US Tax Returns 2008

Written by John W. Mohr
CFO2GO Europe

Are you getting a tax rebate from Uncle Sam in 2008?

If you are an American expat, are a shareholder or director of certain LLCs and/or are self-employed, you have a particularly complicated tax reporting burden. The good news is that Uncle Sam will be sending over 137 million Americans a tax rebate this year.

Personal Tax Returns

If you are an American expatriate you are no doubt already asking yourself how much longer you can put off your preparing your local and US tax returns Americans (and foreigners if they have a resident status or income sources in the US) are obligated to file in both places each year. In the Czech Republic, your local personal tax return will be due 31. March 2008 unless you empower a licensed tax advisor to represent you before the Financial Authority. US filers outside the US have until 15 June to file their form 1040 with the IRS, extendable to 15 October with form 4868.

• Tax rebates. As part of a US 170 billion economic stimulus plan, Congress will mail checks directly to tax payers this Spring. To obtain a full rebate, single tax filers must have 2007 adjusted gross income (AGI) below $75,000 and joint filers must have AGI below $150,000. Tax payers who file before 15 April 2007 will be first in line.
• Foreign Earned Income Exclusion. The exclusion in 2007 is US 85,700
• Alternative Minimum Tax. The exemption decreased in 2007 to US 33,750 for single filers; US 45,000 married filing jointly; US 22,500 married filing separately. This could be a significant item for those cashing in company stock or exercising options.
• IRA. Deductions for an IRA expanded for those covered by a retirement plan and having a modified adjusted gross income was less than US 62,000 for single filers, US 103,000 for married filing jointly.
• Standard Mileage Rate. The SMR for unreimbursed business use of your car rose to US 48.5 cents/mile, and for medical care US 20 cents/mile.

American director or shareholder of a foreign company?

American directors and shareholders of most foreign limited liability companies and partnerships that are more than 50% American controlled or owned are obligated to report significant information on those foreign entities to the IRS. The penalty for not filing starts at US 10.000 and late filing can reduce the amount of foreign tax credit available. Also, the statute of limitations only starts after the information is submitted, so not filing can only compound the cost. The information return is filed with and due at the same time as the taxpayer´s 1040, including extensions.

Self-employed? Have you heard about Social Insurance penalty?

Many expatriate, self-employed do not realize that they are obligated to pay social insurance to the US government in the form of the Self Employment Tax. In the second year of self-employment, the taxpayer is obligated to make quarterly advanced payments of the SE Tax. These entrepreneurs are obligated to pay into the Czech system, too. This results in a large effective tax bill to the entrepreneur. Last August the US and Czech governments announced progress on a totalization agreement for social security that, among other things, will require payment into only one system and will make benefits transferable between the two countries. However, regulations have not been released and it remains to be seen if the benefits will be made retroactive to 1.1.2008 or will come into effect later.

CONCLUSION

If you have questions about whether you have an obligation or not, by all means peruse the IRS website at www.irs.gov or the Czech MF website at www.mfcr.cz, or contact a professional who is comfortable with both the local and US jurisdictions.

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CFO2GO assists executives and entrepreneurs and their businesses to fulfill their US and Czech tax and accounting reporting obligations. CFO2GO also provides extensive interim financial management and statutory governance to small and medium-sized businesses.

The comments in this article are not intended to constitute an opinion regarding any specific tax issues because additional tax issues may exist that could affect the tax treatment of the tax issues addressed in this memo. This memorandum does not consider or reach a conclusion with respect to those additional issues and was not written and cannot be used for the purpose of avoiding penalties under US code section 6662(d).

For further information, please refer to our web site at www.cfo2goeurope.com or contact John Mohr on at john.mohr[at]cfo2goeurope.com