The annual Tax Refund campaign started on January 29 and normally ends on April 15 for most taxpayers, with deferral possibilities up to October 15, 2024. But how does it work?
The differences between taxation in the United States and France
American income taxes are modeled on the country’s political structure. Using the example of a mille-feuille, a New York taxpayer will have to pay federal income tax to which is added that due to the State of New York and that due to the city of New- York City.
Another notable difference with France: while only income attributable to a fixed base in France is taxable in France, American citizens and equivalents, regardless of their place of residence, are liable for income tax in the United States. United because of their global source income.
The US taxman wants to know where you live
Regarding the determination of tax domicile, tax residence in the United States is calculated based on the number of days of presence for persons with a visa, with exceptions for diplomats and students, among others. Dual national citizens and green card holders are considered tax residents. It is necessary to file a worldwide income tax return.
Know the Franco-American tax convention of August 31, 1994
The Franco-American tax convention avoids double taxation without of course eliminating the taxation itself. You should first know that 12 American states do not recognize this convention: Alabama, Arkansas, California, Connecticut, Hawaii, Kansas, Kentucky, Maryland, Mississippi, New Jersey, North Dakota, Pennsylvania.
Within the framework of the convention, the following are taxable in the country of source:
- remuneration, pensions, annuities from salaried employment, income from an independent profession and retirement plans.
- Real estate wealth is taxable in France only. Interest on accounts is taxable in the country of residence.
- Rents received in France, capital gains, dividends (depending on the agreement and the nationality of the company).
- French and compulsory supplementary pensions are taxable in France only for the general system and since January 1, 2008 also for civil service pensions. They do not need to be declared on form 1040.
- Concerning rents, capital gains and dividends, you must first make the declaration in the country of source. In France, there is no tax on American rents. On the other hand, French rents are taxed in both countries but the United States grants a tax credit.
- Capital gains are taxed in the source State, but not exclusively. The United States can decide to tax with a tax credit, France does not tax (non-tax resident in France).
- Dividends are taxed at source and in the country of residence with a tax credit (to be verified depending on the State).
How do you pay US income tax?
As a reminder, the American tax system levies either directly at source (“withholding tax”) or through installments (“estimated tax”). The first case mainly concerns salaries and all ancillary payments paid, in cash or in kind, by an employer, excluding reimbursement of expenses.
All income of individuals who have not been subject to withholding tax (income of an individual entrepreneur, interest, dividends, capital gains, rent, etc.) is generally subject to installment payments. The law provides that the taxpayers concerned must pay the majority of their tax on the income of the current year, by paying each quarter an amount of tax estimated by themselves.
In all cases, whether withholding at source or the payment of installments, the taxpayer is subject to the obligation to declare the income actually received during the previous fiscal year, a formality which allows it is up to the administration to correct any discrepancies that may exist between the provision made and the final balance. This is the opportunity either to receive the famous tax return, which is a reimbursement of the overpayment the previous year, or on the contrary to have to pay a balance due with possible penalties.
Get help to avoid mistakes and perhaps adjustments
To prepare your tax return in the United States, there are two ways to do it. On your own, using US tax preparation software, such as market leader TurboTax, or using a professional accountant, called a CPA (certified public accountant), who will exclusively ensure the compliance of your declarations with American tax law.
Given the complexity of the declaration to be made, when several sources of income from several international locations are combined, this last option is of course strongly recommended, particularly for entrepreneurs. The average cost of a CPA for a simple declaration is around $1,500, but the bill can be much higher.
Finally, regarding tax controls, called audits in the United States, you should know that the vast majority of the 150 million taxpayers escape them each year and that the probability of being entitled to them is of the order of 0.3%.
2024-02-27 20:10:21
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