All the answers to your questions about tax and accounting for those living in the United States from Australia. In February I sat down with Jason Stoch of Uptrend Advisory, Managing Director of UpTrend Advisory who helped me answer common tax and accounting questions about what's required when you move to the US, and your ongoing requirements while in the US.
If you would like to be connected with Jason Stoch of Uptrend Advisory, you can read more and schedule him to do your taxes this year here.
Let us know what you thought of the webinar, click here to send a review!
Key topics that we covered:
- Which country do I have to file returns in and what other requirements are there?
- When and how do I file a tax return in the US?
- What’s the Substantial Presence residency test and the impact of immigration status on residency?
- What are the tax requirements of a resident vs non-resident?
- What the tax requirements of an Australian that is treated as a resident in more detail e.g. Investment properties, shares/stocks?
- The Tax Treaty between the US and Australia
- FBARs / declaring foreign income + offshore assets
- 8. When is a W-8BEN (or W-9) required?
Webinar Transcript
Josh Pugh: This meeting is being live-streamed. All right, we are now live on YouTube. Awesome! I'm going to go ahead and start, and we can sit here, and we'll get kicked off at 5:30.
Jason Stoch: Okay, cool!
Josh Pugh: All right, I just clicked start, and it said that attendees can now join. We've now got some people joining, so we'll get started in a couple of minutes. So we'll let a few people join, and then we will jump right in. Jason, thanks for joining me! We'll have a chat in a minute.
Jason Stoch: Sounds good!
Josh Pugh: Feel like we need some entrance music or something.
Jason Stoch: Some real hype-up music.
Josh Pugh: Yeah, we've got such an exciting topic. It's tax. It's tax time.
Jason Stoch: I know everyone's favorite thing.
Josh Pugh: All right, now that it's 5:30, I'm sure we're going to have lots of people join over the next few minutes, but we may as well get started because we don't want to hold people up. We know that everyone is very busy, but hi, everyone. I'm America Josh, and thank you for joining us!
For US taxes and expats, you learning to love tax time. I know it might be a bit of a stretch to think that you will love tax time by the end of this, but we can at least make it a little bit easier. I know that for me, personally, tax is a bit of a black box. It's a bit of a void. Jason will tell you, and I've told him not to nod too fiercely but tell you that I am not good with tax.
It's a confusing thing, even in the country that you were born in and that you've lived in for the first part of your life. But when you move country and you exist in multiple countries at a time, there are all sorts of elements that you need to think about. And a lot of the time, we don't even think about the questions that we need to ask, let alone understanding the answers.
So what we're going to try and do today is give a bit of an introduction in a 30,000-foot view of what taxes are all about and how to understand them. If you're an expat living in the United States, we're going to go through a whole range of topics. We've connected. You've sent in some amazing questions. You will notice down the bottom if you're connected on Zoom that you can, in fact, go to the Q and A tab, and you can ask some questions.
We won't get to them immediately, but if you do have some clarifying questions at the end, if we've got time, we might go through a few of them. But when you signed up, you would have submitted some questions, and you would have submitted what you want to find out from today.
So we've tried to take all of those and compile them into something so that you can really get a good summary of the information that you need to know and the questions that you need to ask when it comes to tax. So in saying that, I want to make sure good love that your phone rings right in there at the very beginning.
First off, we need to point out as a disclaimer that this webinar is very much intended to be a basic understanding of tax. It's a 30,000-foot view. It's generalized, and it may not be applicable to you. So if you want to be sure about the specifics to your tax situation, if you've got questions that really are important to you, you should speak to a professional like Jason. And if you are looking for assistance filing your tax, we've got some information at the end on how to connect with Jason to help you file your taxes.
We're going to talk about whether you need accountants. We're going to talk about all sorts of things throughout the webinar. But first off, I want to introduce Jason Stoch of uptrend advisory. Jason, thank you very much for joining us here and taking your time to help everyone out!
Jason Stoch: Thank you, Josh. Yeah, I'm really excited to host this webinar again with you, as I know every year that this helps so many people. For those who don't know me, my name is Jason Stoch. I'm a chartered accountant in Australia, as well as a certified public accountant in the US.
And I'm the Managing director at Uptrend Advisory. At a very high level, at Uptrend advisory, we specialize in helping Aussie living in the US. As well as, Americans living in Australia navigate both countries' tax systems. I know that tax is complicated enough as it is without having the added layer of two countries' tax systems, so I'm hoping that this webinar will help answer some of your more burning tax questions.
As Josh said, I wanted to let you all know that I read through each question submitted and would love to be able to answer each of them, but we only have 1 hour today, and so it's not possible. So we are just going to try cater to the majority of you.
Josh Pugh: No, I love it. And we've actually already had a question come into the Q and A, and I thought this might be just because you're introducing Uptrend and the concept of what you do in the United States. The question was, and I think if I hit answer live, so, yeah. Can we hire Jason to do our dual-country taxes? So do you just want to quickly touch on do you do taxes for both countries, or are you specific to the US?
Jason Stoch: Yeah, so in terms of the services we offer, we only prepare US Tax returns. We do work with firms that can assist on the Australian side if that's something you need. And then, in terms of the advisory piece, we do cover both US and Australia.
Josh Pugh: No! Awesome! And I think that's the important part is that there are obviously accountants all over the US who will offer assistance with filing your taxes, but it's important to find someone that understands the global perspective because there are, in many cases, lots of questions that need to be asked, lots of forms that need to be filed, and they're not prompted.
You don't get asked, are you an international resident who happens to have a trust in another country? You have to know to click on those forms and fill in those forms. So having someone like Jason who has an awareness of the global situation is really important.
I'm going to start. I loved going through some of these questions, and one of the questions that I loved just says, how do I tax? So we're going to start real easy with when is the tax season? And comparing to Australia, when is the US Tax season?
Jason Stoch: Yeah, so very different. So Australia, we're all used to the June 30 year-end being the end of the financial year. Over here in the US, it's a calendar-based system. So January 1 through December 31. And in terms of when you tax, when do you file? You need to file by April 15 of each year.
Josh Pugh: Okay! That's sort of the calendar year. So it's the calendar year for tax season in the US. As opposed to the offset calendar in Australia for those people that might have moved sort of partially midway through the year, or they've come at the beginning of this year, how does that impact what they have to do and where they have to file?
Jason Stoch: Yeah, so if you've just moved from Australia, at minimum, you're going to have to declare your income prior to relocating to the US to the ATO. And then on the US side, we're going to touch on this later, but the big trigger is, are you a US tax resident or not? Because if you're a non-resident, then everything you earn in Australia prior to relocating does not go on your US tax return. But if you are a US tax resident, then everything you're making from Australia needs to be declared on your US tax return as well.
Josh Pugh: Okay, so in saying that, is there a good time to move to the US. Or if you're thinking about moving, and I know we have some people that are obviously already living in the US and thinking about filing or might be preparing to move, is there a good time to be moving internationally?
Jason Stoch: Yeah, this is one of the famous “it depends” type questions because everyone's got a different circumstance. Like if you have shares, property, or other big rocks that really need thought. So if you have these things, then yes, timing is a key consideration on these things.
If you don't really have anything going on in Australia, then it's just about navigating that whole tax residency trigger to minimize what you do need to disclose versus not disclose. So with this kind of a question, I would just say, talk to an accountant to get specific, tailored advice for you.
Josh Pugh: Yeah, and I know we had the disclaimer at the beginning, but there are going to be some questions today that it depends, and we're not trying to sort of skip around questions. We'd love to be able to answer comprehensively, but the fact is that there is not an answer that is standard for everyone.
So we want to make sure that we've got information that is broadly available. And then, if you're looking to get some help, you should go speak to a professional. We've talked about when so how can people file their taxes. I know we've gotten a lot of questions about can you file yourselves? Do we need an accountant? What's TurboTax? What's the deal there?
Jason Stoch: Yeah, so you can file your tax returns through an accountant, just like Australia, or you can prepare your own taxes through something like TurboTax or Sprint Tax. Some of these softwares don't cater to non-residents.
For example, TurboTax only deals with US tax residents. I can't tell you the number of times I've had people come to me where they were actually a non-resident, but then they did a TurboTax return and then realized, “Oh, I declared myself a tax resident, but I didn't declare everything from Australia”.
So it's being careful about does the software actually do the return that I need to file. But that being said, if you have a very basic situation, no foreign income, no foreign assets to consider, you can definitely file through the softwares with confidence. If you do have foreign interest, you could still file through these softwares. But Josh, as you just called out, it is just the data entry software where it requires you to know what you need to do. It won't prompt you to file an FBI, as an example.
Another thing we'll get into later, but another limitation of some of these softwares is that they don't always have all of the forms that you need, and unless you know what you need, then it's not going to really cater for you.
Josh Pugh: Okay, so in terms of, is there sort of a couple of things that you see? A lot of things that people have in Australia, for example, so they live in the US, and are there a few checklist items that if you have one of these things that you should probably speak to an accountant or professional or really take a hot minute before you file yourself?
Jason Stoch: Yeah! So if you have investment properties as an example, or employment income prior to relocating to the US or, generally speaking, assets in Australia, such as proprietary limited trusts, ETF, mutual funds, shares, it is something you might want to talk to a professional about because certain things can be treated in different ways.
So it's not only about being compliant but also about optimizing things, because unless you know that, “Hey, I can claim foreign tax credits for this kind of income”, you're not going to claim it. Turbo tax would tell you to claim it, and so you lose out in that sense.
Josh Pugh: Yeah! So the net result can be actually, and I understand we're not trying to make this just a sales pitch for speaking to Jason later, but there can be savings, a net result of a saving, because, yeah, you've filed properly and you've actually taken advantage of foreign tax credits and all that kind of stuff that gets pretty nuanced. And you only know if you really know what to look for.
Jason Stoch: Yeah. But that being said, if you're aware of your requirements, then you absolutely can file yourself if you know what you're doing. So yeah, that's still possible.
Josh Pugh: No. Okay! We've talked about how you touched a little bit on a non-tax resident. This one's a big one, and I think probably the fundamental take home from this kind of webinar and this kind of information is around tax residency. So do you want to give us a bit of a summary of how tax residency works?
Jason Stoch: Yeah! So this, as you caught out, is the most important starting point in dealing with US taxes because whether you're a resident or a non-resident will impact your tax return filing. So if you're a resident for tax purposes, you either need to have an immigration intending visa, such as a green card, where you're automatically considered a US Tax resident because you hold it just like being a US citizen or have passed what the IRS calls the substantial presence test, which means being in the country in the calendar year. So Jan through December, more than 183 days of the year.
So that would make you a US resident for tax purposes. If you were under that day's threshold, then you're a non-resident. And there are some visas that have an exception to that substantial presence test rule, such as a J one or an F one for a certain number of years.
Josh Pugh: Okay, so, and we just had a clarification, the E-3 Visa, which I know a lot of Aussies are on, that is one that does have residency attached to it. So if you pass the substantial presence test, you are a tax resident or a resident for tax purposes. Is that correct?
Jason Stoch: Yes, absolutely! The E-3 visa is in scope of the substantial presence test.
Josh Pugh: Okay, so what changes? Well, I guess first, so substantial presence test that's the thing that people should take home. I know that on your website, Uptrend Advisory, there is some information about what exactly that is.
But there's also if you just Google Substantial Presence Test, the IRS has a pretty decent for the IRS's website, they've got a pretty decent amount of information about what that is. So what are the differences? What happens is the difference between a resident and a non-resident? Is it the filing methods or the amount you owe? Or is it a bit of both?
Jason Stoch: Yeah! So when you're a non-resident, your return is much more simple and that the only thing that you need to disclose is your US-sourced income. So, W-2s, 1099s, whatever you have in the US that goes on the return. It means that everything from Australia does not go on your US return. So in that regard, it is much more simplistic.
The only downsides of being a non-resident are, one, you don't get the same deductions that a tax resident gets, and then two, if you're married, there's no way for you to file a joint tax return, which is combining you and your spouse's income together. When you're a non-resident, you will always have to file separately.
Josh Pugh: Okay, great! So then we've got you could be a tax resident, obviously, of Australia or the US. Can you be a tax resident of both at the same time?
Jason Stoch: Yes, you definitely can. A good example of this is American citizens who live in Australia, because they have a US passport, they're always going to be considered US tax residents. And then, because they're living and working in Australia, they're going to be Australian tax residents. So, yes, you can. And then, at that point, it's about making sure you're leveraging the tax treaty to avoid being double taxed.
Josh Pugh: Okay! And we're definitely going to talk a lot about dual taxation and tax treaties and things in a minute, but I'm going to round this out about residency because it is really important. So when do you cease to be an Australian tax resident? When does that end?
Jason Stoch: So, under the current rule system, your Australian tax residency ceases when you leave the country with the intention to no longer reside in Australia. If you're temporarily going overseas, like on a J One visa, where it's a defined period of time, and it's short, you could still be seen as being an Australian tax resident because, on the US side, you're a non-resident.
Josh Pugh: Okay, got it! And I know we actually got a bunch of questions about this, and we've actually hosted a previous webinar, or we've recorded a video that's on YouTube talking about potential changes to the tax residency rules in Australia. Has there been any change to that or we don't have any proposed changes to that just yet?
Jason Stoch: Unfortunately, it's still sitting with Parliament to review. They did have rounds of feedback from various lobbying groups trying to propose changes to what they were proposing, but there's no unfortunate update to that at this point in time.
Josh Pugh: Okay, got it. I know there are a lot of campaigns, by the way; just so everyone knows, there are all sorts of campaigns going on about reforming tax and reforming treaties and things. We will make sure that if that happens and everything changes, Jason and I get on, and we make a video and post that on our social media channels.
So if we do see changes in information that comes out, we will keep you posted. In terms of residency, though, if you get a green card because obviously there's the term permanent resident, what changes with your residency and tax residency when you look at getting a green card?
Jason Stoch: Yeah. So it's the same as becoming a US citizen for US Tax purposes. It means you're going to be bound to the US Tax system and always have to file US Tax returns whether you're living in the US. Or have moved back to Australia.
So even if you move back to Australia, you would still be considered a resident for tax purposes in the US. And need to disclose your worldwide income and assets to the IRS compared to someone, let's say you're on an E-3, you move back to Australia, you don't pass the substantial presence test, and you don't have any US income, well, then you're done with the US tax system.
Josh Pugh: Okay! And this is a really important call out because I know that a lot of people apply for the green card lottery, and it is a very easy way from an immigration and legal standpoint. The green card lottery is fantastic.
You have the ability to effectively go to the US and do whatever you want once you get the green card. But there are big tax implications. So there's not only is it that you get tied to the US when you come over here and when you're holding the green card. What are the implications if you give up the green card?
Jason Stoch: Yeah! So giving up the green card, generally speaking, is just a matter of, for immigration purposes, relinquishing the green card and lodging those forms. But for tax purposes, you will have to file a final tax return with the IRS, where you show if you have an exit tax or not. So with having a green card, the IRS does impose an exit tax on you.
If you've held a green card for eight taxable years out of the last 15, where there are certain tests that are applied to you based on your net wealth and how much you're making annually, where the IRS could take a final slice of your worldwide assets for you to say goodbye to the US Tax system, so if you were getting a green card and knowing that you one day want to give up your green card, then you should be planning around this exit tax consideration.
Josh Pugh: Yeah! And I believe the Heart Taxation Act is the act that refers to what this is. And I've got an article that Jason, I believe, helped out a little while ago just to talk about what exactly it means. But it is really a consideration not only when you get to the point where you want to give up your green card but before you get it.
If you're thinking, I'm going to be in the US for ten years, and then I'm going to come back to Australia. This is the kind of thing that you need to think about before you start on that journey because, obviously, it has a huge impact and can be a massive tax bill. Does that kind of thing exist if you're on a visa or if you've been living in the US and then you want to leave the US? Do you need to notify the IRS about the fact that you're done?
Jason Stoch: So the exit tax will only come into play if you're a US citizen or a green card holder. It doesn't come into play with, like, the E-3 visa. If you were leaving the US, this is where it depends on your visa, but you may, at minimum, need to file a non-resident return with the IRS to let them know that you've left the country.
Josh Pugh: Okay! So you may have to, depending on the visa. Again, this is an individual thing, but there may be some requirements to actually tell the IRS that you're gone, and you're not coming back.
Jason Stoch: Yeah, exactly!
Josh Pugh: Okay, so then we sort of switch from we're talking about the US. Do I need to keep filing Australian returns if I'm living in the US? Do I pay twice? How does this all come together?
Jason Stoch: Yeah, this depends on….
Josh Pugh: Nobody wants to pay twice. We got a lot of questions about, like, how do I not pay my taxes twice?
Jason Stoch: Yeah! So with regard to filing an Australian tax return, this depends on what you have from an Australian income standpoint or how much time you spend in the US. You may no longer need to file if you don't have any income in Australia, or at least file what they call non-lodgments, which are zero-dollar returns.
If it's your first year in the US, but you spent most of your time that year in Australia, you would need to still file in Australia. If you have things like investment properties in Australia, you will still need to file, but you'd be filing as a non-residence, where the only thing on your return is Australian income. Everything from the US would not be on your Aussie return if you're a non-resident in Australia.
The only caveat to that is if you have student loans, HECS, or help debt. The ATO expects you to declare your US income for the purposes of paying down that debt. You're not being taxed on that income. It's just about the HECS Repayment Calculator.
Josh Pugh: Yeah! And that's an important one because I've spoken to a few people that had the idea that by leaving, and I believe this might have been the case 40 years ago, that if you left the country, you could kind of avoid paying back your HECS. Not so much the case anymore.
The Australian government has stopped that one and said that we will look at you if you've got a HECS debt. So just to recap, though, is there a sort of a checklist of things like really major things that would define whether you have to file in Australia?
Jason Stoch: Yeah. So I would say the first thing is are you in Australia? How much time have you spent in Australia in that calendar year? Do you still have income sources from Australia? Employment, income, rental properties, proprietary limited, things like that? And is your intention to be in the US or Australia? And then, lastly, do you have student loans still in Australia? If any of those things are yes, then you will still need to file in Australia.
Josh Pugh: Okay, awesome. If there are no, if you say, I'm not a resident, I don't have HECS, I don't earn any money, I just live in the US. What's the process with filing in Australia? You mentioned a zero filing or something. Do you have to keep doing that, or you do that once? How do you let them know?
Jason Stoch: Yeah. So in your return, when you indicate to them that you're a non-resident, there is one question there that says, will you have a future filing requirement? All you do is check no. And then that means every year in your myGov portal, you're not going to see a whole bunch of returns that are overdue.
Josh Pugh: Yeah, okay. You can kind of leave it there until maybe you go back to Australia, and you can say like, hey, I'm ready to start filing again, and that's okay to have that bright.
Jason Stoch: Exactly, yeah!
Josh Pugh: Got it. The myGov ATO site is actually pretty good now. They've done some decent work upgrading it. So it is worth it. If you don't have a myGov account, get one because it's got access to your super, which we'll talk about in a bit. It's got access to your ATO accounts and things. It's worth just having that information handy because it does put your mind at ease to know that there isn't a big list of things saying overdue, overdue, overdue.
What about people? We had a few questions about people. Obviously, with COVID working remotely is becoming more standard. If I visit Australia while I'm working remotely for a US firm, what's the process there? What are my obligations?
Jason Stoch: Yeah. So if you're working remotely for a US firm, then you will still have to at least file a federal return. However, depending on that US company's payroll department, you may only get to file a federal return, or depending on how they are registered, you still might have to file a state return if your income is sourced from that state.
So an example is during COVID, people went back to Australia, worked, and they were living in California before when they got their W-2. There was still a section there that said all of this income is from California. So that forced them to have to file in California, too, even if they weren't living there.
So if you're living in Australia and you have this situation at the federal level, you can leverage the tax treaties and everything like that. And then at the state level is one where it really depends on does that state recognizes the tax treaty or not? And we can get into that.
Josh Pugh: Yeah, it's a good thing to call that because we will get to this. But in the US, you don't just file to the IRS, so that's a federal filing. But in many states, there is a filing in your state for state taxes, and then in some cities, there are city filings.
So in New York, you will file city, state, and federal taxes. And that's not one sort of set-and-forget. You do need to actively be trying that. I know we've had a question again, and we recapped this, or we touched on this a little bit, but just to reiterate around dual taxation, is there the best time to move to or from Australia for tax purposes?
Jason Stoch: Yes! So moving from the US is one where you want to manage the calendar years where potentially you leave at the end of the year because some people get bonuses that trail off into the future years.
If you're selling a property, you need to think about selling it potentially before you land in Australia because once you're an Aussie tax resident, Australia will look to what you have from a worldwide income. So it's something that really just depends on you individually have going on and needs to be planned for appropriately.
Josh Pugh: Yeah! And this is as important as every other part. It's as important as planning out your visa. It's as important as finding an apartment. Like you should be thinking about this before you move. So it is something because, in many cases, Jason and I have talked about in past years, that there are situations where people could have saved literally thousands of dollars if they sort of rescheduled by a matter of weeks and months.
So hypothetically, it's really, really important to make sure you move at the right time. That leads me to talking about we've been talking about dual taxation. There is a tax treaty, it's something that I think the Facebook groups love to talk about and say like, but there's a tax treaty. Do you want to give us a bit of a summary of how the tax treaty works? What does get offset? How does that whole situation work?
Jason Stoch: Yeah, so there are countries out there that don't have a tax treaty as an FYI, but thankfully Australia and the US do have one which aims at preventing double taxation between the two countries.
So if you pay tax to Australia on your investments, such as a property, you will be able to leverage the tax that you pay to Australia through a foreign tax credit on your US tax return to offset what the IRS wants to calculate. And the exact inverse would apply.
Let's say you're in Australia, and you pay tax in the US. You would state your US income on your Australian return and get to claim a tax credit for the tax paid to the IRS. That way, Australia is not double taxing you. The only other big thing that is outside of the tax treaty is whether if you are involved with a specific state, if that state recognizes the tax treaty or not.
So every state is almost like their own country, where some abide by the federal tax laws and some abide by the federal tax release, but there are some that don't. And if they don't conform to this, then it means that you won't get to leverage your foreign tax credits at the state level and that state will fully tax you on that income again. And the two notorious states that do that is California, where I'm from, and New York, where Josh is from.
Josh Pugh: Yes, they hit you multiple times. You get three different tax bills. I know. I actually read a post on Facebook this morning which was talking about, surely, if I'm working in Australia, how would they know governments, like, between state and federal and then between the US government and the federal government of Australia and the states here and the federal government, Australia, do they all have facilities to share the information about what you're reporting?
Jason Stoch: Yeah. So there is information sharing agreements between the IRS and each individual state. There is also information sharing agreements between Australia and the IRS due to the Kafka agreement. So they do have all of that data.
Josh Pugh: Okay! Yeah! So if you've reported it in one, they're all going to find out. So it might not happen. And the statute of limitations on how long they have to come after you later on isn't going to be instant. So even if you haven't heard right away and you think you've gotten away with it, that can be something that comes back to you years after you've moved back to Australia.
So declare properly, declare truthfully, declare fully. And you'll sleep easy at night. On declaring, I know this is one that gets a lot of people very confused because you just mentioned Factor and then there's FBAR. They've come up with some of the worst acronyms going around. What is FBAR? How does it work? What am I meant to be filing?
And I know I'm going to make sure that I mentioned because before the questions start lighting up, but superannuation is one of the big things that a lot of people get tripped up on. So do you want to give us a bit of an understanding about and this is all related to filing, like, what do you have internationally? What is your presence globally?
Jason Stoch: Yeah, I guess at the super level in terms of reporting your super. So assuming you have a basic superfund mainly made up of your employer contributions, you need to declare it on your FBAR or form 8938 if you trigger the thresholds for that form. If you have a self-managed super fund or a fund that's mainly made up of your own contributions, that's where it gets tricky. And you should definitely use an accountant.
Do not use TurboTax if you fall into that bucket and just taking a step back. FBAR is a mouthful, but it essentially is a foreign Asset disclosure form. It is purely based around compliance, and it goes to an arm of the government that deals with anti-money laundering.
So all you're doing is if you have foreign assets when you add them together and the value exceeds $10,000 US, you have to complete the form. All the form is saying, “Hi, my name is Jason Stark. Here's my social, here's my address. This is what I have in my Australian super. This is the account number. This is the address. This is what I have in my Commonwealth Bank account number 1234”. That's it! That's all you have to do.
So they're not taxing you on balance. It's simply a compliance activity that you have to complete annually. And then that other form, 8938, that form is the fax form that essentially mirrors the FBAR. But it goes in your actual tax return to the IRS, where they ask you to disclose the exact same thing as well as what income was made from that Commonwealth Bank account and where did you disclose it in your US tax return so they can reconcile the two.
Now, in terms of stupid and how it's treated, this is a very gray subject matter because there's no clear black-and-white answer. So while Australia and the US have that tax treaty in place to prevent double taxation, the language of superannuation is not names in that tax treaty. And so that leads accountants to interpret things in their own way.
So there are some accountants who have the opinion, sorry, that all super is taxable, the growth no matter what. There are some accountants who say, “No, it's not taxable at all”. And then there are other accountants like myself who have a bunch of sub-tests that they apply to see whether your super is just something that we needed to clear the balance off or whether it falls into that other bucket where it could be viewed as what the IRS calls a foreign grants and trust, which is a whole another kettle of which…
Josh Pugh: No, it is really important and separating out each of these parts of how we call it all tax. But the FBAR, am I right in saying before I was about to say it as if it were facts, but I should make sure I clarify. You want to tell absolutely everything on the FBAR because you're not declaring that for tax.
You're just telling them, like I have all these accounts, there's this money that exists, it's in an account like super, my savings, the money that my dollar, my account from 1000 years ago. The FBAR is the one that you can tell absolutely everything, and that is separate from filing your taxes, which you might have to pay on the value of it. Is that right?
Jason Stoch: Yeah, exactly!
Josh Pugh: Okay! So, yeah, FBAR, fill in the form. Fill it comprehensively. Get it, like, just go crazy. Think about every account you've ever had. You have to do it like what I did. And I know Jason helped me with my taxes, so he sent a form that said list every account you've got. We save that form. And each year, he sends that back to me and says, “These are the accounts that you told me about last year. Are they the same?”
So if you don't have that from your accountant, then do it yourself. Make a spreadsheet that just goes through. Spend the time, spend a few hours once, because then next year, all you have to do is do the same thing again. You just file the exact same thing with the balances. And it's also really important to talk about the fact that it's $10,000 combined value at any time throughout the year.
So is that right? Is it so, and it's so it's not one account getting more than 10,000? It's all of them, everything you have. If that's worth more than 10,000 at any point throughout the year, you trigger the thing, and you need to file.
Jason Stoch: Yeah, so that is correct! So once you've triggered that threshold, even if you've got a bank account that's got no money in it because you're over the threshold, you need to disclose that account, too.
Josh Pugh: Okay, awesome! Just before I move on, I've had a whole lot of questions about will we summarize, will we record. There will be a recording of this whole chat absolutely posted to all of you, and there'll be a transcript put up in the next couple of days of everything we've said so you can read through it.
So, yes, you will absolutely be able to summarize all of this. Last thing on super, and I'm sure we might get time for some questions at the end because people love talking about Superannuation. It's the only time in my life I've talked so much about Superannuation. There were some sorry, more to the point. Are there any proposed changes around how super is treated? Because I know, as you just touched on, every different accountant seems to have a different opinion on what they think is the right answer. Are there ways that they're going to tidy this up or anything on the cards that we should keep an eye out for?
Jason Stoch: Yeah, so there are quite a few lobbying groups. The one, in particular, I'm thinking of is the Fix The Tax Treaty group on Facebook. So they are lobbying to change the tax treaty to include Superannuation in it so that, finally, there'll be a black-and-white answer to it.
The government did, last year, open a “Do you want your tax treaty reviewed?” type of inquiry. And so I know that group and a few others were submitting proposed changes about Superannuation. So the government has received it, and we're not sure how high it is on their….
Josh Pugh: List of things to do. We just got a question from one of the viewers, and I think, Jason, you just saw it, but what date do you declare the balance of the account? So it's anytime throughout the year. But when you're declaring and it asks you what are the values of the accounts, what is the value that you put down?
Jason Stoch: Yeah, so it needs to be the maximum value in the calendar year.
Josh Pugh: Okay. And I know from my personal experience I moved between my checking and my savings account. So at some point, the value might show that you had money moved from an account to account.
So the balance of each of those at one point was very high. You have to report the high amount even though you didn't actually have as much money as it looks like on paper, but you report the highest amount throughout the year at all.
Jason Stoch: Yeah, it's a silly former disclosure, thankfully!
Josh Pugh: I was going to say, on paper, I look great….
Jason Stoch: In reality….
Josh Pugh: It's just that I've got multiple accounts from my childhood. Okay, so moving on from Superannuation, where we want to talk about assets and investments because this was one that we got a lot of questions about from a lot of people because even if you don't have lots of things going on, people might have different forms of investments or assets in Australia or in the US.
So I want to start by talking about investment properties. So what is the deal with buying or owning an investment property in Australia if you're living in the US?
Jason Stoch: Yeah. So if this is in Australia, you have the tax advantages, such as negative gearing. However, if you were profiting on that property because you're a non-resident in Australia, you'd be paying 32.5 cents on the first dollar you make, so not great from that perspective. And then, if you're a US tax resident, you have to declare the same thing.
So the tax treaty would come into play here, where if you pay tax to Australia on that rental profit, you would get to claim it on the US side, so you're not being double taxed. But again, cabining, the state might have their own view on that. If you bought a US investment property, you would need to file for that, showing the income, less expenses, and paying taxes normal like you would in Australia, but to the US.
And if you are moving back to Australia and retained that US property, you'd still need to file a US tax return, even as a non-resident, show that you either have some tax to pay on profit or made a loss. And then, it's an exercise of declaring vaccine property to the ATO and then leveraging the tax treaty again.
Josh Pugh: Okay, I know. And we had a few questions about like is it a good idea to invest in property, is it a good idea to make investments. And I know there is a difference between strategy and sort of tax advice.
So we want to make sure that we're going down the path of this is a tax webinar, not a personal, prefer-like financial advice, but in terms of what is available to a person who buys a property in the US. Do you have any sort of just overarching information about the tax implications of buying or investing in property in the US?
Jason Stoch: Yeah, absolutely. So in the US, negative gearing is not a thing like it is in Australia. But homeownership does have benefits through a deduction called itemizing, where you can potentially deduct some of mortgages pay to reduce your tax bill.
Separately, if you are selling your primary residence, there are some capital gains exclusions that you can potentially avoid, some capital gains tax on how much you've made if you meet these tests, as well as potentially deferring those gains down the line through another special deduction called a 1031 exchange.
So overall, it just comes back to your strategy, and as you called out, Josh, there are tax implications of these things. But in terms of your strategy, it's really something you should chat to a financial advisor about.
Josh Pugh: Yeah, I'm not saying you're making up all these terms, Jason, but you've mentioned a lot of form numbers in 1031 exchanges. So yeah, there's no way, like unless you're taking this, like unless you're talking to a professional, there is no way you're going to stumble across a 1031 exchange.
So how if I do have Australian investments and income on my US returns, such as investment properties or capital gains from selling shares and stocks? I know we had a bunch of questions about that. How should I be declaring those?
Jason Stoch: So this again is in the context of being a US tax resident where you have to declare your worldwide income. So this means your investment property needs to be declared, your shares will need to be declared, your dividends, interest, all of that needs to be declared.
You are then, assuming you meet the threshold, need to complete that FBAR form, that 8938 form we talked about. And then it's just about making sure you're leveraging the tax credits for tax paid to the ATO on those same sources of income. But if you're a non-resident, then everything from Australia does not go on your US return. You don't need to worry about any of that.
Josh Pugh: Okay! And I know this is a huge category, and I know we've kind of spent like five to ten minutes on assets and investments and people. Jason, you could probably talk for five or 6 hours about all the nuances that go into assets and investments.
So I want to call this out because we had a lot of questions coming in about I have a property here, and it's my primary home, and I've won a negatively gear against my reinvestment of all sorts of smart and intelligent questions that are very nuanced. And unfortunately, they're just so nuanced that there's no way, without some more context, that Jason can answer them.
So we've tried to take that and refine it down to sort of the generalizations and the information that you need about filing. But as I said, if you've gotten to this point, you're like, wow, this is way more complicated, and you do want some assistance in filing, then reach out to Jason, reach out to a professional, and they can help you with the filing so that you answer the questions correctly.
We've gone from assets and investments and strategy and things to I loved that we had a few questions because the questions that I was asking when I first moved weren't around that kind of strategy. It was more around, like, what is the deal with tax in the US? Do I get a bill? Do I pay it all at once? Can I pay it over time? So what happens, like, if I file in time, what happens next?
Jason Stoch: Yeah, so unlike Australia, where you get that notice of assessment, where the ATO essentially gives you confirmation of, okay, we agree with how you filed. We agreed that this is your bill, and this is how you should pay.
That doesn't happen here, unfortunately, where your actual tax return that you're submitting serves as your bill. And as a result of that, you need to use that. And if you were owing something, pay what your tax return says through the relevant links, or if you want to use checks and be real American.
And it's just key that you pay by the deadline each year because the IRS and the states will levy interest and other penalties if you're late making those payments, so very different to Australia.
Josh Pugh: Yeah. Okay, so what happens if you don't file in time? So there's obviously paying in time, and then there's filing in time. So is it just it comes down to you get, like, fines right away, you start accruing interest and fines? Yeah, that's what happens next.
Jason Stoch: Yeah! So the IRS has a failure to file fines where if you don't file by the deadline, they can hit you with X amount of dollars. If you haven't paid by the deadline, then they'll charge interest based on how much you've owed and things like that. Unless you want to give them free money, you should just file on time and pay on time or file your extension to give you more time to file. But you still need to pay on time. That's another key difference.
So in Australia, when you get an extension, you get an extension of time to file and pay. Over here, an extension is just viewed as an extension of time to file. So if you owed anything, you should still pay what you owe by the April filing deadline.
Josh Pugh: Okay, that is a very good call out because I know I had a funny situation where I owed something like $0.15 in interest, and then I paid that, and then they sent me a check because I overpaid by three cents, and then they said that I owed them three more cents, and it can get ridiculous. I can properly attest to the fact that it can get really weird.
So make sure, yeah, just do it in advance. You've got some time. You've got Jason here, who can help you with your filing. So get on it now, and don't be the person that leaves it too late on that. Though I know we had a few questions come in, and I've had a lot of people over the course of my time in the US ask me in a little bit of a panic, what happens if you mess up? What happens if you file incorrectly?
You've suddenly realized that you're going back through things, and you've forgotten to mention something on one of the forms? Or you've learned something tonight, and you're sitting there going, oh, God, do you wing it? How can I fix it? What is the strategy there?
Jason Stoch: Yeah! So, unfortunately, when you get your visa, they don't exactly give you a guide as to here's all the things you should worry about, which is why we have these sessions.
Josh Pugh: They do, Jason. It's called us. Yeah, we're here. That's why I've made a whole living out of it.
Jason Stoch: Yeah!
Josh Pugh: Yeah!
So it really depends on what wasn't included but should have been included. So if you miss some of your foreign assets or foreign income or foreign forms, you could be exposed to some really punitive fines, which I know no one wants to hear. But the IRS is very different to Australia in that regard. Thankfully, though, depending on the situation, there are IRS amnesty programs that you can go through to get back into compliance.
So it depends on your situation. But if you do fall into that bucket, please reach out. Happy to help you get back into compliance and give you that peace of mind. Otherwise, if you don't do anything about it, no one knows if you're going to be the unlucky one that gets caught. But some of these fines do add up quickly. For example, that FBAR form, that simple disclosure, which hopefully now everyone feels confident on that.
Josh Pugh: We've said it enough times now, Jason. We've said it enough times. Fill in the FBAR.
Jason Stoch: If you didn't complete that simple basic form simply because you didn't complete it and you get caught, it's a $10,000 fine per year. So the IRS doesn't mess around with these simple things. So compliance is really key here. So if you fall into this situation, assuming it was an honest mistake, there are ways you can get back into compliance. So please reach out we can discuss your options and get you back in good standing.
Josh Pugh: Yeah, and I think just on something that I mentioned earlier, it's not like because it's been a year and you're like, haha, I got away with it. They do have recourse over the course of, is it five years? They can come back to you and still say, like, hey, four and a half years ago, you forgot to file your FBAR, we want $10,000. Is that right? Is it five years?
Jason Stoch: So for an FBAR, it's six years, and then for a tax return, and for a tax return, it's three years. But I will say it's kind of got an asterisk on it because if they think that there are intentional things, then the statutes go out the window, and they can go back as far as they want.
Josh Pugh: Yeah. Okay, good to know. So, yeah, don't lie to the IRS. We've got some participants on here who knows the IRS might be listening and taking note of who's listening. Alright, so moving on from paying the taxes and dealing with the mistakes, we wanted to talk a little bit about tax minimization and deductions because I know we had a lot of people sort of asking around, like, how can I do this well?
And obviously, again, with the caveat that getting personal advice is the way to get the best strategy. But I know, and just for those people who don't know the terminology, just to make sure this makes sense, W-2 refers to an employee. So if you have a boss and you go to work for a company, and you get paid on a biweekly basis, you say biweekly now because you're in the US. You don't say fortnightly. You're normally a W-2 employee. For an E-3 visa, for example, you would have to be a W-2 employee. That is one of the requirements of the E-3 visa.
There is also 1099 might be a term that comes up that you might have read about. So that's a contractor for E-3. Again, you can't be 1099. That might not apply to you. But we do have people that are on different visas. We do have people with different situations. So how can I save tax broadly? Are there sort of deductions that I should be aware of? Are there things that I should be thinking about when I'm filing each year?
Jason Stoch: Yeah! So with the W-2, I think Josh, I think you can take my job now.
Josh Pugh: But we both know that's not true….
Jason Stoch: So with W-2, that means you need to think about pretax deductions that you have available. And the two most common ones are 401K, where you can lower your taxable income by how much you contribute to your four hundred and one K and deferred that into that 401K bucket into the future when you eventually want to withdraw from that or something called a health savings account where you can pay for medical expenses with pretax dollars. Otherwise, your deductions outside of your income are really limited to your life choices.
So as I was talking about earlier, if you own your own home or if you bought an electric car, there are electric car credits or if you have US student tuition, to name a few. So it really just depends on what you have going on. When you're 1099, a contractor who's self-employed, you're able to deduct a lot more expenses that are part of your job, for example, working from home expenses or medical premiums or licenses and education.
For people that are self-employed, I would suggest looking at a form called Schedule C, c for cat. There's a whole bunch of expense categories there that you can look at and potentially start tracking.
Josh Pugh: Okay, good to know. And I just want to reiterate because there's going to be a bunch of people that just wrote down 1099 as a way to, you know, have more options. If you're on an E-3 visa, you can't do that. That is, you have to be a W-2 employee because you have to have an employer-employee relationship. So you have to just be paid like all of the other employees. But if you're a dependent of an E-3 and you've got work author, you can go down that path.
So again, this is where it gets very nuanced. There are combinations of things between not only tax and accounting but also legal requirements. So make sure you're talking to all the professionals that you need to be to make sure. And we had a quick question because I know that you just mentioned 401 Ks, so 401 Ks, Jason, in general, is super, right? As in a very, very, very, very simple way of defining what a 401K is. It's superannuation.
Jason Stoch: Yeah! It's the US version. It's not as good, but at least it's some kind of retirement vehicle.
Josh Pugh: Yeah! And a lot of companies it is worth looking into because companies, employers will do things like 401K matches, so they'll pay how much they'll match how much you put into your 401K. So look into it. Ask the questions when you're getting hired by someone in the US. There are all these questions to consider.
So if you haven't already started, it's great that you're already listening and thinking about these things in advance. On minimizations and deductions, we also had some questions around Social Security and Medicare. So some people would say I'm coming to the US only temporarily. I'm on an E-3 or a J-1, or an F-1, and I'm only going to be here a certain amount of time. Do I have to pay these Social Security and Medicare that I might not take advantage of in the future?
Jason Stoch: Yeah. So unless you're on a visa that it specifically exempts you from this, such as the J-1, you will, unfortunately, need to pay into the Social Security and Medicare system.
Josh Pugh: Okay. So yes, unless it's specifically part of the visa says you don't, and it's very explicit, there's only a handful of visas that actually define that. You don't have to pay those. Is that right, Jason?
Jason Stoch: Yeah, exactly!
Josh Pugh: 401k just. I've clearly got my questions a little bit mixed up because I included a Medicare question right in the middle of the 401K discussion. But we had some questions around if you are thinking about 401 Ks and you are going to move back to Australia. What should you be aware of from a US tax perspective? If you actually want to take money out of that 401K, can you plan for that eventuality?
Jason Stoch: Yeah. So going back to the pretax deduction of contributing to is a deferral. So you are taking money from your current year, putting it into that 401K bucket where that fund grows over time, and then when you withdraw from it is when you pay tax on it based on how much you've withdrawn from it.
So in the US, your retirement age is 59 and a half. And so if you withdraw from 401K at that age, it's then just about how much you have taken out in relation to your marginal tax rate. So when you're planning for retirement, naturally, you're thinking about how much do I need per year. And then, based on how much you take out, what is going to be the tax on that?
So it's more of a planning question. But for people moving back to Australia, if you do withdraw from your 401K early, there is a 10% early withdrawal penalty, early being when you're not 59 and a half years old. So you're paying a 10% early withdrawal penalty as well as regular income tax on the amount you withdrew.
So those are two kind of hurdles to consider. And then the other thing to consider is that the ATO does not recognize 401K as a foreign super fund. So if you were an Australian tax residence, the ATO would tax you again on that same 401K withdrawal.
So, in short, this is one of those situations where people can fall into different buckets based on what you have going on in your life. And so it's rarely something to talk to, probably a financial planner about.
Josh Pugh: Yeah, okay! And that's a good mention. Again, I think we've mentioned financial planners a few times, but they are a specialized separate from tax and accounting in this sense that we're talking about today. A financial planner is there to think more about strategy, more about long term. What is the best plan for you? It's a great idea.
They all work on different models of how they make money, and they are different ones. Financial planners are not only for people with immense amounts of wealth. They are people who can be there and can assist with if you're coming over for a job for only a few years. It's still worthwhile talking to someone because you don't want to lose out on thousands of dollars or even hundreds of dollars. If you could have optimized that if you thought about it earlier, W-8s and W-9s, I'm going to add some more acronyms. We've talked about W-2s. We've talked about and exchange forms.
What is the difference? What is a W-8? What is a W-9? I know we always get questions, not even just from this webinar, but I get questions all the time about my bank sent me one, or I've received a request for a W-8 or a W-9. Can you just give us a quick summary of what these are?
Jason Stoch: Yeah, sure! So these forms, what their intention is, is for the person asking them to know, are you a US tax resident or not? So if you're a US Tax resident, give them the W-9. If you're a non-resident, give them the W-8. That's all that it's for. And so based on that, it will then inform them how to issue you your tax documents at tax time.
For example, that bank, are they going to issue you a 1099 with your interest, or are they going to have to issue you a 1099 with your interest as well as some withholding because you're a non-resident and they're forced to withhold some tax?
Josh Pugh: Got it! So it's an information form. You're just telling them like you fill in the gap so that they know from a tax perspective you're answering some of their questions. You're not filing tax. You're just sending them a completed form. That happens to be a form that's templated by the IRS.
Jason Stoch: Exactly. Yeah!
Josh Pugh: Okay, cool. That's a really important differentiation because it's not filing your taxes. You're just sending your bank or whoever's asking for it. And this being said, just like Social Security, don't send them to everyone. Make sure it's only a bank that you're working with or a professional, or don't just send them out willy nilly, but it is just an information form that details who you are, what your tax situation is, and where you exist.
Inheritance. We've had a few questions. I think a lot of people may have had either an inheritance given to them or they want to plan for the future. Do you have to pay inheritance tax if it's from Australia? What is inheritance tax? Is that something in the US and in Australia?
Jason Stoch: Yeah. So, generally speaking, if the portfolio only consists of Australian assets, then there's no inheritance tax to pay. If it does include US assets, then you may have to pay tax on it. So it's one of those it depends, and adding more complexity is if you're living in a particular state, do they have an inheritance tax, too? So it's one of those ones where please speak to a professional about your personal circumstance.
Josh Pugh: Yeah, okay. Good. So we've talked through a lot of topics. I thought we'd end up today on talking about some. What are the mistakes, what are the things that people should look out for? Because we obviously all have the best intentions, and we're all going to file our FBAR, and we're all going to talk to the IRS truthfully. What are some of the biggest mistakes you see regularly from people filing their taxes with you?
Jason Stoch: Yeah! So it's a whole wide range of things that I've seen, but not using the correct filing status, resulting in overpaying tax information where it's missing, incorrect socials, not supporting documents, not including all of their W-2s, which aren't a big issue from a fine perspective. It just creates a lot of delays, math errors.
Thinking you only report Australian income on your Aussie returns and your US income on your US returns for the various reasons we've been discussing, not taking advantage of deductions that they're eligible for, for example, child tax credits if you have kids with Social Security numbers filing the wrong forms or the worst one, not filing at all.
Josh Pugh: That one you definitely want to avoid. Yes, definitely file. And I think don't put your head in the sand. Don't hope that it will go away. The IRS, you might have seen it in the news that they have less finance and stuff. That doesn't mean that they're just going to ignore you. Even though you're just a random sort of person that's coming and might have only worked for a couple of years, you can still be audited. They do still know what you are probably should be owing.
So they have a number in their mind. And your job is to try and work out if you file honestly and properly. You should match that number. So make sure you do it properly. Make sure you think about it. So what are the next steps for people? Jason, I know it's prime time. We're in tax season is what Accounts and Jason likes to talk about.
This is prime time for Jason because, obviously, we've got limited time until everyone has to file. So tell us about yourself, tell us about where up trends are and what people should do from here if they've liked what they've heard.
Jason Stoch: Yeah! So as you called out, this is the busiest time of year for my kind of people, so we're willing to help some of the people who've watched the session. So if you do want help, please reach out as soon as possible because we only have limited spots available.
People have been signing up for this tax season since before last year ended, so it's hard to find a good accountant, generally speaking, but especially when you're dealing with all this international complexity. So if you want to help, please reach out. If not, all good. I hope that this information really helps you.
Josh Pugh: No. And I think we've hammered it into people that yes, there are some situations where it's completely fine to do it yourself, and we're not going to pretend like it's not, but there are plenty of situations where it's important to do it properly. Do you have any last advice? What's your take-home tip that you tell everyone when it comes to tax?
Jason Stoch: Yeah! At a very high level, the first thing is make sure you're aware of your tax residency because that drives everything. Make sure you're aware of what you have in Australia or other countries so that you know what needs to be disclosed as a result.
And then make sure that you are leveraging all the credits you're able to avoid double taxation and to avoid paying more tax that you need in general, where possible. So good luck! Nice. I like it!
Josh Pugh: Jason, I want to thank you very much and thank you on behalf of all of the people watching and listening, and learning. We hope that we've answered a whole array of your questions. We've tried our very best. I know there have been a whole range of questions that coming through, and Jason and I will review these and try. And we've answered, I think, 28 of the 38 questions. So we've done well.
Jason, I think we've done a pretty good job of getting through the questions coming in live, but we'll keep reading these. Don't go away. We make videos all the time. We talk to each other, and we work out ways that we can make sure that we get the information out to you.
So check out both of our social medias. I'm in America Josh. Jason is at uptrend advisory. If you do want help filing your taxes this year, as Jason said, get on it quickly. When you finish, there's going to be an email that goes around and some feedback forms that can give you a chance to tell us what you thought of the webinar, whether your questions were answered, how to get more information, and how to get connected with Jason.
So you can also scan. I've actually got a nice bigger version. You can scan this QR code, which will take you to Jason's website, or you can go to Uptrendadvisory.com/josh, and that will tell you he's got an awesome FAQ that sums up a lot of the information. It's the ex-pat tax guide. It will give you a lot of information about what we've talked about today. Jason, thank you! This has been wonderful.
Jason Stoch: Thank you, Josh! Thank you, as always!
