How our CPAs helped a US–New Zealand dual taxpayer save over $56,000
By working with our CPAs, this client effectively “saved = earned” more than $56,000 in net tax savings (after fees) – while avoiding some of the most common and costly double taxation mistakes faced by US expats.
Background
Alex P. (name changed for privacy) contacted Taxes for Expats while living in New Zealand as a tax resident and maintaining US citizenship. Like many Americans abroad, Alex was subject to two tax systems at the same time, each asserting legitimate rights to tax parts of the same income.
Alex’s income was spread across both countries. It included an IRA distribution and royalty income connected to the United States, alongside wages, rental income, and interest earned in New Zealand. Because New Zealand taxes residents on worldwide income and the US taxes citizens on worldwide income – plus US-source income – the overlap created a high risk of double taxation.
Although the US–New Zealand tax treaty provides mechanisms for relief, applying it correctly requires careful income sourcing, treaty interpretation, and precise foreign tax credit timing. A single misstep could result in overpaid tax, denied credits, or compliance issues in either country.
The problem
Alex faced several overlapping challenges.
- First, both countries claimed the right to tax the same income streams, creating a real risk of paying tax twice if relief was applied incorrectly or in the wrong jurisdiction.
- Second, the tax treaty itself was not straightforward. Different treaty articles applied to different income types, meaning relief had to be claimed selectively – not globally – and often in different countries.
- Finally, Alex’s royalty income was connected to Pennsylvania, introducing state-level tax exposure that does not always follow federal treaty logic and often surprises expats.
How our CPAs solved it
Accurate income sourcing
We began by confirming the tax source of each income stream, since sourcing often determines which country must provide relief under the treaty.
The IRA distribution was confirmed as US-source due to the underlying retirement plan and contribution history. The royalty income was also treated as US-source because the land generating the royalties was located in Pennsylvania. Wages, rental income, and interest were correctly classified as New Zealand–source under local tax rules.
Treaty-based relief applied where it belongs
Next, our CPAs applied the US–New Zealand tax treaty by income type, not as a one-size-fits-all solution.
Relief for the IRA distribution was claimed in the United States as the source country. Relief for the royalty income, however, was provided by New Zealand under its residency-based taxation rules. This distinction is where many self-prepared or poorly coordinated filings go wrong.
State-level tax mitigation
Pennsylvania’s right to tax the royalty income was recognized. Our team then evaluated available state-level deductions, credits, and reporting positions to reduce the overall state tax burden while keeping the federal and treaty positions consistent and defensible.
Foreign tax credit alignment across tax years
New Zealand’s tax year runs from April to March, while the US uses a calendar year. We reconciled income recognition and tax payments across both systems to ensure foreign tax credits for wages, rental income, and interest were claimed in the correct US tax year and category.
Cross-border coordination
To avoid mismatches between filings, our CPAs worked directly with Alex’s New Zealand accountant via video calls and email. This ensured income classification, treaty relief, and timing were aligned in both countries.
Results and client savings
With the treaty applied correctly, state exposure addressed, and foreign tax credits properly timed, our CPAs delivered measurable results over approximately three years.
Alex avoided double taxation by claiming relief in the correct country for each income stream, reduced Pennsylvania’s state tax impact on royalty income, and ensured foreign tax credits were calculated accurately despite mismatched tax years.
The estimated financial outcome included about $10,000 in US tax savings, $50,000–$60,000 in New Zealand tax savings, and total net savings of over $56,000 after fees.
Services used
Alex initially engaged Taxes for Expats to resolve past US tax noncompliance through the IRS Streamlined Filing Compliance Procedure, including preparation of the required Streamlined Certification Letter.
Because the situation involved multiple income streams, jurisdictions, and prior filings, additional services were required to bring everything into full compliance.
These included:
- Preparation of multiple US state tax returns
- Reporting for multiple rental properties
- PFIC-related filings for foreign investments
- Amended US tax returns to correct prior reporting
Streamlined Filing with Taxes for Expats
If you’ve missed US tax filings – or filed them incorrectly because of treaty confusion, foreign tax credits, or multi-country income – the IRS Streamlined Filing Compliance Procedure can offer a safe, penalty-free path back to compliance.
This is the same program we used to help Matthew, a US teacher in Korea, resolve past-due US tax filings and regain compliance without IRS penalties.
What makes cases like Alex’s more complex is that streamlined filing often overlaps with treaty interpretation, state tax exposure, foreign tax credit timing, and additional reporting, such as PFICs or amended returns.
With more than 20 years of experience and over 50,000 clients worldwide, Taxes for Expats helps Americans abroad, like Alex, Matthew, and Melendy, resolve complicated cross-border tax situations with clarity and confidence. Our CPAs manage the analysis, filings, and coordination so nothing is missed.
