For most US taxpayers, 31 December is the last day to make any changes that will impact on 2016 tax returns. Gillian Everall from Everfair Tax recommends allowing plenty of time to consider any options for maximising your tax position and has put together some pointers to help get the ball rolling.
Start with Capital Gains Tax and decide whether you can sell assets to realise a capital gain or loss to ensure you minimise any capital gains tax payable. This allowance cannot be carried forward to subsequent years, so we would advise clients to use this tax-free allowance and reduce the risk of incurring significant Capital Gains Tax bills in subsequent years.
One that is often forgotten is charitable contributions. It’s worth considering any benefits in specific timing for making such contributions as they are counted as deductible for the year they were made.
Pensions are next. By paying money into a pension, you can help minimise your tax bill. For the US, there are set allowances in place, and unlike the UK, unclaimed allowances from previous years cannot be rolled forward.
And lastly, a federal foreign tax credit is granted for foreign income taxes. Those living outside the US are eligible for foreign earned income exclusion, which will again reduce your taxable income.
There are also some more general housekeeping points to consider. Have you moved house in the last year? Check that the IRS has been advised using the Form 8822 which should then be posted to the address shown on the form.
Has your Individual Taxpayer Identification Number lapsed? If so, you must renew it immediately using the W7 form. As from 1 January 2017, ITINs that have not been used at least once in the past three years on a tax return will be invalid. In addition, any ITINs with the middle digits of 78 or 79 will have expired in January 2017. Should you fail to renew before filing a tax return, your refunds may be delayed and you may not be entitled to some tax credits.
And non US citizens with US investments should also remember to check their W-8BEN as this expires every three years. Known as the ‘Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding’, this form confirms that you are not a US taxpayer and that lower withholding rates should be applied to dividend income.
We at Everfair Tax are always happy to help with information or advice, so give us a call or visit our website www.everfairtax.co.uk