Tag Archives: Canadian Tax Treaty

Tax Savings with International Tax Treaty Planning for the Resident Alien

International tax treaty planning for the resident alien that are citizens of Canada, the U.K., Australia, New Zealand, the European Community start with the tax treaty. Many have a unique tax advantage,    Tax treaties with these countries provide a unique and little-known tax savings. 

This video is an audio clip from my tax radio show, Tax Talk. You will learn why resident aliens are paying more in taxes than they should. 

If you have any questions, then please contact me, Brian Dooley, CPA, MBT,  [email protected] or visit our website – https://www.intltaxcounselors.com.  

International tax planning starts with these essential concepts:

Resident Aliens

resident alien’s income is taxed in the same manner as a U.S. citizen.

They pay tax on their worldwide income including income from interest, dividends, wages, other compensation for services, rental property, and royalties.  The resident alien must report these amounts whether from sources within or outside the United States.  Depositing of income outside the U.S. is taxable.

If you are a citizen of a country with a tax treaty, the treaty decides if you are a resident or non-resident.  Otherwise, if you have a green card or spend too many days in the U.S., you are a resident alien.

Nonresident Aliens  

Nonresident aliens are usually subject to U.S. income tax on U.S. source income.  In some cases, foreign source business income can be subject to U.S. tax.  You will learn more in my book, International Taxation in America for the Entrepreneur.

Dual-Status Aliens  

dual-status alien is an individual that is both a resident alien and a nonresident alien in the same tax year.  This can occur when you obtain your green card.

Income Types

U.S. Investment income is taxed at a flat 30% of the gross income.  If the non-resident alien resides in a treaty country, the tax rate is usually between zero and 15%.

Business income is taxed on a net income basis.  The alien has the same tax rates as an American.  In some cases, an NRA’s foreign business income is taxed by the U.S.  This occurs when the NRA has an office or some other type of business facility or is in the U.S. on a business trip.

Tax Withholding on Foreign Persons

Payments of U.S. income to foreign persons are subject to the  withholding tax rules.  In particular, foreign athletes and entertainers are subject to substantial withholding on their U.S. source gross income.  This withholding can be reduced by entering into a Central Withholding Agreement with the Internal Revenue Service.

The NRA that comes to the U.S. for business meetings owes U.S. tax on his foreign salary if he or she is paid more than $3,000 by his employer.

Taxpayer Identification Numbers (TIN) for the non-citizen

Anyone (including aliens) who files a U.S. federal tax return must have a Taxpayer Identification Number (TIN).  Also, non-citizens who request tax treaty exemptions or other exemptions from withholding must also have a TIN.

Sale of Real Estate 

Non-Resident Aliens are hit with a fifteen percent withholding tax on the sale of U.S. real estate.  In some cases, the withholding tax applies to refinancing.  The withholding tax does not replace the income tax.  Aliens must file an income tax return.  The tax withheld is a credit towards the total tax.  If the total tax exceeds the tax withheld, they get a refund.

Saving Taxes with Tax Treaties 

The U.S. tax liability of non-resident aliens is determined primarily by the provisions of tax treaties.  If the non-citizen is not a national of a treaty country, then the U.S. Internal Revenue Code applies.

Many foreign countries have tax treaties with the U.S. Tax treaties override or modify the provisions of the Internal Revenue Code.  Tax treaties allow you to pay less tax.

Estate Taxes

All though you are a resident alien for income taxes you may be a non-domiciled alien for estate (death) taxes.    Non-domiciled aliens are subject to estate taxes on all of their U.S. property (including stocks, bonds, and property) except bank accounts and life insurance.  They are not entitled to the $5,000,000+ exemption that is allowed for Americans.  Accounts with brokerage firms are frozen upon the alien’s death.   Tax treaties may allow the alien to avoid U.S. gift and estate taxes.

Become an Expert

Become an expert with my book, International Taxation in America for the  Entrepreneur, available on this link and feel free to call me with any questions that you have.

 

 

When International Cross Border Management Consulting Fees Can Send You to Prison

International cross border management consulting fees deducted on a U.S. tax return are traced by the IRS.    This expense can place you in jail if you can not prove why the fee was paid.  

The IRS is hunting for  management fees or consulting fees paid to or from  a foreign business.   The United States is the only country that puts you in jail for ignoring the economic substance of a transaction. 

Mr. Albert S.N. Hee was sentenced to 46 months in prison.  He was a successful businessman in Hawaii.    To get money out of his U.S. corporation, he paid his wife and children about $750,000.  He deducted the expense on his corporate tax return claiming that they were providing services to his business.

When the IRS found out the truth, he was arrested on various criminal charges.  The easiest one for the IRS to prove was filing a false tax return.  All the IRS has to prove is the Mr. Hee placed an item on his return (the expense) that was not true.  The IRS does not need to prove that taxes were avoided.

Take Mike as an example.  He is Canadian and lives in Vancouver.  He has invested in a U.S. business.  He has provided the startup money to an e-commerce business and owns 25% of the business (operating as a limited liability company).  Mike does not want the complexity (and therefore accounting fees) of filing a U.S and state tax return.

Mike is taking his share of the profits as a management fee. He spends time getting an update report from the other owners but he is not managing the business. 

He is paying Canadian taxes on the income but no American taxes.   The criminals are the LLC, its managing members, and Mike.   Often the IRS will add the criminal charge of “conspiracy to defraud” and mail fraud. 

What should have Mike have done?

For a Canadian, an American LLC is not the best choice.  Since Mike is not involved with management, a limited partnership is a good option.  Under the Canadian-United States Tax Treaty, Canada will offset his Canadian income taxes by the U.S. income tax.

The limited partnership will make the estimated tax payments for Mike.  Mike will get one or two-page report (call a Form K-1) from the partnership telling Mike the amount of his taxable income and the amount of estimated taxes.  Mike will file a U.S. and state income tax returns.

Yes, it is a hassle.  But other international businesses see this a part of the cost of being an international business.  Usually the CPA fees for the returns are less than $5,000.  By the way, the fees are a tax deduction. 

Judges are harsh on non-U.S. citizens saying to the defendant that they came to America to make money.  Unlike citizens who have no choice but to pay taxes, the nonresident alien came here by their own choosing.

If you need help in organizing your international business transactions, the email me, Brian Dooley, CPA, MBT at [email protected]

For the Business Manager of the Foreign Author, Actress or Actor How the IRS Taxes the Resident Alien Entertainer

International tax planning and strategy

Applying for an IRS ruling on your international tax planning will save you taxes in the long run.

This is the second part of my blog’s article on international tax planning for the foreign actor, foreign actress, and foreign author.  

The first part of this private IRS report (written for the foreign actor, actress, and author) can be found on this link.   The first part is easy to ready with a limited amount of tax jargon. 

This blog is for the business manager, the tax CPA (not all CPA’s have a graduate degree in taxation) or the tax attorney.  This part of the IRS report has tax jargon causing the report difficult to understand.

This part of the IRS report is on how the IRS audits the foreign actor and the foreign actress. It is for the business manager, the tax CPA  and for the tax attorney.   

These two blogs contain the private IRS report given to its international tax agents that are auditing the foreign actor, foreign actress, and foreign author.  

To better understand this blog, I recommend that you read part one first.  This blog is the technical explanation of part one.   If you would like to brainstorm the IRS report, then just give me, Brian Dooley, CPA, MBT, a call at 949-939-3414.

The IRS has examples discuss the U.S.-United Kingdom Income Tax Convention. The term “tax convention” means “tax treaty.” The examples in this report using the U.K.-U.S. Tax Treaty apply to residents of other nations with tax treaties.  The best tax treaties for the resident alien and the non-resident alien actress, actor and author are  Canada, Australia, the United Kingdom (which covers Scotland, England, Wales and Northern Ireland), Ireland, Sweden, Korea and Japan.

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How the Foreign Actor, Actress or Writer Can Avoid Taxes and Avoid an IRS Tax Audit

Foreign actors, actresses, and writers are the much-forgotten industry on the tax websites.

international tax, expatriate, offshore tax planning,

Foreign authors and writers can avoid taxes by working and enjoying the Bahamas (or any other tax haven). Foreign actors, actresses and other using the Nat King Cole tried and true tax strategy can also avoid taxes.

To change this, I decided to expose a private IRS report on how the IRS audits foreign actors, foreign actresses, and foreign authors and how they can avoid audits and legally avoid taxes.

The foreign actor, actress, and writer have unique tax strategies because they are not U.S.citizens. You will learn them in this blog article.

Writer’s and author’s tax planning is even more obscure. So, if you are a foreign writer of books or screenplays, this blog includes remarkable tax strategies for you along with IRS examples of tax planning.

I divided my blog postings into two parts. This first part uses everyday English to explain the IRS auditing of an entertainer and writer and the tax saving strategies.

The second part is the tax authorities (such as court cases, IRS rulings, and IRS regulations) supporting the explanation of the tax law in the first part. The “Endnotes” are found in the second part of this blog. Endnotes have sophisticated tax ideas and strategies.  The second part is found on this link.

If you are a foreign actor or actress, your business manager and your tax planner needs both parts one and two of my blog posting.

If you want to learn how Nat King Cole whipped the IRS’s ass with his offshore trust and tax haven corporations, then please get my book, International Taxation in America for the Entrepreneur.    The Nat King Cole strategy works well for an American.  It works fantastic for the resident alien and for the non-resident alien actor, actress, and author.

The book is an easy two-hour read and includes the Nat King Cole tax plan. Amazon has the book on sale for only $9.50.

Nat King Cole’s tax court victory is the blueprint for international tax planning. He was successful with the double loan-out corporation international tax strategy.

Lastly, if you want to brainstorm your tax situation or plan, then please feel free to call me, Brian Dooley, CPA, MBT at 949-939-3414 for a free brainstorming consultation.

Introduction to IRS Audits of Resident Alien (Foreign) Actors and Actresses

Resident aliens and non-resident aliens are considered as foreign individuals.  

Every year many motion pictures are made, television series and movies produced, and stage productions developed in the United States. These productions bring many highly compensated foreign actors and actresses into the United States.

By its nature, the entertainment business leads to complex and creative accounting. An examiner must deal with the complexity and creativity of the industry and be aware of the laws that govern specific types of income and expenses.

Overview of Law on Characterizing Income of the Actor and Actress

The character of the income determines if the actor or actress must pay U.S. income taxes.  Each type of income has its own international tax rules.  These rules decide when the income is nontaxable to the resident alien.  

If the foreign actor or actress is a citizen of a country with a tax treaty,  he or she has unique tax savings laws.

Western Europe, Canada, Australia and Korea have favorable tax treaties.  This is discussed later in this report in the many examples.

An actor or actress (here in after, both will be indicated by “actor”) may receive revenue from the following activities.

Wages or Salaries: Actors and actresses may receive wages for performances in movies, videos, television productions, stage performances, personal appearances, etc. in the United States. Actors and actresses may receive wages from a loan-out corporation that may own the rights to their services. (Loan-out corporations will be discussed later in more detail.)

This income is considered to be personal services income, and U.S. source income effectively connected with the conduct of a U.S. trade or business, taxable in the United States at U.S. graduated rates.  <<Endnote 1>>

Author’s note: Income Tax Treaties have favorable rules for actors, actresses, authors and other entertainers.

 The nations with the best tax treaties are  Canada, Australia, the United Kingdom (which covers Scotland, England, Wales and Northern Ireland), Ireland, Sweden, Korea and Japan.

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