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  #1  
Old 04-15-2010, 07:18 AM
SanVito SanVito is online now
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US expats still paying taxes to the US

In this thread, the topic of US expats paying taxes back home crops up frequently, and I was surprised to read that if you hold a US passport you're supposed to pay US taxes, even if you've never lived there.

What I want to know is... how does that work? What are you taxed on and at what rate? What about if you're required to pay income tax in your country of residence/employment? Do you have to pay taxes twice? If so, how does anyone afford it?

Thanking you!
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  #2  
Old 04-15-2010, 07:54 AM
Gyrate Gyrate is offline
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I'm taxed on the same thing I'd be taxed on at home - wages, interest, capital gains etc. And yes, I get double-taxed on the same income BUT (and this is a signficant "but") there is a Foreign Earned Income Exclusion which means that the first $X earned overseas is exempt from taxation. X goes up pretty much every year - for 2009 it's $91,400 (if you're overseas only part of the year, you get a proportionate amount of that exemption). If you're earning in foreign currency (UK pounds for me) the IRS has an "unofficial" exchange rate for the year that you use to calculate how much you earned that year.

You fill in your 2555 or 2555-EZ form for the exemption, then you fill in the 1040 with your income details and, down at the bottom of the page on line 22, you deduct the exemption. If you've earned below the exemption level, the entire rest of your tax return is full of zeros. If you haven't it gets trickier; if you earned $115,000, the $23,600 above the exemption is taxed at whatever tax bracket you'd be in if the entire $115,000 were taxable. Does that make sense?

As for how we afford it: the FEIE makes a huge difference, and if you're making six figures you're more likely to be able to afford the tax on the amount above the exemption.
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Old 04-15-2010, 07:58 AM
Northern Piper Northern Piper is offline
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so even if you've never lived in the US you're supposed to file? I thought it only applied for a certain time after you leave the US, like 10 years or something?
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Old 04-15-2010, 09:28 AM
SanVito SanVito is online now
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Originally Posted by Gyrate View Post
I'm taxed on the same thing I'd be taxed on at home - wages, interest, capital gains etc. And yes, I get double-taxed on the same income BUT (and this is a signficant "but") there is a Foreign Earned Income Exclusion which means that the first $X earned overseas is exempt from taxation. X goes up pretty much every year - for 2009 it's $91,400 (if you're overseas only part of the year, you get a proportionate amount of that exemption). If you're earning in foreign currency (UK pounds for me) the IRS has an "unofficial" exchange rate for the year that you use to calculate how much you earned that year.

You fill in your 2555 or 2555-EZ form for the exemption, then you fill in the 1040 with your income details and, down at the bottom of the page on line 22, you deduct the exemption. If you've earned below the exemption level, the entire rest of your tax return is full of zeros. If you haven't it gets trickier; if you earned $115,000, the $23,600 above the exemption is taxed at whatever tax bracket you'd be in if the entire $115,000 were taxable. Does that make sense?

As for how we afford it: the FEIE makes a huge difference, and if you're making six figures you're more likely to be able to afford the tax on the amount above the exemption.
Okay, that makes perfect sense, very well explained. It doesn't sound so shocking since you've told me about the FEIE, although it still seems a bit cheeky. Presumably fluctuating interest rates can have a pretty huge effect on whether you end up paying or not.

Out of interest, what rate do you pay on earnings above the FEIE? Is it a high rate? For instance, as you will know only too well, income tax rates in the UK are tiered (nothing up to 6k-ish, 20% up to 37K ish, 40% above that) so if we had your tax system, we'd have to be paying 40% on any earnings about the FEIE, which would be quite a killer if you've also paid local tax.

Last edited by SanVito; 04-15-2010 at 09:29 AM..
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Old 04-15-2010, 09:45 AM
Desert Nomad Desert Nomad is offline
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Originally Posted by SanVito View Post
What I want to know is... how does that work? What are you taxed on and at what rate? What about if you're required to pay income tax in your country of residence/employment? Do you have to pay taxes twice? If so, how does anyone afford it?
Yes, we pay taxes twice unless there is a tax treaty. At one point I was paying 17% to US social security (since it is my company I pay both sides), 28-33% US income tax and another 20% in local-country income taxes... 70% lost in tax. (And people wonder why expats don't like this system)

I left after less than a year for a multitude of reasons and moved to Dubai (0% local tax).

For income to be excluded, it must be "earned" so that does not apply to interest or dividends which also get taxed twice.

Last edited by Desert Nomad; 04-15-2010 at 09:48 AM..
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Old 04-15-2010, 09:49 AM
Desert Nomad Desert Nomad is offline
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so even if you've never lived in the US you're supposed to file? I thought it only applied for a certain time after you leave the US, like 10 years or something?
Yes. You must file if you are American - does not matter if you have lived or ever will live in the US. And it is against US law to give up your citizenship for tax reasons.
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Old 04-15-2010, 10:14 AM
Chefguy Chefguy is online now
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The other rules about living/working overseas is that you have to be there for a year before you can get the exclusion, and you can only maintain that status as long as you don't return to the states for more than 30 days (as I recall) per year. There is a whole community of ex-pat workers who spend their time between jobs living on a beach in Mexico or some other place to maintain their status.
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Old 04-15-2010, 10:26 AM
Colibri Colibri is offline
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Originally Posted by Chefguy View Post
The other rules about living/working overseas is that you have to be there for a year before you can get the exclusion, and you can only maintain that status as long as you don't return to the states for more than 30 days (as I recall) per year. There is a whole community of ex-pat workers who spend their time between jobs living on a beach in Mexico or some other place to maintain their status.
This is not entirely correct. There are two ways to establish overseas residence for the purpose of the income exclusion. One is to establish a "bona fide" residence overseas, that is, a place that is your primary place of residence. This is what I have. It doesn't matter how much time I spend in the US. (Of course, since you don't get the exclusion for the time you spend in the US, it wouldn't work to establish a foreign residence and then live in the US.) The second way is to spend 11 months out of the country. This is what you would do if you were traveling or staying at hotels and had not established a permanent overseas address. And while I don't think you can apply until you qualify, the exclusion is effective retroactively. That is, I was able to exclude income from the date I first moved to Panama on my subsequent tax returns.

Last edited by Colibri; 04-15-2010 at 10:28 AM..
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Old 04-15-2010, 10:28 AM
Desert Nomad Desert Nomad is offline
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Originally Posted by Chefguy View Post
The other rules about living/working overseas is that you have to be there for a year before you can get the exclusion, and you can only maintain that status as long as you don't return to the states for more than 30 days (as I recall) per year. There is a whole community of ex-pat workers who spend their time between jobs living on a beach in Mexico or some other place to maintain their status.
For physical presence, you must be overseas for 330 days out of 365. And you must be IN a foreign country so if you take a boat from Portugal to Brazil, the time at sea does not count toward time abroad. Also days you depart/arrive in the US are US days.

I have a spreadsheet to keep track of days in the US and other countries so that we don't accidentally become tax resident someplace where we don't want to be.

Last edited by Desert Nomad; 04-15-2010 at 10:29 AM..
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Old 04-15-2010, 10:37 AM
md2000 md2000 is online now
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Really???

In Canada, if you leave the country, you must pay taxes for any tax year in which you were partly resident (the year you left, i.e.) and also if you have any ties. So if you really left the country, no tax. If you sort of half live in Canada, or have ties that indicate you are coming back - like keeping the house or car, keeping retirement savings in Canadian banks, earn money here, etc. - then you are still considered enough of a resident to pay taxes, from what I've heard.

What happens if you did not know? This sounds like stories of European immigrants in the 70's. The kid goes back to the old country to visit the grandparents, only to be tossed in jail because he's still a citizen (i.e. of Greece) and has not performed his military service...

Only with Uncle Sam, it's registering for the draft AND paying taxes... Oh well, at least if they toss you in jail you get free health care.
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Old 04-15-2010, 10:40 AM
Koxinga Koxinga is online now
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Originally Posted by Desert Nomad View Post
For physical presence, you must be overseas for 330 days out of 365. And you must be IN a foreign country so if you take a boat from Portugal to Brazil, the time at sea does not count toward time abroad. Also days you depart/arrive in the US are US days.

I have a spreadsheet to keep track of days in the US and other countries so that we don't accidentally become tax resident someplace where we don't want to be.
But as far as I know, those 330 out of 365 days don't have to match up with the calendar year. If you were in a foreign country starting from June 2008 continuously til June 2009, you'd still have physical presence applying to the latter half of 2008, wouldn't you? If that makes sense.
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Old 04-15-2010, 10:44 AM
Chefguy Chefguy is online now
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Originally Posted by Colibri View Post
This is not entirely correct. There are two ways to establish overseas residence for the purpose of the income exclusion. One is to establish a "bona fide" residence overseas, that is, a place that is your primary place of residence. This is what I have. It doesn't matter how much time I spend in the US. (Of course, since you don't get the exclusion for the time you spend in the US, it wouldn't work to establish a foreign residence and then live in the US.) The second way is to spend 11 months out of the country. This is what you would do if you were traveling or staying at hotels and had not established a permanent overseas address. And while I don't think you can apply until you qualify, the exclusion is effective retroactively. That is, I was able to exclude income from the date I first moved to Panama on my subsequent tax returns.
Perhaps the rules have changed since I worked overseas in the early 90s. I had a house in Brussels that I paid rent on and owned no property in the US, but I was still held to the 11 month rule. I seem to recall that it was also retroactive at that time. Plus, when you return to the states, you only pay taxes on the portion you earned in the states for that year. The income made overseas is still excluded.
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Old 04-15-2010, 10:52 AM
muldoonthief muldoonthief is online now
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Originally Posted by Desert Nomad View Post
Yes. You must file if you are American - does not matter if you have lived or ever will live in the US. And it is against US law to give up your citizenship for tax reasons.
How can you be an American citizen if you've never lived in the USA? Are you saying if your parents emigrate to say, Australia, before you're born, never go back to the US even to visit, when you turn 18 in Australia and start working the IRS will come after you for taxes?
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Old 04-15-2010, 11:00 AM
Gyrate Gyrate is offline
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How can you be an American citizen if you've never lived in the USA? Are you saying if your parents emigrate to say, Australia, before you're born, never go back to the US even to visit, when you turn 18 in Australia and start working the IRS will come after you for taxes?
If you're born to US citizens, you're a US citizen from birth.

And I don't know what the tax law is, but even if you were supposed to file I doubt the IRS will expend much energy coming after you unless you move back to the US.
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Old 04-15-2010, 11:03 AM
Colibri Colibri is offline
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Originally Posted by Koxinga View Post
But as far as I know, those 330 out of 365 days don't have to match up with the calendar year. If you were in a foreign country starting from June 2008 continuously til June 2009, you'd still have physical presence applying to the latter half of 2008, wouldn't you? If that makes sense.
This is correct.

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Originally Posted by Chefguy View Post
Perhaps the rules have changed since I worked overseas in the early 90s.
I established residence in Panama in July 1992, and the regulations as far as I know haven't changed since then.


Quote:
I had a house in Brussels that I paid rent on and owned no property in the US, but I was still held to the 11 month rule.
From the IRS page on the exclusion:

Quote:
To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year
A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months
Here's the page on bona fide residence

Quote:
You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test.
Basically, you have to establish residence for an extended or indefinite period of time. Even if you were working on a two-year contract (for example) you might not qualify because it was for a specified period of time. When I moved here, it was for a one-year temporary assignment, but once that was extended, I qualified from the date I arrived.
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Old 04-15-2010, 11:21 AM
Balthisar Balthisar is offline
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Originally Posted by Koxinga View Post
But as far as I know, those 330 out of 365 days don't have to match up with the calendar year. If you were in a foreign country starting from June 2008 continuously til June 2009, you'd still have physical presence applying to the latter half of 2008, wouldn't you? If that makes sense.
Correct. But you can file an amended return for the previous year once you cross that threshold. For example, I'll have been here (in round numbers) for six months of 2009, and six months of 2010. Once I hit the 330 days, I can amend my 2009 return and get a whopper of a refund.
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Old 04-15-2010, 11:27 AM
Desert Nomad Desert Nomad is offline
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Originally Posted by Koxinga View Post
But as far as I know, those 330 out of 365 days don't have to match up with the calendar year. If you were in a foreign country starting from June 2008 continuously til June 2009, you'd still have physical presence applying to the latter half of 2008, wouldn't you? If that makes sense.
True.
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Old 04-15-2010, 11:30 AM
Desert Nomad Desert Nomad is offline
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How can you be an American citizen if you've never lived in the USA? Are you saying if your parents emigrate to say, Australia, before you're born, never go back to the US even to visit, when you turn 18 in Australia and start working the IRS will come after you for taxes?
In the case of the fellow I know, his parents (both American) went to work in Saudi Arabia and have been there for about 30 years. He was born and raised in Saudi, speaks fluent Arabic and English and has never lived in the US (and as far as I know has only been to the US a few times). He is American, and has been paying tax to the US since he started working. He gets the benefits of the foreign exclusion, but still pays US tax on investments and interest he earns from bank accounts (even those not in US banks).

Last edited by Desert Nomad; 04-15-2010 at 11:33 AM..
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Old 04-15-2010, 11:34 AM
Desert Nomad Desert Nomad is offline
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If you're born to US citizens, you're a US citizen from birth.

And I don't know what the tax law is, but even if you were supposed to file I doubt the IRS will expend much energy coming after you unless you move back to the US.
I have also been told that when you go to renew your US passport if you have not filed, you will be caught then. Living overseas and not being able to renew your US passport would be a big problem.
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Old 04-15-2010, 11:39 AM
Chefguy Chefguy is online now
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Originally Posted by Colibri View Post


Basically, you have to establish residence for an extended or indefinite period of time. Even if you were working on a two-year contract (for example) you might not qualify because it was for a specified period of time. When I moved here, it was for a one-year temporary assignment, but once that was extended, I qualified from the date I arrived.
Ah, that's the hitch in my giddyup. I was working under contract for an American company.
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Old 04-15-2010, 11:50 AM
Giles Giles is offline
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I'm an Australian citizen who has been living in the US as a permanent resident to be eligible for US citizenship. However, I won't apply for it, because if I became a US citizen, I'd be subject to this law for the rest of my life, i.e., having to file and pay taxes in the US even though I will eventually retire and return to Australia.

I feel particularly badly treated because I have a significant part of my income tax-free in Australia, but I have to pay US income tax on it. (It's a superannuation pension, and I'm over 60 years old). I suspect that if I became a US citizen I'd continue to have to pay taxes on it even if I left the US and never returned to the country.
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Old 04-15-2010, 01:03 PM
Mama Zappa Mama Zappa is offline
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Originally Posted by Desert Nomad View Post
Yes, we pay taxes twice unless there is a tax treaty. At one point I was paying 17% to US social security (since it is my company I pay both sides), 28-33% US income tax and another 20% in local-country income taxes... 70% lost in tax. (And people wonder why expats don't like this system)

I left after less than a year for a multitude of reasons and moved to Dubai (0% local tax).

For income to be excluded, it must be "earned" so that does not apply to interest or dividends which also get taxed twice.
What about credits for taxes paid to foreign governments?

We live in the US and own stock in a Brazilian mining company. We get a few dollars in dividend income from the company, of which part is withheld to pay Brazil taxes. We get a credit for that against our US return. Admittedly it's only about a dollar, but still...
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Old 04-15-2010, 01:22 PM
Duckster Duckster is online now
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I'm an Australian citizen who has been living in the US as a permanent resident to be eligible for US citizenship. However, I won't apply for it, because if I became a US citizen, I'd be subject to this law for the rest of my life, i.e., having to file and pay taxes in the US even though I will eventually retire and return to Australia.

I feel particularly badly treated because I have a significant part of my income tax-free in Australia, but I have to pay US income tax on it. (It's a superannuation pension, and I'm over 60 years old). I suspect that if I became a US citizen I'd continue to have to pay taxes on it even if I left the US and never returned to the country.

This is incorrect. As a permanent resident living in the US you are already subject to taxation. If you remained in the US after you were to become a US citizen, your requirement to pay US taxes would not change.

However, if you moved back to Australia, you are entitled to the foreign income exclusion, as already mentioned in this thread. So while you would be subject to US income tax, as a US citizen living overseas, the foreign income exclusion would exempt the first US$91,400 of income. See http://www.irs.gov/publications/p54/
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Old 04-15-2010, 01:49 PM
yabob yabob is offline
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What about credits for taxes paid to foreign governments?

We live in the US and own stock in a Brazilian mining company. We get a few dollars in dividend income from the company, of which part is withheld to pay Brazil taxes. We get a credit for that against our US return. Admittedly it's only about a dollar, but still...
IRS form 1116. I've been doing that for several years. Countries that take tax out of your dividends usually take 15% - Canada, Brazil and The Netherlands, among others. The UK is among the countries that do not take tax out of investment income. You can also deduct it, but, of course, that isn't as good as getting it all taken off as a credit. But there are limits that apply to foreign tax credits, and some foreign tax (such as tax on income from sanctioned countries) which is disallowed. You are also out of luck in a sheltered account, such as an IRA.

I got more of this a few years back when I had a lot of positions in Canadian royalty trusts, before Flaherty decided to sunset them. At one point, the Canadian government even honored the sheltered status of income for trusts held in IRAs and didn't withhold tax. That changed a couple years before Flaherty's rule changes.

Tax treaties, which most developed countries all have with each other, get complex. When you have citizens of country A living in country B, and getting income on investments in countries C, D and E, there is no clear cut logical answer as to just who should get to take a bite out of them. The treaties are ostensibly to insure that individuals and corporations aren't multiply taxed.
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Old 04-15-2010, 05:33 PM
This_Just_In... This_Just_In... is offline
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How does the currency exchange work?

Is it 91K USD converted - no matter what. Example - if the Canadian dollar goes up to being worth $1.50 USD, does that mean that if a US expat living in Canada makes over ~61K CND (=~91K US in this scenario) they will be double taxed on the difference?
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Old 04-15-2010, 06:58 PM
put down the sabre put down the sabre is offline
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Yes, this is crazy. This is one of the main reasons I will never become a US citizen -- it's absurd the way they tax you on your worldwide income.

And am I right in thinking that if you renounce your citizenship you have to pay a 25% of your wealth 'exit fee'?

Isn't the US one of only 2 countries to tax on worldwide income, the other being North Korea?

Outrageous.
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Old 04-15-2010, 08:59 PM
Eva Luna Eva Luna is offline
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And am I right in thinking that if you renounce your citizenship you have to pay a 25% of your wealth 'exit fee'?
Not really - here's how it works. Yes, that article gave me a headache, too.
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Old 04-15-2010, 09:36 PM
put down the sabre put down the sabre is offline
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Not really - here's how it works. Yes, that article gave me a headache, too.
Does the article say what the new rules are? Or just that they are 'in effect'?

pdts
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Old 04-16-2010, 12:45 AM
ruadh ruadh is offline
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Originally Posted by Desert Nomad View Post
I have also been told that when you go to renew your US passport if you have not filed, you will be caught then.
I doubt this actually happens. I know a few American expats who don't bother filing their US taxes and who've lived abroad for long enough that they would have had to renew their passports at least once.
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Old 04-16-2010, 12:54 AM
ruadh ruadh is offline
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Yes, this is crazy. This is one of the main reasons I will never become a US citizen -- it's absurd the way they tax you on your worldwide income.
It prevents US citizens becoming tax exiles, which is a significant problem for many other countries. Ireland for example loses a significant source of revenue by wealthy Irish citizens claiming residency in other countries - not always entirely legitimately - in order to avoid paying Irish taxes, and has had to develop a costly and complicated system of monitoring the amount of time these people actually spend in Ireland to ensure they really are resident abroad. There have been calls for Ireland to adopt a US style system for this reason. (I do think the threshold at which the US starts taxing your foreign income is too low.)

Quote:
And am I right in thinking that if you renounce your citizenship you have to pay a 25% of your wealth 'exit fee'?
I've never heard this. My understanding is that the US deems you to be still liable for income taxes for ten years after you renounce your citizenship - though I'm not sure how they could enforce this.

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Isn't the US one of only 2 countries to tax on worldwide income, the other being North Korea?
No. A lot of countries have "double taxation" agreements with each other precisely to avoid the scenario where the person was paying tax to both countries. I remember when the EU expanded in 2004 there were a lot of complaints by the thousands of Poles who went to work in Britain and Ireland that they were being taxed twice on the same income. I think this has since been resolved by double taxation agreements.
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Old 04-16-2010, 12:58 AM
pulykamell pulykamell is online now
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I doubt this actually happens. I know a few American expats who don't bother filing their US taxes and who've lived abroad for long enough that they would have had to renew their passports at least once.
Same here. But I also think the people I know don't actually have any tax burden and are well below the foreign income exclusion, so maybe the IRS just doesn't care.
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Old 04-16-2010, 01:03 AM
bahimes bahimes is offline
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Interesting thread.
I retired from a US government agency, and remained living and working in Spain. During that time, I used the FEIE, and essentially paid little or no taxes to the US, due to the small amount of my pension and my salary being below the cap ($75,000 at the time) SS and Medicare excluded.
No, however, I am buying a home in Spain and will retire to it next year. I will have no income other than US pension(s) and small capital gains, except for the ocassional consulatation with my current government agency.
I know US taxes will continue to be deducted at source, but I wonder what tax liability I will have to Spain.
Anyone have a source to cite for me to research?
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Old 04-16-2010, 05:29 AM
Gyrate Gyrate is offline
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How does the currency exchange work?

Is it 91K USD converted - no matter what. Example - if the Canadian dollar goes up to being worth $1.50 USD, does that mean that if a US expat living in Canada makes over ~61K CND (=~91K US in this scenario) they will be double taxed on the difference?
Yup. When the pound is strong, my tax-reportable income is correspondingly higher. When it's weaker, I make less money according to the IRS, even if my actual salary in pounds has not changed.

Here's the IRS page (from the London embassy site) suggesting exchange rates to use - note that they will accept other rates if justifiable.
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Old 04-16-2010, 05:38 AM
Koxinga Koxinga is online now
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I had another question: for joint filing, I always assumed that the 91K foreign earned income exclusion would be doubled (to cover both spouses), so that a married couple would have a combined exclusion of >180K. Is that right? What if only one spouse is working?
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  #35  
Old 04-16-2010, 05:57 AM
Desert Nomad Desert Nomad is offline
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Originally Posted by Koxinga View Post
I had another question: for joint filing, I always assumed that the 91K foreign earned income exclusion would be doubled (to cover both spouses), so that a married couple would have a combined exclusion of >180K. Is that right? What if only one spouse is working?
Each person gets the 91K so if you earn 150K and your spouse earns 30K, you will be 59K over the limit.
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  #36  
Old 04-16-2010, 09:26 AM
Northern Piper Northern Piper is offline
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Originally Posted by put down the sabre View Post
Yes, this is crazy. This is one of the main reasons I will never become a US citizen -- it's absurd the way they tax you on your worldwide income.

And am I right in thinking that if you renounce your citizenship you have to pay a 25% of your wealth 'exit fee'?

Isn't the US one of only 2 countries to tax on worldwide income, the other being North Korea?

Outrageous.
I think you're confusing two different things - taxation on income, regardless of source country, and taxation of non-resident citizens.

Canada certainly taxes on world-wide income - a resident of Canada who earns income from a foreign source, such as investments in the US, must report that income and is taxed on it. I think all countries with an income tax would do that, or else you would have residents investing most of their money abroad to avoid taxes.

The concern in this thread is imposing an income tax on citizens who do not live in the US, and who may never have lived in the US. That seems to be specific to the US - I don't know if there are other countries which do that.
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  #37  
Old 04-16-2010, 09:33 AM
Steve MB Steve MB is online now
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Originally Posted by Desert Nomad View Post
And it is against US law to give up your citizenship for tax reasons.
How can that possibly be enforced? (e.g. "Taxes, shmaxes; I'm not going to be a citizen of a country that [launches wars of aggression|illegally elects a furrin-born President|covers up the truth about Area 51|whatever]....")
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  #38  
Old 04-16-2010, 09:35 AM
Really Not All That Bright Really Not All That Bright is offline
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Originally Posted by Gyrate View Post
If you're born to US citizens, you're a US citizen from birth.
Not so - if you were born abroad to US citizens, you would have the right to US citizenship, but you would not automatically become a US citizen. Your parents would have to register your birth with the local US consulate.

If your parents didn't bother to do so, you would still be entitled to US citizenship for the rest of your life but you would never actually be a US citizen (assuming you didn't apply).

Of course, presumably your parents would register you with the US consulate, unless they planned on not returning to the US.
Quote:
How can that possibly be enforced? (e.g. "Taxes, shmaxes; I'm not going to be a citizen of a country that [launches wars of aggression|illegally elects a furrin-born President|covers up the truth about Area 51|whatever]....")
You are assumed to be leaving for tax purposes if you make over a certain amount (currently $124,000) or have a certain net worth (currently $600,000ish). In those cases, you have to request a ruling from the IRS that you are not becoming a tax exile, basically by citing whatever else it is you're leaving for (angry about wars, want to diddle Thai sex workers, house in Tuscany, etc.)

Last edited by Really Not All That Bright; 04-16-2010 at 09:38 AM..
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  #39  
Old 04-16-2010, 10:23 AM
Gyrate Gyrate is offline
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Originally Posted by Really Not All That Bright View Post
Not so - if you were born abroad to US citizens, you would have the right to US citizenship, but you would not automatically become a US citizen. Your parents would have to register your birth with the local US consulate.

If your parents didn't bother to do so, you would still be entitled to US citizenship for the rest of your life but you would never actually be a US citizen (assuming you didn't apply).
Good point.

(Speaking from personal experience, it's a fun morning out at the Embassy - registering the birth and applying for a SSN and passport for the littl'un was actually a relatively hassle-free process, but the US Embassy in London is not very baby-friendly inside.)
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  #40  
Old 04-16-2010, 10:42 AM
This_Just_In... This_Just_In... is offline
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Originally Posted by Desert Nomad View Post
Each person gets the 91K so if you earn 150K and your spouse earns 30K, you will be 59K over the limit.
Are you sure?

I looked this up and found this which would seem to contradict you.
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  #41  
Old 04-16-2010, 10:47 AM
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As another question - how the heck does the IRS know how much a person makes in a foreign country. It's not like a typical non-US employer sends out tax statements to every government in the world.

Other than it being on the 'honour' system, how could the IRS possibly know if a guy even had a job unless you tell them? Even if they decided to audit you, how do they obtain the documents from foreign employers/governments.
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  #42  
Old 04-16-2010, 11:04 AM
Duckster Duckster is online now
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Originally Posted by Steve MB View Post
How can that possibly be enforced? (e.g. "Taxes, shmaxes; I'm not going to be a citizen of a country that [launches wars of aggression|illegally elects a furrin-born President|covers up the truth about Area 51|whatever]....")
In this post-9/11 era it's dangerous to assume the US government won't make the effort. And it may come from far left field.
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  #43  
Old 04-16-2010, 11:33 AM
Really Not All That Bright Really Not All That Bright is offline
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Originally Posted by This_Just_In... View Post
Other than it being on the 'honour' system, how could the IRS possibly know if a guy even had a job unless you tell them? Even if they decided to audit you, how do they obtain the documents from foreign employers/governments.
In the case of countries with tax treaties, your income is reported to the IRS via the local revenue agency.
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  #44  
Old 04-16-2010, 12:24 PM
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Originally Posted by Really Not All That Bright View Post
In the case of countries with tax treaties, your income is reported to the IRS via the local revenue agency.
Is this typically done on a regular basis - or only in the case of audits where the IRS specifically requests the info. If it is done on a regular basis, how does the foreign country know which statements to divulge to the IRS?

I don't doubt you, but it seems unlawful for a country to divulge very personal details from your tax statements regarding one of its citizens (in the case of dual citizenship) to another country.
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  #45  
Old 04-16-2010, 12:55 PM
Really Not All That Bright Really Not All That Bright is offline
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Sure, and it would be if the person wasn't also a national of another country.
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  #46  
Old 04-16-2010, 03:41 PM
wmfellows wmfellows is offline
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Originally Posted by Really Not All That Bright View Post
Sure, and it would be if the person wasn't also a national of another country.
Regardless, I believe his legitimate observation was with respect to how proactive said reporting is.

I would think that there is a great deal of variability as in my experience national tax authorities relative to their international obligations are mostly reactive (we do it when you kick us - kicking being either from the rate payer or from another auditing authority). While doubtless there are cases of fairly automatic reporting relationships - I should not be surprised if that was the case of UK to USA - I would be very surprised if that is ordinary.
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  #47  
Old 04-17-2010, 07:19 AM
Hari Seldon Hari Seldon is offline
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I have skimmed this thread, so I might have missed it, but I didn't see any mention of the foreign tax credit. The income inclusion applies only to earned income and that explicitly does not include pensions (which is where nearly all my income comes from). But I calculate my Canadian taxes and then this becomes a credit that is taken directly off my calculated US taxes. Since Canadian taxes are always considerably higher, this means that any computed US taxes disappear.

For the first couple years, this was deducted before alternate tax was applied and I had to be very careful not to be subject to the alternate minimum, but one of the minor effects of one of Bush's tax cuts was to reverse the order of alternate minimum and foreign tax credit. Other payroll taxes are also exempt by tax treaty since Canada has its own social insurance taxes that I pay too. One year, the IRS asked me why I hadn't paid them and I merely circled the item in their own instruction book that said explicitly that residents of Canada are exempt and mailed it back to them. Utter waste of time and postage for both of us. As is the wole charade of my filling up a 1040 every year and their sending me all the forms and instructions.

I have a good friend who has not filed US tax returns in decades and, in practical terms they have no way to catch up with him. If you cease being a US citizen you are supposed to file for ten years, but they have no practical way to enforce that. Once upon a time, there was a question for non-residents on the passport application form asking if you had filed a tax return in the previous year, but that question has disappeared.

A word on the earned income exclusion. When I first became aware of it, around 1960, it was $80K. And they were recruiting young men to go to Greenland for 18 months for $120K, completely tax free (to build the DEW line or somesuch.. Since they also provided meals and living accommodations and there was nothing there to spend money on, then unless you got into gambling, you could walk away with $120K, probably the equivalent of 3/4 million at least today and have a nice nest egg to start life. In fact, managing with care you could have retired on it (assuming you could protect against inflation).
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  #48  
Old 04-17-2010, 08:25 PM
This_Just_In... This_Just_In... is offline
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Hari - thanks for the info. Sounds like you've experienced a lot of this firsthand.

How do you find the CPP compares to SS? Do you know how an inheritance windfall would affect a person? I was thinking that is one of the circumstances that might bump an average persons yearly income over the 91K. Would you still be typically okay since you'd get a credit for the Canadian taxes paid on the inheritance?

I'm a Canadian living in the US - and am contemplating becoming dual but would like to understand some more of the tax implications of this for if/when I move back to Canada.
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  #49  
Old 04-17-2010, 10:04 PM
Moonlitherial Moonlitherial is offline
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Except in Canada inheritance taxes are paid by the estate not the beneficiary so the estate would be taxed by Canada and you by the US.

Lotteries/casino wins would be unpleasant too since windfalls are not taxed in Canada.
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  #50  
Old 04-18-2010, 11:58 AM
This_Just_In... This_Just_In... is offline
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Originally Posted by Moonlitherial View Post
Except in Canada inheritance taxes are paid by the estate not the beneficiary so the estate would be taxed by Canada and you by the US.

Lotteries/casino wins would be unpleasant too since windfalls are not taxed in Canada.
Good info. As a related question, if an American is living in Canada and receives an inheritance from another American living in the US - then Canada wouldn't touch it - just the IRS?

I realized I'd be SOL with lottery winnings - but the odds are so far against ever winning (especially since I rarely play).
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