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San Jose NRA tax attorney for rental incomeThe U.S. Tax Code is very complex, and taxpayers will often struggle to understand their tax obligations, their requirements for filing tax returns and other forms, and the steps they should take to avoid penalties. Nonresident aliens (NRAs), or those who are not U.S. citizens or U.S. nationals and do not maintain a substantial presence in the United States, may have certain tax obligations, including the requirement to pay taxes on income generated by rental properties. Failure to file the proper forms and pay taxes on this income may result in tax audits and penalties.

Tax Requirements for Rental Income From Real Property

When an NRA acquires real property in the United States, that person will usually not be required to file any forms with the IRS or pay taxes. However, there will be tax on any income earned through the rental of this property. The tax rate that applies to this income will depend on whether it is considered passive income (known as FDAP income) or effectively connected income (ECI) that is associated with a U.S. trade or business.

FDAP income is generally taxed at a rate of 30% of the gross amount of income earned by a rental property. These taxes will usually be withheld by a withholding agent (such as a property manager, renter, or lessee) who will send this amount to the IRS. ECI, on the other hand, is subject to graduated tax rates, and taxes apply to net income earned after deductions and expenses.

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San Jose foreign asset tax attorneyThe federal government has long been concerned with assets and businesses based abroad but owned by United States citizens. The IRS regularly looks to address income that is purposefully generated outside the country to avoid taxation. As part of the efforts to ensure that foreign investments are taxed correctly, the Tax Cuts and Jobs Act (TCJA), which was passed last year, made sizable changes to taxation rules, such as the addition of regulations mandating that global intangible low-taxed income produced by controlled foreign corporations be included in a taxpayer’s taxable income.

What Is a Controlled Foreign Corporation?

A controlled foreign corporation (CFC) is an American corporation that operates in another country with U.S. shareholders who hold 50% or more of the control of that corporation. American shareholders, directors, or officers of one of these businesses must report their income from the foreign corporation and pay taxes on that income. 

New Laws Under the Tax Cuts and Jobs Act

The TCJA provides that a U.S. taxpayer who possesses at least 10% of the value or voting rights in at least one CFC must now report global intangible low-taxed income from these CFCs as currently taxable income. This holds true even if there are no distributions to shareholders. 

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San Jose tax planning attorneyIf you are one of the millions of Americans who is saving for retirement, the IRS recently announced some good news for you. Starting in 2019, you can contribute more money to certain retirement accounts, including IRAs, 401(k)s, 403(b)s, most 457 plans, and the Thrift Savings Plan for federal workers. These changes will allow many people to save more money for retirement, and more tax deductions will be available.

Changes to Contribution Limits and Deductions

With this change, the IRS has increased the annual IRA contribution limit for the first time since 2013. The IRS also announced rules that make it easier to qualify for a Roth IRA as well as to deduct contributions to a traditional IRA. The changes include:

  • With respect to the contribution limits to IRAs and Roth IRAs, the limit in 2019 is $6,000. That is a $500 increase from years prior.
  • An extra $500 can be contributed to 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans. The new limit is $19,000 in 2019.

Starting in 2019, more people will be eligible for Roth IRAs. These IRAs have the distinct advantage of tax-free distributions during retirement. Only those under certain income levels qualify for a Roth IRA.

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San Jose taxation law attorney, filing tax returns, tax return help, reporting foreign assets, business taxesAs tax season draws to an end, many taxpayers have scrambled to compile financial information and file their tax returns prior to this year’s extended deadline of April 18. During this time, many people worked with accountants or tax preparers to ensure they were able to obtain the largest possible tax refund. In many cases, however, the assistance of an experienced tax attorney can be essential when preparing your tax return, addressing complex legal issues, and avoiding potential tax penalties.

Benefits Provided By a Skilled Tax Lawyer

While a certified public accountant (CPA) will have knowledge of financial matters related to taxes, such as allowable deductions and tax credits, an experienced taxation law attorney will have a deep understanding of the legal issues related to tax audits and IRS collection. A tax attorney can help with the following:

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