedure: As a final step, tax authorities from both countries will collaborate to decide the residency status.

Why am I subject to US taxes while living in Canada?

The US employs a citizen-based taxation system, meaning that all US citizens and permanent residents must report and potentially pay taxes on their global income, regardless of where they live.

Does the treaty provide specific benefits for retirement savings?

Yes, the treaty offers several advantages for retirement planning:

Tax-Deferred Growth: Investments within vehicles like Canadian RRSPs grow tax-deferred for US taxpayers until distributions begin.
Deductions for Contributions: Contributions to recognized retirement plans can be deductible in the taxpayer’s resident country. This includes deductions for RRSP contributions on Canadian returns for US citizens residing in Canada.

What is the ‘Savings Clause’ in the US-Canada tax treaty?

The ‘Savings Clause’ is a provision that allows each country to tax its own citizens and residents as if the treaty did not exist, with some exceptions:

General Rule: This clause primarily ensures that US citizens living in Canada remain subject to US tax on their global income, according to US laws.
Exceptions: The treaty allows certain exceptions where specific income types, like pensions and social security benefits, can still enjoy treaty benefits despite this clause.

Have a different question? Get in touch with our tax specialists today.