Even the future Princess of Britain has to file her U.S. tax return.
Meghan Markle will join the ranks of princess of Britain’s royal family on May 19th, when she weds Harry, prince of Wales. The Internal Revenue Service may be poised to receive intriguing insight into the finances of the newest royal couple because Markle is a U.S. Citizen.
As a U.S. citizen, Markle has an obligation to report all worldwide income on her personal income tax return. She may need to disclose all of her foreign bank accounts to the IRS too! What exactly can the IRS hope to expect by receiving this information from Markle?
Based on her standing as an American citizen, the first thing the IRS will find out is Markle’s income sources. She will need to file her return in 2019 just like any other American; however, since she will be living abroad, Markle will receive an automatic two-month extension, until June 15th. The most basic information on any tax return is the income and the U.S. 1040 form is clear about what type of income is received and where it is received from.
Moreover, the IRS may get to see what taxes, if any, the princess pays to the U.K. If Markle pays any taxes in the United Kingdom, there is a excellent chance that she will claim the Foreign Tax Credit on her return. The Foreign Tax Credit may be taken as a credit for an itemized deduction to help offset your U.S. tax obligation based on any taxes you pay to a foreign government.
The Foreign Tax Credit is complex and submit to different treaties the U.S. has with other countries. However, it is generally more advantageous to claim the Foreign Tax Credit instead of the foreign tax deduction because the credit actually reduces your total U.S. tax due whereas the deduction reduces the income on your tax return that is subject to tax.
But it is possible that Markle’s return will not reveal the whole story to the IRS after all. The Foreign Tax Credit requires all four of the following conditions to be met:
- The tax must be imposed on you
- You must have paid or accrued the tax
- The tax must be the legal and actual foreign tax liability
- The tax must be an income tax (or a tax in lieu of an income tax)
Condition No. 1 may be not be fully met by the new princess and could fog the picture for the IRS. First, much of the royal family’s income is tax exempt in the U.K. due to parliamentary law. Secondly, many royals have a tradition of paying voluntary tax into the nation coffers.
For example, the Prince of Wales, Harry’s father, has historically paid 50 percent of the profit in excess of of his official royal expenses as a voluntary tax from the Duchy of Cornwall income. That amount was reduced to 25 percent when he married Harry’s mother, Princess Diana in 1981. If the newlyweds maintain a similar tradition, then the taxes paid will not be able to be claimed on Markle’s U.S. tax return because the taxes are not actually imposed if they are voluntary.
Another juicy tidbit the IRS may be looking forward to knowing about Markle are where her foreign bank accounts lie and how much she has in those accounts.
A U.S. citizen must report all accounts on an FBAR (Foreign Bank and Financial Accounts) if both of the following conditions are met:
- The U.S. person had a financial interest or signing authority over one or more accounts located outside of the U.S.
- The sum of all the accounts was valued at $10,000 or more on any one day in the calendar year
Given Markle is a successful actress and is about to marry into one of the wealthiest families in the world, this likely means that Markle will likely need to disclose all of her foreign accounts and may even need to disclose them in great detail via Form 8938 if her foreign assets valued greater than $50,000 at the end of the calendar year.
Meghan Markle is probably used to the public eye by now. Afterall, she is an actress and her relationship with Harry began nearly two years ago. However, it is interesting to speculate how concerned the crown is about the IRS’s new direct line of sight into the rather secretive royal finances through Markle’s U.S. tax obligations.
If you’re in debt to the IRS, the Tax Experts at Community Tax may be able to help. Call them toll-free at 800-615-0477 for a free consultation
Article last modified on July 10, 2018. Published by Debt.com, LLC . Mobile users may also access the AMP Version: The IRS May Get an Inside Look Into the U.K.’s Royal Household - AMP.