Summer Tax Blues

ORKLANDO

By Orlando Gotay

As I write this, I am hearing of a possible second round of tax cuts being prepared for consideration by Congress next September. I’m sure that has nothing to do with the elections a tad further down the road.

What are the likely items in the bill? Perhaps making many of the changes in the 2018 Tax Act permanent or maybe more reductions in the corporate rate, and a few other “Manhattan Island”-type trinkets. My favorite: allowing gym memberships to be paid from tax-free Health Savings Accounts. We’ll follow this as it develops. But you know that all these things have to be paid for somehow, and the easiest “pay-fors” come from segments of the population where there will be the least blowback. Expats and their income may be on the crosshairs.

So what else happened while I was away? The Supreme Court ruled in the Wayfair case, which says that states have the right to require out-of-state sellers to collect sales tax from those jurisdictions, even if sellers have no physical presence in them. This is huge. If you or your company sells widgets (or even services) from one state to another, it would be wise to watch these laws, as states may move to take advantage of the Wayfair decision and collect more revenue. In theory, even the occasional eBay seller could be required to fall in line and charge tax where their sales are made. So, you may see more online sellers charging sales tax. Amazon already does this for its own sales, but not yet on third-party vendors it hosts on its website.

One merciful thing about this? Foreign commerce is not affected by the Wayfair decision. So if you are having an item delivered directly to Mexico, your purchase is exempt from sales taxes because it is “foreign commerce.” You will pay Mexican VAT, hardly a consolation. At least you are not going to get whipsawed on both.

Switching to income tax, I still get questions about whether it legal to have over $10,000 in a foreign bank account. The answer is yes, but there is a reporting requirement if you are a “US person.” If you own or have signature authority over foreign financial accounts and the aggregate (the sum, if you will) of the balances at any point in the year exceed $10,000, you have to file a Foreign Bank Account Report with the US Treasury. Just the friendly reminder!

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in taxation) admitted to practice before the IRS, the US Tax Court, and other taxing agencies. His love of things Mexican has led him to devote part of his practice to federal and state tax matters of US expats in Mexico. He can be reached at tax@orlandogotay.com or Facebook: GotayTaxLawyer. This is just a most general outline. It is informational only and not meant as legal advice.

 

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