The Arizona taxpayers (like taxpayers residing in many other states) have had the benefit of being able to make a charitable contribution to a qualified charity and take that amount not only as a tax credit against their Arizona taxes and get a dollar for dollar back on their tax return, but have also been able to take a federal tax deduction to save federal taxes. However, that could possibly change soon.
You can no longer double-dip, says the IRS!
On Thursday, August 23rd, the IRS issued proposed regulations that could affect your ability to utilize your state dollar-for-dollar tax credit as a federal deduction if you itemize.
Your State dollar-for-dollar tax credit contribution may need to be made by Monday, August 27, 2018 if you are planning to utilize it for a 2018 Federal deduction.
This is just a proposed regulation at this time but will be the final in all likelihood as IRS has been targeting the change for a long time. It states only tax credit contributions made after August 27, 2018 will be affected by these regulations.
To recap, Arizona has five principal tax credit opportunities:
* Public School donation
* Private School donation
* Donation to Military Family Relief Fund
* Donations to Qualifying Foster Care Charitable Organizations
* Donations to Qualifying Charitable Organizations
For those of you that aren’t familiar with all the different deduction opportunities for the Arizona credit, information can be found on Department of Revenue’s information regarding tax credits: https://azdor.gov/tax-credits.
As a reminder, contributions made to a charitable organization overseas are generally not deductible unless a tax treaty provides for the deduction.
Certain U.S. citizens or resident aliens, specifically contractors or employees of contractors supporting the U.S. Armed Forces in designated combat zones, may now qualify for the foreign earned income exclusion.
The Bipartisan Budget Act of 2018, enacted in February, changed the tax home requirement for eligible taxpayers, enabling them to claim the foreign earned income exclusion even if their “abode” is in the United States. The new law applies for tax year 2018 and subsequent years and under this law, the taxpayers can choose to exclude their foreign earned income from gross income, up to a certain dollar amount. For tax year 2018, that dollar amount limit is $103,900.
Under prior law, many otherwise eligible taxpayers who lived and worked in designated combat zones failed to qualify because they had an abode in the United States. The new law makes it clear that contractors or employees of contractors providing support to U.S. Armed Forces in designated combat zones are eligible to claim the foreign earned income exclusion.
The foreign earned income exclusion is not automatic. Eligible taxpayers must file a U.S. income tax return each year with either a Form 2555 or Form 2555-EZ attached. These forms, instructions and Publication 54,Tax Guide for U.S. Citizens and Resident Aliens Abroad, will be revised later this year to reflect this clarification.
What is Foreign Earned Income?
Foreign earned income is the income a taxpayer receives for performing personal services in a foreign country or countries during a period in which he or she meets both of the following requirements:
• His or her tax home is in a foreign country, and
• He or she meets either the bona fide residence test or the physical presence test.
Taxpayers choosing the foreign earned income exclusion cannot take advantage of any other exclusion, deduction or credit related to the excluded income. This includes any expenses, losses or other items that would have been deductible had the exclusion not been claimed. CPA Global Tax (www.cpaglobaltax.com) specializes in international tax issues and will be glad to assist if you have any questions!
United States is an attractive place to do business and multinational companies from various countries have operated successfully over a number years. Many foreign inbound companies operate either remotely or by physical presence in United States and are selling in number of states. Until recently these companies were advised by the experts that they were not required to register and collect sales tax in number of states based on their activity due to the protection accorded by the then governing case Quill v. North Dakota. But now this is the thing of the past. On June 21, 2018 the SCOTUS (Supreme Court of United States) determined the physical presence rule was “unsound and incorrect,” and “economic and virtual” contacts between a business and a state were sufficient grounds for nexus – the connection between a state and a business that triggers a tax collection obligation.
Once a business determines it’s reached an economic nexus threshold in a new jurisdiction and has an obligation to collect, it must register to do so with the state tax authority. Under no circumstances should it collect and remit tax in a new jurisdiction before registering to do business there. More than one license and permit may be required in each jurisdiction, and in some states, it may be necessary to register with local tax authorities, as well as the state taxing authority. As a result, registering in a new jurisdiction is likely to be a multi-step process that involves multiple departments, including state and local tax departments, and the secretary of state.
Affected foreign owned businesses must consult and seek help from the advisors in order to avoid playing afoul as non-compliance can be very costly.
For individual taxpayers who have a net tax liability under IRC section 965 in the individual’s 2017 taxable year of less than $1 million (i.e., the total of all eight installments is less than $1 million) and make a timely election under IRC section 965(h) but missed the April 18, 2018 deadline for making the first of the eight annual installment payments, the guidance in IRS FAQ#16 still applies: The IRS will waive the late-payment penalty (but will not waive the interest) and will not accelerate subsequent installments under IRC section 965(h)(3) if the individual pays the full amount of the first installment (and the second installment) by the due date for its 2018 return (determined without regard to extensions) (i.e., April 15, 2019 for most calendar year taxpayers).
Watch out however for state tax liability. Nearly all states require payment of the liability in the year of the section 965 inclusion and do not allow for the section 965(h) election, or otherwise spreading the liability over 8 years.