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I am an American citizen working in Romania. My U.S. based company says
I must be responsible for all Romanian tax (40%). Their justification is that I will
recover the difference in applying the Foreign Tax Credit.
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 Unless you are in the 40% tax
bracket in the U.S., you will not recover the tax. The maximum foreign tax credit allowed
is the maximum tax owed under U.S. law. In fact, you will probably lose 40% of your income
since the U.S. earned income credit will not shield you from the payment of foreign taxes.
In short, depending on your level of compensation, you could lose a large part of your
compensation to taxes paid in Romania. However, you will probably not owe any additional
tax to the U.S.
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What are the tax consequences if foreign parents gift their child, who is
a U.S. citizen, real property worth $1 million?
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It depends whether the property is
located in the U.S. If it is, then there is a gift and gift taxes will be owing. If it is
foreign property, there is no U.S. gift tax, but the minor must report all the income
earned from the property and will pay a capital gains tax if the property is sold for a
profit. Also, the minor must report the gift on Form 3520 or face penalties which could
reach as high as 25% of the amount of the gift.
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The lender on my
residence granted me a forbearance of interest for 6 months, then added this amount to the
principal of my mortgage. When can we deduct the interest on the loan. Does the amount
added to the principal balance reduce our gain upon sale of our home?
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You can deduct the
interest (provided you otherwise qualify for the personal interest deduction) when you pay
the interest. This will occur when your sell the house. The deferred interest is not added
to the basis of your house for capital gains calculations and does not reduce the gain on
sale of your house. |
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I am planning to take a position for 18 months
with my current employer - a public University - in their London office. Will I be taxed
by the U.S. or Britain?
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Not during the first year. You should meet the requirements for
the earned income exclusion under IRC Sec. 911 since you will spend at least 330 days of a
12-month period overseas. For the second year, since you will only spend six months in
Britain, the earned income exclusion will not apply and you will be subject to U.S. taxes.
During your 18-month stay, you should be exempt from British taxes. According to Article
20 of the United States- United Kingdom Income Tax treaty, if you are invited to teach or
conduct research by the government, university or other recognized educational institution
and are present in the U.K. for no more than two years, your income will be exempt from
British taxes. These provision apply equally to a U.K. taxpayer residing in the U.S.
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Taxes Paid to Foreign Country
