UNITED STATES TAX
ISSUES
On November 4, 2013 ETS Limited chaired a seminar at the
Chamber of Commerce entitled Coming To America. Steve Trow, Esq., an
immigration attorney from Washington, DC, discussed immigration issues and I
spoke about tax issues pre and post immigration. With 72 people in attendance
in a room seating 48 and a request for an evening session the demand for U.S. immigration
information was evident.
Do You Want To Be An American?
The United States offers both temporary and permanent visas
in a variety of categories. While the attendees had a variety of reasons for
attending, three themes emerged from the seminar. One, were questions from
individuals with a relative in their background who was a U.S. citizen and the
possibility of their also obtaining U.S. citizenship as a result of this
connection. Second, was the number of attendees with vacation homes in the
United states who were surprised to hear that in certain circumstances they
could spend up to 182 days in the U.S. each year without being considered U.S.
tax residents. Third, and of interest to the speakers, were the number of
Bermudian mothers who planned to give birth to their children in the United
States so that the children would automatically become dual U.S./Bermudian
citizens.
Can I Afford to Retire In Bermuda?
We increasingly receive queries from Bermuda nationals
nearing retirement age as to the possibility of migrating to the U.S. The
typical request comes from a single person or a married couple with no
children, few or no siblings, who live a middle class life in Bermuda. They
have a nice apartment that they rent, have a car and take the occasional
vacation/shopping trip to the U.S. However, they never bought a house or a
condo and do not have a large savings account. Their annual compensation has
always been under $80,000 and they expect their pensions to be in the $35,000
range.
Their question is can I afford to live in Bermuda when I
retire at age 60 with a 20+ year life expectancy and an annual pension of
$35,000? If the person is currently paying $2,000 a month for rent they realize
that they will immediately need to downsize to $750 to $1,000 a month for rent
upon retirement With the cost of living escalator likely to disappear from
their pensions and with rents likely to increase will they have to continue to
downsize their living arrangement as they get older? And with a likely fixed
pension how will they cope with cost of living increases in Bermuda for 20+
years? For many Bermudians the answer is, no, I can’t afford to retire here.
So, what are their options?
Where Can You Go?
The United Kingdom is an obvious answer and possibly the
United States. The United Kingdom offers
healthcare, free train and bus services for seniors and much lower rents, if
you are willing to re-locate to a rural location. Or one can opt for council
housing in a big city. But the daily cost of living is just as high as Bermuda
and it gets cold in the winter.
The United States is an attractive alternative in that a
state such as Florida offers a similar climate, with significant available
housing stock at a much lower price point than Bermuda and a much lower cost of
living. The negative, very high healthcare costs which may be offset by
Obamacare. A sticking point in the past is the ability to obtain medical
insurance, especially with those with a pre-existing condition and this hurdle
may disappear after Obamacare resolves its glitches. The other is the ability
to obtain a visa to permanently live in the U.S.
U.S. Social Security/Medicare
A significant issue for U.S. citizens who have lived in
Bermuda all their life and Bermudians who want to migrate to the United States
is that it is likely that neither are eligible to receive U.S. Social Security
benefits or to have their healthcare costs covered by Medicare.
To receive either benefit you have to contribute to the U.S.
Social Security system for 40 calendar quarters. For U.S. citizens living in
Bermuda they can begin contributing if they have self employment income or have
U.S. source earned income from business trips to the U.S. with their Bermuda
employer properly withholding U.S. Social Security tax. How can you generate
self employment income? Sell art or homemade preserves to the tourists at
Harbour night. Do landscaping work, house cleaning, office cleaning, etc. on
nights and weekends and report such income on Schedule C. Currently, annual net
self employment income of about $5,000 should earn you about 4 quarters of
credit.
2013 Tax Refund
If you expect a 2013 tax refund it will take awhile before
you receive it from the IRS because of the delays dating back to the U.S.
government shutdown. Instead of waiting you might consider lowering your
December 2013 withholding or not making your January 15, 2014 estimated tax
payment. It has been reported that on the date the IRS re-opened they had a
backlog of 1,500,000 letters that were either unanswered or needed to be
opened.
Report of Foreign Bank and Financial Accounts
As
reported in our September column, as of July 1, 2013 Form TD F 90-22.1 Report
of Foreign Bank and Financial Reports, commonly known as FBAR, must be filed
electronically. The Treasury recently announced that Treasury Form TD F 90-22.1 has been replaced with
FinCEN Form 114. Accountants can file this new form on behalf of their clients
only after obtaining written authorization on Form 114a.
2014 Tax Law Changes
Despite the seeming inability to agree both the House and
Senate are hard at work on drafting legislation for major changes in the tax law.
Not surprising, the Democrats want a bill with tax increases and the
Republicans want a tax neutral bill. How do they reach a compromise? Likely by
eliminating certain itemized deductions for individuals and tax credits for
corporations. Who will be a winner? Lobbyists. Banks and real estate interests
want to keep the mortgage interest deduction, state and local governments want
to keep write-offs for property taxes, income taxes, sales taxes and tax free
municipal bonds. Charities want to keep the charitable deduction. All are
spending vast amounts on lobbyists to keep their particular tax perk.
Pursuant to the
requirements relating to practice before the Internal Revenue Service, any tax
advice in this communication is not intended to be used, and cannot be used,
for the purpose of (i) avoiding penalties imposed under the United States
Internal Revenue Code, or (ii) promoting, marketing or recommending to another
person any tax related manner.
The tax advice given by this column is, by necessity, general
in nature. You should, of course, check with your own U.S. tax consultant as to how
specific transactions affect you since tax advice varies with individual
circumstances.
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