Year-End Tax Planning for Expats

Not too soon to be thinking about your taxes.
Not too soon to be thinking about your taxes.

It is now time to look at ways you might minimize your tax liability. That’s especially true for 2019, the second year that the sweeping new tax legislation (commonly known as the Tax Cuts and Jobs Act) generally applies.

Speak with your tax professional about some or all of these ideas:

  • Ensure You Qualify for the FEIE

Review your travel dates or residency status abroad to make sure you qualify for the Foreign Earned Income Exclusion; the maximum exclusion amount has risen to $105,900.

To meet the physical presence test, you must spend at least 330 full days in foreign countries within a 12-month period. Review your travel dates and plans to ensure you have a 12-month period for the 2019 tax year that meets the requirement.

Alternatively, see if you qualify for bona fide residency in Israel. Being a bona fide resident in a foreign country gives you more flexibility with travel to the US. It does have other strict requirements though.

  • Bundle Deductions for Maximum Impact

Most expats don’t itemize deductions but use the standard deduction instead. With the increase of the standard deduction to $12,000 for individuals and $24,000 for married couples filing jointly, even fewer will benefit from itemizing.

If you are close to these new thresholds, consider moving deductible expenses up into 2019. For example, you could make charitable contributions, or certain tax payments (In the US or Israel) in 2019 instead of 2020.  Be aware when you contribute to international charities, keep in mind that not all are recognized by the IRS.

Also, be careful that accelerated tax deductions don’t trigger Alternative Minimum tax AMT.

The new tax law eliminated miscellaneous deductions, which exceed 2% of your Adjusted Gross Income (AGI). This includes deductions for unreimbursed employee expenses and tax preparation expenses. So, you don’t need to keep track of these expenses anymore. (For Businesses, expenses like a home office are still deductible on schedule C.)

  • Avoid Penalties for 2019 if You Owed 2018 Tax or are Self-Employed

If your tax withholdings are not sufficient or you are self-employed and don’t have withholdings, you must pay quarterly estimated taxes in the US. Failure to pay enough tax by each due date may result in penalties, even if you receive a tax refund at the end of the tax year.

To avoid penalties, pay estimated taxes by Jan 15, 2019 for the Sep 1 to Dec 31, 2018 period.

  • Use Stock Losses to Offset Capital Gains

Now may be a good time to consider selling certain underperforming investments in order to generate a capital loss before the end of the year—which could help offset the capital gains you realize when selling stocks that are performing well. In addition, you may generally deduct up to $3,000 ($1,500 if married and filing separately) of capital losses in excess of capital gains per year from your ordinary income. If your net capital losses exceed the yearly limit of $3,000 ($1,500 if married and filing a separate return), you can carry over the unused losses to the following year. Note that under the new law, investors will continue to pay long-term capital gains taxes at a rate of 0%, 15% or 20% (depending on their overall income) but with adjusted cutoffs. Married couples filing jointly and earning $78,750 or less ($39,375 for singles) will pay nothing. Married couples filing jointly earning between that and $488,850 (or that and $434,550 for singles) will pay 15%, while married couples filing jointly and earning more than $488,850 or more ($434,550 for singles) will pay 20%.

  • Give to your favorite charity

Charitable gifts such as cash or appreciated stock are still tax-deductible if you itemize, but not if you take the standard deduction. If you give regularly to charities, consider putting several years’ worth of gifts into a donor-advised fund (DAF) for a single year—that step may make it worth your while to itemize. Once the DAF is established, then you can spread out the giving from the DAF over the next several years, based on your charitable intent.

Another change: Taxpayers who itemize can now deduct cash charitable contributions of as much as 60% of their adjusted gross income, up from 50%. That could work to the benefit of, say, a retired person with significant assets and modest living expenses.

By considering the tips listed above, you can be sure that you are prepared for the upcoming tax year!

Have Specific Questions About Year-End Tax Planning?

Grant Thornton has the answers you need about your individual situation. Contact us now so that you can be sure you are ready to start 2020 on the right foot.

About the Author
Ariel Katz CPA is an expert in United States taxation and accounting. Mr. Katz focuses on individual, corporate, and non-profit companies, and advises many companies in the area of tax structuring and planning. Mr. Katz is highly involved in academic teaching and professional training. He conducts various activities, including: Senior lecturer in the accounting department in the field of corporate taxation and partnership taxation at the College of Management Academic College. His hobbies include learning Torah, chess, bicycle riding, and running.
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