Larry's 2013 Tax Guide for U.S. Expats & Green Card Holders in User-Friendly English. Laurence E. 'Larry'
U.S.-situs assets held within your account with Merrill Lynch may be subject to U.S. estate taxes in the event of your death. To ensure any U.S. estate tax liabilities are satisfied, U.S. law imposes a lien on all your assets held with Merrill Lynch at your death. As a result of this lien and the potential liability of Merrill Lynch for any unsatisfied U.S. estate tax, all of the assets in your account(s) with Merrill Lynch at your death will be restricted from withdrawal or transfer until (i) Merrill Lynch concludes that an exception applies based on an affidavit confirming your total U.S. assets held at death, your country of citizenship, and your country of permanent residence; (ii) Merrill Lynch receives documentation satisfactory to Merrill Lynch confirming that your assets are subject to a probate proceeding within the U.S.; or (iii) a release from the U.S. Internal Revenue Service (IRS), known as a 'Federal Transfer Certificate,' is provided to Merrill Lynch (obtaining this from the IRS can take up to a year or more). As Merrill Lynch does not provide tax advice, please seek guidance on this topic from your own legal or tax advisor.”
Guess what, dear readers: Merrill Lynch is not alone - all banks, brokerages and realty companies are starting to send out this notification. If you reside outside of the U.S. but have assets in the U.S., it is time to look at exactly how up-to-date your estate planning really is. True, we do not plan to die but sometimes we do and without some 'basic' planning, we are simply going to make life unbearable for our heirs......especially if one is a Non-Resident Alien with assets in the U.S. That NRA does not have the $US5 million exemption in 2013: the NRA exemption is far lower - $US60,000.
Last year's edition included a section devoted to estate planning – this year’s edition does not…..but I have a sneaking suspicion that there will be 2013 legislation having substantial impact upon 2014 taxes to warrant inclusion of an essay on estate planning next year…..so I hope all of you out there not only purchase your ebook copy of this edition but recommend it to all of your friends (and enemies, too) – let’s keep Tiger CFO happy!
And now to the book itself…..
Read on.....enjoy.....and if you have any questions, email me at [email protected]. I don't guarantee that I'll answer you immediately, but I will definitely reply!!!
The final tax acts of 2012
– tax changes we need to know in 2013…..On January 1, 2012, A Democrat was President, the Democrats controlled the Senate and Republicans controlled the House. At the close of voting on November 6th, a Democrat will still be President, the Democrats still control the Senate and the Republicans still control the House…..all this, no change but for the billions and billions of dollars spent on what appeared to be a never-ending political campaign. Will there be a ‘fiscal cliff’ to fall from or is it really a steep, downhill walk into new tax laws? Your guess, like mine in mid-November, when I started writing, was really subject to speculation. We now know that a 2012 tax bill was passed on 1 January 2013 and that taxes were addressed but budget reduction was postponed until later, with a new tax phrase, ‘sequester’ , now being mentioned…..
I beg your indulgence, readers out there: prior to letting you know exactly what the tax act does, I’ve got to do some introductory ‘narrative’…..
Do you happen to know anyone who uses a nicotine patch? At best, it’s a temporary fix, getting the substance you crave via an alternative delivery route. A temporary fix.
On the 1st of January, at approximately 2am, when the US Senate voted 89-8 in favor of a 150 page document known as ‘The American Taxpayer Relief Act’ and later, at approximately 11pm on New Year’s night, the US House of Representatives also voted in favor of this act by a vote of 257 – 167. Of those voting against this act in the House, 154 of them were Republican. This act, my friends, is wrongly named – it should more appropriately be called ‘The Great American Nicotine-like Tax Patch (with theatrical flurry) of 2012/2013, vol.1.”
At breakfast in Hong Kong on the morning of the 31st of December, the last day of the year, at my Hong Kong hangout, the Foreign Correspondents’ Club, the media VIP that I was sipping coffee with wanted to know how, a couple of months before, over a bottle of wine, I predicted exactly how this thing, this political melodrama, would play out. Truth be told, I simply took a rather cynical stab in the dark based upon the gut feeling that these financial/theatrical showdowns have always ended like this – especially with a piece of legislation that was not, no matter what anyone believes, a last minute thing – Oh come on, now: this is a 150 page document. Legislation of that size is not a last minute thing. The only last minute about it was delivering the document to the 535 elected legislators (not all of them there to vote). The only thing unanimous amongst these 535 is that absolutely none of them read it before they voted – and I sincerely doubt that anyone these office holders rely upon read this ‘tax patch’, either. If they had, perhaps they’d discover that this act actually increases the deficit, instead of reducing it, which I thought was everyone’s goal.
Both houses of Congress voted to delay until 1 March 2013 taking any action upon spending cuts. If no action is taken by that day, $US110 billion in spending cuts will automatically begin. Across the board cuts of this magnitude are a fiscal cliff. Thus, vol. 2 of the great acts of 2012/2013 (a continuing work in process?) will emerge.
Around the same time as that, the U.S. will reach its statutory debt ceiling and legislation will be needed to prevent the U.S. from defaulting. Hence, the potential, for vol.3 of the Great American Nicotine-like Tax Patch of 2012/2013.
Now a word about the ‘political demographics’ of the new House of Representatives: Of the 234 Republicans elected to the House of Representatives on 6 November, only 15 of these come from districts which voted for Obama for President. Thus, you are going to have this next House with a majority of 219 members coming from ‘pure’ Republican districts, with little inclination towards compromise. I think that they are going to ‘dig in’ and hold firm with regard to Medicare cutbacks. I also think that President Obama will argue that the tax base must still be extended to include more than .7 percent of U.S. tax filers in the new, higher tax bracket. In other words, ‘It ain’t over, yet, folks!!’ The more things change, alas, the more they really do seem to stay the same.
So who are the biggest ‘winners’ as a result of the New Year vote? That’s an easy answer: those households with income between $US200,000 - $US400,000. Don’t gloat, you winners: you are still going to be ‘tax prey’ unless the US economy improves.
And who are the other winners? Well, between now (3 January) and the day I submit the complete book to the publishers, I expect to come across several winners, those whose lobbyists got exactly what they wanted written within this 150 page document that will only now be read (but not by any member of Congress – I’d bet on that one).
And the biggest losers? W-2 Wage earners who no longer will have that 2 percent holiday on payroll taxes. The average earner in this category will have $US1,000 take home pay during 2013.
O.K. Here’s my summary of that which I think you need to know about the new law…..My ‘top five’:
1)All individual income tax rates that you’ve grown accustomed to remain in effect unless you are within the top .7% of individual income tax filers. A new, ‘old’ tax rate of 39.6 percent is imposed for these filers for all taxable income to be reported on their 2013 tax return – next year in 2014. If you are single and have taxable income of $US400,000 or over, then that amount ‘over’ is subject to the 39.6 percent tax rate. Head of Household (HOH) filers get a $US425,000 threshold while Married Filing Jointly families get the $US450,000 threshold.
2)You will start losing your personal exemptions and itemized deductions if you are in the elite two percent: if you are an single filer, the threshold above which your exemptions and deductions will start declining kicks in at $US250,000. HOH filers? $US275,000…..& if you file MFJ, declining exemptions and deductions start happening once you have $US300,000 of taxable income.
3)The wealth penalty on capital gains - For all taxpayers subject