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How to Report Global Intangible Low-Taxed Income to the IRS

Posted on in Taxation Law

: Silicon Valley GILTI tax lawyer

Reporting income and paying taxes can be a complicated process for every taxpayer. Regardless of your income level, improperly reporting your earnings to the IRS is considered a crime, which is why it is crucial to have a good understanding of the requirements that must be met and the taxes that must be paid. Tax calculations and reporting can be especially complex for U.S. taxpayers that earn an income from sources outside of the United States. Foreign income can fall into several categories, and one of these is known as global intangible low-taxed income (GILTI). GILTI includes the income earned from intangible assets owned by foreign affiliates of U.S. companies. Examples of intangible assets include patents, trademarks, and copyrights.

How is GILTI Taxed?

The way in which GILTI is taxed changed when the 2017 Tax Cuts and Jobs Act (TCJA) was passed. Before the TCJA, the United States taxed its firms and citizens on their global income, but U.S. firms were allowed to defer these taxes until their earnings were repatriated to the United States as dividends. In other words, foreign income typically had to return to the U.S. before it could be taxed.

Under the TCJA, earnings from U.S. firms’ foreign subsidiaries are generally exempt from taxation, whether or not these earnings are repatriated. To make up for this exemption, a new 10.5% minimum tax on GILTI has been implemented to discourage companies from shifting their profits outside the United States. Businesses must include GILTI when reporting their gross annual income to the IRS. A company may also claim a tax credit for 80% of any foreign taxes paid on GILTI. 

A Tangible Example

GILTI is calculated by taking a company’s total foreign income and subtracting 10% of the depreciable assets owned by the company. For example, if a U.S. company has physical assets valued at $50 million, and the company’s foreign income for that year came to $10 million, the GILTI would be determined by subtracting $5 million (10% of the assets of $50 million) from the income of $10 million, for a total of $5 million. This amount would be subject to the 10.5% tax, for a result of $525,000. 

Reporting GILTI

U.S. shareholders of controlled foreign corporations (CFCs) are required to report GILTI with their income tax returns each year. A CFC is a foreign corporation with U.S. shareholders that own more than 50% of the total combined voting power of all classes of its voting stock and the total value of the stock of the corporation. IRS Form 8992 must be completed and attached to the tax return if there is GILTI to report. U.S. citizens with ownership or signatory control of foreign bank accounts totaling $10,000 or more must also file a Foreign Bank and Financial Account Report (FBAR) on Form 114.

Contact a San Francisco Bay Area International Tax Lawyer

Filing taxes each year can be confusing and stressful, especially for those with assets outside the United States. Knowing how and when to report GILTI is crucial to avoid possible penalties or criminal charges. At John D. Teter Law Offices, we have several decades of experience helping people resolve complex tax law challenges. If you need to address issues related to foreign tax reporting or compliance, contact a San Jose, CA tax law attorney at 408-866-1810. 




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